Hoisted from comments, this from reader barrisj. When I went to read the London Banker post in question, I too was struck by the passage barrisj singled out:
A remarkable document has been placed today on the “London Banker” blogsite, the testimony of Marriner Eccles to the Senate Finance Committee in early 1933. His testimony later was rewarded by President Roosevelt by bringing Eccles to Washington to help write or draft several seminal laws that essentially saved US capitalism from itself. In fact, “London Banker” highlighted this particular passage from Eccles’ testimony:
It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.
Where are people such as Marriner Eccles today?
I strongly recommend reading the post in full. Eccles gave a eloquent diagnosis of how the Depression became so severe and intractable, and a cogent, layperson friendly set of recommendations. I have yet to see any similar length discussion of our current crisis that is as clear and compelling.
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Yes, Eccles is describing debt deflation. Whether he has the causal relationship right, I doubt. That is, it seems more likely that the credit bubble led to the income disparity and loss of purchasing power and malinvestment that he describes, rather than that income disparity led to the credit bubble.
But whatever view you take of that, he is describing debt deflation. The problem surely is that simply writing off the debt is not risk free or consequence free either. When such large amounts of money and investments are lost outright, which is what it amounts to, there will be large losers and large winners, and while the quote about the rich will get enthusiastic assent here, its not clear that the only losers are the rich. On the contrary.
The problem surely is that simply writing off the debt is not risk free or consequence free either. LRT
Then let’s not write off the debt; let’s bailout the entire population equally, including savers. That way the debtors could pay off their debts and savers would not be disadvantaged.
As for the risk of price inflation (or deflation), that could be precluded by forbidding the banks from any further credit creation and metering the bailout checks to just replace existing credit as it was paid off.
yes .. reminds me of an interesting proposal for a kind of eurobonds, where money is to be created proportional to the population of each country. For each government to use when they decide it’s the right time, pay of government debts, then to pass on to the population, first to be used to pay of their debts, too. With so many debt payed off, banks would be forced to start lending again, too. Weird idea .. but maybe not as crazy as it sounds.
oh .. I found the paper with that weird but intriguing proposal for Euroland, Greece and all that http://www.interfluidity.com/v2/2160.html
Interesting paper. I’m glad to see the idea of a general bailout, including savers, is spreading. Thanks.
“Interesting paper. I’m glad to see the idea of a general bailout, including savers, is spreading. Thanks.”
Yes. But lets not forget post general bailout as you describe we should also reform the banking system so money is created by the government debt-free and private money creation is made illegal.
Also, we should not give the impression that a “general bailout is a gift to the population”. It would not be a gift it is simply justice done (giving their own money back to them) for this FRB bullshit banks have perpetrated on the people of the world for centuries.
Mansoor
we should also reform the banking system so money is created by the government debt-free mansoor h. khan
Absolutely! Government should never borrow money.
and private money creation is made illegal. mansoor h. khan
Without government privilege for the banks, such as a lender of last resort, their ability to leverage would be greatly limited. Still I would not lose any sleep if so-called “bank credit” was outlawed. However, I would not ban private money creation. I see private money creation as a fundamental economic right. The problem is that the banks have a government enforced monopoly on private money creation. Plus there are non-usury forms of private money such as common stock that “share” wealth and power rather than reap it.
Also, we should not give the impression that a “general bailout is a gift to the population”. It would not be a gift it is simply justice done (giving their own money back to them) for this FRB bullshit banks have perpetrated on the people of the world for centuries. mansoor h. khan
Totally agree. FRB has cheated everyone – borrowers, savers and the poor.
yeh but the the losers have already been bailed out and paid off. Anyone who would lose on reduction of mortgage debt or even unsecured consumer debt have all been assisted by the government massively. They have already won so forcing them to write down some debt would not make them into losers it would just put them back to even because they Tarp was supposed to pay off their toxic debt, at least that was the reason sold to the public. So there should be some write downs.
F. Beard, you can’t bailout the nation equally. That’s mathematically impossible.
All savings (fiscal*) is someone else’s debt. To wipe out debt is to wipe out savings. To increase savings is to increase debt. To encourage saving is to encourage debt. To say there is too much debt is to say there is too much saving.
Most importantly the act of ‘bailing out’ savers, is identical to reinforcing existing debt (e.g. denying the ability to default).
The only way to ‘bail out everyone equally’ is to do nothing… because bailing out everyone is the act of attempting to reach the state we are already in.
Next, F.Beard, I hate to shatter your world view, but it is also impossible to decrease debt without inconveniencing savers. Decreasing debt means decreasing savings. Savers don’t want their savings to decrease, in fact, they want the opposite (I’d know, I’m a saver).
Indeed, what savers want is high interest rates and savings that produce increasing ‘income’ every year. This requires that debts have high interest rates and that ‘rent’ increases every year.
Hence, any debt reduction requires that savers be inconvenienced.
—
(*Physical savings are a different beast because you can save physical things without creating debt. However, it is rare that anyone has saved significant physical wealth, and when they do most of it isn’t ‘real’ but instead another form of implicit fiscal savings [e.g. gold intended to be sold for favors in the future])
I hate to shatter your world view, but it is also impossible to decrease debt without inconveniencing savers. Xylix
I don’t see why not. If A has a $100 in savings and B owes a $100 in debt then if each is given $100 in new money then A now has $200 and B (once he pays off his debt with the $100) is debt free.
So how is A, the saver, inconvenienced by a general bailout?
A no longer has any leverage over B.
It is not the money but the power relation that must be maintained at all costs.
It is not the money but the power relation that must be maintain pebird
You jest but there is truth in what you say. Many savers fail to see that FR banking cheats borrowers too.
Xylix says:
“All savings (fiscal*) is someone else’s debt.”
Only in the current design of the system (most money originates when a loan is issued) you are correct. But it does NOT have to be this way.
Money is really equity. Because of government sponsored deposit insurance and implicit government bailout guarantee the potential claim represented by private bank issued money on real goods and services is everybody’s obligation (all citizens of state).
Money is equity and dependent on the economic performance of the state. It’s value must be regulated for it be useful by creating more of it (in times of deflation) and destroying some (in inflationary times).
All you have to do is make a “threat to discontinue deposit insurance” and you see that money is a social contract (a relationship).
Government sponsored deposit insurance and implicit government bailout guarantee of banks make money a “public property” and not “a private property”. The bankers use public property to generate income. And that is not only thing. Their game also cause recessions and depressions.
There is not need for us to live this way!
Mansoor
F. Beard, I’m not sure I fully understand exactly how a debt “jubilee” would wrk, but I think I would support it if it put this country back on solid economic footing.
However, I can’t help but harbor a little resentment to a generation of Wall Street financiers who had access to the institutional wealth of this country locked up among themselves, and recklessly used this wealth with high risk, leveraged gambling, to enrich themselves over an entire lifetime, while their fellow citizens economic well-being consistently eroded. In short, they used these funds to placed ill-advised bets, cook books, destroy the regulatory system, disassemble Main Street America, and create exotic worthless financial instruments, make war, and undermine the entire world economy.
And over their lifetime, they’ve used this ill-gotten wealth to buy mansions, wine and dine with Washington D.C power brokers and corrupt the political process, vacation at posh resorts around the world, buy private jets and yachts, decorate themselves in diamonds and precious jewels, send their children to the best schools, and join the most exclusive social clubs to further their own and their family’s future and live opulent lifestyles in general.
I know most of this wealth was created through a corporate business form and they enjoy the benefits of limited liability, therefore putting their own personal income streams created from this corruption out of reach in the event of complete financial collapse. But there is a legal doctrine called “piercing the corporate veil”. In short, in the event that the corporate operations, are in reality a front or a scam for illegal activity, the corporate owners loose this limited liability protection and aggrieved parties may proceed to “clawback” any losses incurred from such corporate owners.
I also feel, that as this crisis continues to unfold, the underlying asset values that make up the portfolio’s of Wall Street will fall dramatically, especially since the fed policy for inflating the markets has about ran it’s course. At the same time, the corresponding debt instruments are more in the line of a “fixed” obligation and their book value will not fall in correlation. Therefore, what we are going to see is a lot of highly leveraged hedge funds, with falling asset values, debt that is fixed, resulting in negative owner equity on their balance sheet. That will soon lead to insolvency.
And now, after all of this pain the general public has been saddled with, we offer to make them whole, with no strings attached. Well, I am not an economist or a Wall Street financial analyst and like I said, if there is no other way or practical choice for restoring our economy, I would support a “jubilee”. I could also forgive them for their own greed, selfishness, arrogance, and stupidity.
But I sure wouldn’t want them to just retire to the background, live off their ill-gotten gains, and begin making plans for fleecing America once again, once the crisis blows over(if the crisis blows over?)and order is restored.
But I sure wouldn’t want them to just retire to the background, live off their ill-gotten gains, and begin making plans for fleecing America once again, once the crisis blows over(if the crisis blows over?)and order is restored. avgJohn
A universal bailout should be combined with putting banks out of the so-called “credit creation” business at least until the bailout was completed and fundamental reform implemented. That fundamental reform would vastly reduce if not eliminate the banks’ ability to leverage. No longer would banks and borrowers be able to steal purchasing power from the general population.
The end result of a universal bailout plus reform would be a debt-free population, plenty of real legal tender in the hands of savers for lending and no further ability of the banks to steal purchasing power. And if the bailout was metered to just replace existing credit as it was paid off the the value of the currency should not change.
Moreover, with no government backing for the banks, it is likely that non-usury forms of private money such as common stock would be more widely used.
As for the rich, they would lose nothing in purchasing power even though relative wealth disparity would be greatly reduced.
“If A has a $100 in savings and B owes a $100 in debt then if each is given $100 in new money then A now has $200 and B (once he pays off his debt with the $100) is debt free”.
I am trying to work through this debt jubilee you suggest. I have a couple of questions for you.
First, lets change the example to A has $100.00 in savings and B has $20,000 in debt, which he/she used to buy a $20,000 yacht. Does B still receive only $100.00 to pay towards his/her debt on the yacht, and is the windfall tax free income. Otherwise, it seems to me, B will have received a $20,000 windfall as opposed to A’s $100 dollar windfall? That is B has a yacht free and clear and A receives $100 (big whoop).
Second. Assuming B receives only a $100.00 windfall, is he/she obligated to use his/her $100.00 windfall to pay on their $20,000 debt balance? If so, the IRS deems debt forgiveness as taxable income (the $100.00). So would this tax regulation be suspended? If on the other hand they received $20,000, they would have tax on the $20,000 windfall.
Can you clear this up for me?
The entire adult population, rich and poor, borrower, saver and neither, would receive equal bailout checks, tax-free. And please don’t call it a “debt-jubilee”. FR banking cheats everyone so a universal bailout is more just.
Ok, so B (the yacht owner still is faced with a $19,900 debt) and a yacht. So, assume the economy collapses, the market for yachts drops 50%, B becomes insolvent, and B then files for bankruptcy? Now, does the bank they borrowed the $20,000 from take possession of the yacht, now valued at $9950?
Now comes the crux of the matter. The bank experiences a loss, correct? Do they recognize this loss and is it absorbed by their capital (investing owners and bond holders), or does the government (taxpayer) then bail out the banks? Or does the government assume control of the banks and auction the yacht off for sale with the proceeds going to the treasury or paid to China? Do you see what my confusion is? It sort of seems like a bankruptcy sale for our foreign creditors.
Now, does the bank they borrowed the $20,000 from take possession of the yacht, now valued at $9950? avgJohn
Sure. Why not?
The bank experiences a loss, correct? Do they recognize this loss and is it absorbed by their capital (investing owners and bond holders), avgJohn
Yes and yes.
or does the government (taxpayer) then bail out the banks? avgJohn
No, why should it?
Or does the government assume control of the banks and auction the yacht off for sale with the proceeds going to the treasury or paid to China? avgJohn
No. Why should it?
Do you see what my confusion is? It sort of seems like a bankruptcy sale for our foreign creditors. avgJohn
Let me spell out the process to make it more clear.
Let’s say the “Plan” is to take effect on Jan 1, 2012:
1) Effective Jan 1, 2012 all further credit creation is forbidden. Also, every US adult is sent an equal check equal in total to the amount of credit paid off in December 2011.
2) On Feb 1, 2012, every US adult is sent an equal check equal in total to the amount of credit paid off in January 2012.
3) On March 1, 2012, every US adult citizen is sent an equal check equal in total to the amount of credit paid off in February 2012.
4) And so forth till all private credit was paid off.
Loans made after Jan 1, 2012 would be loans of existing money and would therefore not be counted as “credit”.
Since the bailout checks for a given month would total the amount of credit paid off the previous month then the size of the money supply (base money + credit) would not change.
Ok, I won’t clutter up the blog with anymore dumb questions after this.
As long as the bondholders and bank investors get wiped out for betting on these Wall Street banks, I’m all for it.
And I guess you are saying the government can continue to pay all of their debts (to existing treasury security holders, social security recipients, government and military personnel and contractors, and other obligation without the need to borrow it’s own money from the now insolvent banks.
Although I don’t understand what our foreign creditors are going to do about our trade deficits, I’ll take it on faith for now you have this worked out.
Thanks for your patience and my apologies to Yves and NC readers for taking up so much space with these questions. I’ll read your posts a little closer from now on and try to gain a deeper understanding that way.
Although I don’t understand what our foreign creditors are going to do about our trade deficits, avgJohn
Since the bailouts should strengthen US aggregate demand without weakening the dollar, foreigners should either not care or be glad that their export prospects to the US were improved.
and try to gain a deeper understanding that way. avgJohn
Thanks for the feedback.
Xylix — You are making a mistake in not distinguishing between government money creation and private (bank) money creation. The government can create money without debt, while the banks cannot. So a government bailout of borrowers and savers is “debt-free” money.
Seems like a good occasion for a recurring Citizens Dividend
http://en.wikipedia.org/wiki/Citizens_dividend
“not clear that the only losers are the rich”?!
Pray tell, what do the poor have “left to lose” , if matters have progressed already to he point that such measures are even under discussion?
And I note the physical assets backing those written-off values, where there are such (ie buildings, inventory, stockpiled raw materials), are not destroyed, but merely re-valued – and so made available for actual use, rather than just being mothballed, in the hope that some day their value will return.
Want to get residential real estate prices back up in the USA? Then simply burn the existing stock….no? Why not?
I’m being facetious, of course; but the reasons why that’s a bad way to maintain or increase values is imho “illuminating” of the underlying principles, perhaps, and may also illustrate why un- and under-employment is a truly rotten mechanism for adjusting an economy in the face of the pressures of increased productivity brought on by the processes of automation.
Re-value the houses – don’t burn them.
Re-distribute the income from automated production – don’t “burn” the employees.
“Pray tell, what do the poor have “left to lose” , if matters have progressed already to he point that such measures are even under discussion?”
The question is, when you have wholesale write-offs of debt, who are the winners and who are the losers? Its surely clear that we are not all equally indebted or equally in credit to the same extent? If you are, for instance, a member of some pension scheme, you are basically a creditor. If that scheme has directly or indirectly invested in Greek government bonds, in the great housing bubble, and the debts are written off, you have lost big.
It is not simply ‘the rich’ who stand to lose in debt jubilees. Its a huge number of working people, particularly the unionized working people, and this includes state sector unionized in the US (in Europe typically the state sector has unfunded pension liabilities so these schemes cannot be affected by debt writeoffs, though the general impoverishment of the countries will affect them indirectly).
Its not an argument against write-offs. If debts cannot be paid they will not be paid. The Greek bonds are toast, as much as the Imperial Russian bonds. But it is an argument for thinking hard against the precise hows and whats. The problem from a public policy point of view happens as soon as you have decided to do it. Think about the moral hazard issue for instance in a wholesale writeoff of bad mortgage debt. Do you really want to leave individuals in possession of real estate bought with a reckless indifference to how it was going to be paid for?
Similarly, on the Greek debt, the argument is that in some way those people and funds who hold it should simply lose most everything they hold, and that for them to require collateral in the form of national assets is wicked and exploitative? Well, do you really want to encourage fraudulent governments and their reckless bankers to do this again?
Prove to me that a leader can stand up and create the kind of ire against the banking community that occurred in the 1930s. No one has been able to do that.
Obama had that opportunity when he took office. He refused to take it.
http://www.nakedcapitalism.com/2010/03/the-empire-continues-to-strike-back-team-obama-propaganda-campaign-reaches-fever-pitch.html
That is so true but he is not a man of the people. He is a user of the the people or anyone as long it gets him moving toward his goals. He thought being president was like be class president in High school and it meant everyone would think you were cool.
Washington is bought off by the bank lobby which is reinforced by the fact that the number one goal of a politician from the day they are elected is to get re elected. Money is how you get elected and re elected today and the bankers and Wall street players have the money that sways elections.
Also how could he stand up to the banks when he has their former executives on his staff.
Obama has a one track mind, the subject of that track is Obama.
Next time around, I do think, politician cannot avoid going against the banks. And next time around may be closer than we think.
yes x10.
failing to develop a devoted “populist” constituency (as opposed to the mass of ageless teeny-boppers that worshipped him during the campaign),
centered initially on banks and banking problems, but subsequently extended to medical costs and then to war and attendant civil rights abuses
was was president obama’s central failure, a failure that doomed his presidency to piecemeal efforts to solve major national problems, indifferentlt supported by voters and which easily weakened or thwarted by right-wing obscurantism.
short version: strong, devoted popular support gives a president the 2×4 he needs to govern.
The financial sector recognized that we missed a glorious opportunity to have ire and revolution against them in 2009.
So, as good corporate citizens, they have organized a second chance for the the country (the world actually). It is currently only being advertised on Wall Street and in Europe, but soon should be coming to a 401k or financial institution near you.
Look for it – you will know when they have successfully organized this second chance when the value of your 401k is cut in half again. That will be a good time to act.
This is why we need to start treating money as a contract, not a commodity. Recently Yves ran an article on how no native societies use money as a medium of exchange. The reason is that it is not a notional commodity, but notational trust, which only becomes necessary when society becomes to large and heterogenous to support organic relationships.
Wealth has to be productively recycled on a constant basis. Storing it is like storing electricity. It can be done in small amounts, but at the societal level, has to be used as it’s generated. Otherwise we have enormous storm clouds of surplus wealth over a parched economy.
Someone is saying this. Read this book:
The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future.
free pdf at http://www.thelightsinthetunnel.com
It makes *EXACTLY* this point…and argues that information technology is the most important force driving income inequality, stagnating wages and weak consumer spending.
In the future, a basic, guaranteed income will be the only way to maintain sufficient consumption to drive the economy. Read the book!!
don’t they call that Social Security?
“Where are people such as Marriner Eccles today?”
I want to underline this important question.
My first approximation is that it has something to do with structural differences. The US in particular was a rising nation in the 1930s and its elite actually had something useful to do. Things could have been more humane, but at least the elite served some function.
Now the US is a decaying empire and our elite is more parasitic, zombie rent collectors. If there is a Marriner Eccles in the elite today, they write their name with three ideograms (in Chinese).
FDR, Eccles and Keynes did not save capitalism; they saved banker fascism. We can do better by abolishing that fascism.
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” Lord Acton
Banker facism? Really? Troll much?
Moses,
I have read many posts by F.Beard here. I do not think he(she) is a troll. Just someone with a consistent and coherent point of view who has little tolerance for the elites and their ways.
Seconded.
Moses?
Ever read Deuteronomy 23:19-20 which he wrote?
I’m a materialist, when it comes to some things.
I suspect that the physical and medical sciences, along with the productive processes and engineering (to say nothing about the communications ) of the 2010s are so qualitatively and quantitatively different from those of the 1930s, that any “solution” (good chemistry word!) then used to address their economic problems would not be directly applicable today.
Actually, I’m now curious as to which historical antecedents the people of the 1930s considered while formulating their responses to the crises of their times
– we look to the 1930s – did they look to the 1870s? or did they instead deal with the problems by using theories based and developed on and by observation?
Or did they use a “first-principles” analysis to arrive at their policies? If so, why aren’t we doing the same?
Why are we looking at the 1930s at all, when considering what course to adopt in dealing with these problems?
“I’m a materialist, when it comes to some things.”
Best line I’ve read all day.
Human nature does not change, but I would argue we’re not even in the same communication, social, etc paradigms as 1980. After all, the first Personal computers were early 1980s, the first real networking early 1990s. And genetic splicing, as well as climate issues really only started to emerge in the public mind the past 12 years. These are different economic systems from ag, forestry, mining, railraods that were still dominant in the 1930s.
Yes, I do agree with beard as usual. It is not really the banks but much more the bankers who loot the system. I do think they will soon have a very hard time.
Gruebel (UBS CEO) was just rejecting the idea of him stepping down only a few days ago. After the meeting with the Singapore Soveign Fund, suddenly he stepped down and of course, states now he was thinking about it over the past few days and he feels that this is the best way for the bank. I think, the Singaporeans really burned him hard (remember they are chinese by race) and told him to go in no uncertain terms.
Soon banksters will be hunted for their looting.
This is the scariest comment I have read in years. That we will put so much effort into resolving the deflation crisis, and only end up supporting the basic inequity at the heart of the crisis.
And what is the heart of the crisis? It is two basic decisions. One was to ignore the foreign trade deficits with OPEC and SEA/China (made during the Reagan era) and the other is the decision to privatize the foreign trade deficit (made by Clinton, remember?).
Foreign trade deficits must cause some sector of the economy to issue debt. Governments issuing debt have an opportunity to debate the issue and attain some form of redistributional mechanism among countries and taxpayers. Supporting the foreign trade deficit on the private sector leads to the kinds of bankster predation we have just witnessed.
What to do? Well, I believe that Keynes was more than a slave of the financial sector. His proposal to deal with foreign trade deficits (Bancor) is appealing, and certainly would have reminded the current crop of surplus countries that their wealth rests on their customers’ ability to buy what they sell.
Is anyone aware of a counterfactual study of post-war financial developments under a Bancor regime? (Of course, perhaps the Marshall plan was a version of a Bancor operation but one that was controllable by the US.)
The Bancor was to be backed by barter and its value expressed in weight of gold. from http://en.wikipedia.org/wiki/Bancor
My respect for Keynes just went down. Did he not say himself that gold was a “barbarous relic”?
There were two other key decisions made:
1. Deficits don’t matter if they are created by tax cuts (Reagan and Bush, Jr.)
2. The US can afford to engage in endless wars (Bush Jr.)
Both of these decisions have been critical to massive deficit increases without resulting in investment in anything that will help future growth.
Have I really lost it or no comment above has actually addressed:
“Eccles gave a eloquent diagnosis of how the Depression became so severe and intractable, and a cogent, layperson friendly set of recommendations. I have yet to see any similar length discussion of our current crisis that is as clear and compelling.”
Thought I had commented on that. He was right to think that what was happening was debt deflation. He was probably wrong to think that income disparities caused the credit bubble, the causation was the other way around, the credit bubble caused the income disparities. He was right to think there had to be liquidation or write off of debt. He was wrong to think, if he did, that the solution was redistribution.
Not that there is anything wrong with redistribution, its in fact the hallmark of a civilized society to engage in it. But that does not mean its the answer to debt deflation, it isn’t.
Another fine Eccles quote:
“Chairman of the Federal Reserve Board, Marriner Eccles testified before the House Banking and Currency Committee September 30, 1941. He was asked by Congressman Patman, “Mr. Eccles, how did you get the money to buy those two billions of government securities?” Eccles replied, “We created it.”
Patman asked, “out of what?” Eccles answered, “out of the right to issue credit-money.” Patman then asked, “And there is nothing behind it, is there, except our government’s credit?” Eccles responded, “That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.””
Clear, simple, and accurate – yet apparently un-believable and incredible – that is, to those who think: if and only if businesses (“job-creating taxpayers”) “feel good” about the Government’s balancing of its accounts, will those businesses hire employees.
An odd article of faith!
The thing to know about Patman is that he was just as well aware as Eccles where the money was coming from and was deliberately eliciting that testimony.
Texas doesn’t make politicians like Patman any more :(.
See his interview with Studs Terkel in Terkel’s “Hard Times”.
Didn’t know that. That’s interesting…
After checking out the Eccles testimony I found that the historical context can be pretty illuminating as to why his proposals were enacted into law so quickly and why serious proposals for financial reform noawadays seem to get nowhere.
Check the date on the committee hearing: late February, 1933.Roosevelt was just a few days away from inauguration (no 20th Amendment, remember) and the Senate was just about to switch from Republican to Democratic control.
Nearly half the states in the union had shut down or were shutting down their banks on the pretext of “bank holidays”(New York would do so on March 3rd, the day before FDR took office). More than a million people living mainly in rural areas were using locally-backed scrip in place of US currency. Newspaper records from that era contain a literally unending stream of strikes, riots, blockades of farm produce, hunger marches and lynchings–no MACE or tasers then, police or National Guards simply opened fire.
The result? The country’s political class finally got shit-scared enough to do something. That’s what it took.
“The country’s political class finally got shit-scared enough to do something. That’s what it took”
That’s how I see it too. And I don’t see the current elites, political or financial, being all that scared or even concerned about the little people rising up. They’ve had 100 years to perfect their mass psychology and propaganda games, and our country has become much more authoritarian which provides “protection” for the elites.
Phillip
Google up
“Money Facts – 169 Questions and Answers on Money – A Supplement to A Primer on Money”
This was printed by the GPO at Patman’s request as Chair of the Committee on Banking and Currency in 1964, a period during which Patman was really the most knowledgeable and reform-minded of all the members of Congress.
Said he:
“”“When our Federal Government, that has the exclusive power to create money, goes into the open market and borrows it and pays interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money… I am saying to you in all sincerity, and with all the earnestness that I possess, it is absolutely wrong for the Government to issue interest-bearing obligations. It is not only wrong: it is extravagant. It is not only extravagant, it is wasteful. It is absolutely unnecessary.””
Did somebody say “debt-ceiling”?
For the Money System Common.
Whenever I read old speeches by Roosevelt or Eisenhower, or discover forgotten giants like Eccles (and Patman too it seems) I feel like the Goths or the Avars must have when they climbed over a hill to find a whacking great aqueduct or some massive statuary or other. Monuments of unaging intellect. Unaging, but forgotten anyway.
“… as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit.”
I read this as “it’s the consumer stupid” but is it the consumer or is it a flawed system that duped the US and subsequently the world to take a dead end road to utopia, i.e. ?
From the original pose which is at the heart of Eccles thesis.
“The problem of production has been solved, and we need no further capital accumulation for the present, which could only be utilized in further increasing our productive facilities or extending further foreign credits.”
Has the problem or production been solved? Eccles is right that we do not need further increase of productive facilities but is wrong about production.
E.F. Schumacher tackles this assumption this assumption about production in his book “Small is Beautiful” published in 1973.
“One reason for overlooking this vital fact is that we are estranged from reality and inclined to treat as valueless everything that we have not made ourselves. Even the great Dr. Marx fell into this devastating error when he formulated the so-called labor theory of value’. Now we has indeed laboured to make some of the capital which today helps us produce–a large fund of scientific, technological, and other knowledge; an elaborate physical infrastructure; innumerable types of sophisticated capital equipment, etc–but all this is but a small part of the total capital we are using. Far larger is the capital provided by nature and not by man–and we do not even recognise it as such. This larger part is not being used up at an alarming rate, and that is why it is an absurd and suicidal error to believe, and act on the belief, that problem of production has been solved.”
What is need is a paradigm shift in economics that places goods over people and nature to one that places people and nature over goods.
An emphatic Yes! The nominal value of the CDO-CDS paper is 4X global GDP — which means it can never be repaid in a world of growing population and shrinking natural resources and the exhaustion of the biosphere’s capacity to absorb and recycle our (toxic) wastes.
Prof. Charles Hall has an excellent post on the subject:
The Link Between Peak Oil and Peak Debt (Part I)
http://ourfiniteworld.com/2011/07/11/the-link-between-peak-oil-and-peak-debt-part-1/
Damn straight.
America is a nation of purblind consumers unaware and uncaring that digging up and cutting up raw nature to make corporate products sold on TeeVee which all go to the landfill in short order — isn’t possible forever.
It isn’t possible for a world population of our size. Consumer Man is already killing the oceans, poisoning the atmosphere, overheating the planet and killing off tens of thousands of other species without pausing to burp. And we want to restart this “constant growth” consumer economy on a globalized scale?
Are we nuts? How do you do that with dead oceans? How do you grow crops when the weather alternates between floods and drought from season to season? Isn’t it clearly time to rethink “constant growth” as a viable way forward?
Nature doesn’t need to be included in our economy. Nature has its own economy, and we are included in that one. Thinking we are outside or above the laws of nature only leads to hard reminders that we aren’t.
The American Dream is to be really, really comfortable and entertained all our lives and damn the consequences. It’s really a very low and unworthy goal for a species with our talents. It is the same goal every pig has foremost in mind. It’s what rats live for.
The planet doesn’t need saving. We do. We’re drowning in our own toilet.
To avoid drowning this way I would recommend that we all switch to dry compost toilets.
Yves.
Thanks for this.
While technology and culture have greatly confuscated the issues today, the essence of the failure of capitalism that has grown around that culture remains the same.
As does the solution.
It is not corrct to say there are no modern parallels.
I cite one here often – to be ignored yet again.
In the FDR era there was the The Monetary Control Act of 1934, also known as the Chicago Plan for Monetary Reform, placed upon the legislative table by both Republicans and Democrats after its development by the most progressive of econoists at the time.
It died in Committee on the basis of the great Glass-Steagall and other more “regulatory” solutions that became the legacy of FDR’s banking reforms.
The result remains that we are HERE.
But the Chicago Plan and MCA of 1934 has been perfected today to engage both the technology and culture of modern capitalism through the same basic reforms to the money system.
These are spelled out clearly and thoroughly in Congressman Dennis Kucinich’s NEED Act of 2011, recently proferred by the Congressman.
http://kucinich.house.gov/UploadedFiles/NEED_Act_FINAL_112th.pdf
Kucinich has relied upon the years-long work of the American Monetary Institute in the design of this unprecedented, transitional reform to the money system.
Is it too much to ask of the financial intelligencia to have a read of proposed legislation when seeking a solution to the problem that has returned – the destruction of the national economy via the debt-based money system?
If so, let’s return to polemics and finger-pointing, which get us nowhere.
If not, let us consider the words again of Atlanta Fed Credit Manager Robert Hemphill.
“”This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.””
The problem is in the failed design of the architecture of the debt-based system of money.
And the solution, as in FDR’s day, is to end that system.
There is no need to have debt in order to have money.
Plain and simple as that.
For the Money System Common
Marriner Eccles’ words are as nostalgic as a Maxfield Parrish. They almost break your heart. But we no longer live in green valleys with white steeples pointing up to deep blue skies. All of it is gone. It is safe to say that capitalism itself is a quaint theory. Because the world where it pertained is gone.
I’m not ready to give up on capitalism quite yet — just capitalism in its current form based on free marketeer faith-based economics, which is nothing more than self-serving ideology dressed up in mathematical garb and posing as ‘science.’ It is, indeed, Naked Nonsense on Stilts.
Eccles’ emphasis on restoring purchasing power is a breath of fresh air from the past. But, after the past four decades of ‘supply side’ economics I fear the the minds of our not-so-benevolent overlords have been so colonized by purveyors of this nonsense they are incapable of leading us our of our current crisis.
Yes, there is little wiggle room between Eccles restoration of purchasing power, the MMT advancement of an aggregate-demand driven economy and the Kucinich Bill, which transforms the money system such that the fullest possible employment becomes not only achievable but the directive to the nation’s monetary operations.
And you’re also right about the corruption of our leradership which paralyzes normal political-economic progress away from these types of transformational measures.
But there’s one thing we definitely have going for achieving that monetary revolution – simply this.
When the debt-money system goes broke – and at present it is teetering on a combination of lies and creativity – an unending series of cascading cross-defaults in the banking system will bring the real economy to another screeching halt.
Where will they turn?
To more of the same?
Perhaps to the system that is proven to end the debt-saturation cycle that comes from debt-based exchange media.
“On the Workings of a Public Money System of Open Macro-Economics”, by Dr. Kaoru Yamaguchi –
http://www.old.monetary.org/yamaguchipaper.pdf
According to my Dad, the one thing that Marx was right about is that revolution is 90 percent opportunity.
Get the pen ready.
i may not be quite real, but i live in a green valley with a white steeple poking up into a deep blue sky, and many of my neighbors seem to consider this normal. when states resort to local scrip for currency and we are raising all our own food, we’ll manage okay here. in thousands of local communities around the u.s., people will, when they need it, have available the requisite knowledge and guidance to be able to feed, house, and clothe themselves and each other. thousands of people have been working and preparing for this eventuality for the past 40 years. plenty of people are paying attention to the approaching breakdown of the national system. the planning director in my town can state, of the top of his head, exactly how much animal protein we can raise on our surrounding farms for each man, woman, and child of us to have available to consume per day. the old society cannot be reconstituted, but our bodies continue to require that we eat plants (if not animals) to sustain life, so i don’t think we’ve yet figured out a way as a species to do without green valleys. (white steeples optional.)
previous comment is @ Susan the other, preceding.
Remind me again why the rich need to be saved and not eliminated.
thanks yves for this post.
readers may wish to note that the highlighted passage was not written by eccles but that he was quoting it from William Trufant Foster.
(for further info on foster, see my post in london banker’s comments in response to his request for a citation.)
Cheers, Yves!
If your readers enjoy the Marriner Eccles piece, they might also like the Irving Fisher piece from a couple years back:
Fisher’s Debt Deflation Theory of Great Depressions and a possible revision
More Eccles….
——————
http://www.wealthdaily.com/articles/weekend-parallels-the-great-depression/2589
“As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
That is what happened to us in the twenties.
——————
uuummmm….., Jim.
Once again, in the repeat of a historical failure to heed those words and do something about it, we are back HERE.
No?
And over the past two decades, too, I’d venture.
From the London Banker Post:
“During the period of the depression the creditor sections have acted on our system like a great suction pump, drawing a large portion of the available income and deposits in payment of interest, debts, insurance and dividends…”
I’ve been thinking a lot lately of that old grouch Ross Perot. He sure seemed to be right about the sucking sound…
And, as Sufferin’ Succotash notes above, one of the main reasons for action in the 30s was the fact that the “elites” had the stuffing scared out of them…Today, not so much. At least not yet, although the reaction of the cops in NYC would seem to show fear.
We have taken the consumer path twice with bad results and now want to repeat it for a third time. Looks like we are taking the path of what Albert Einstein called insanity: “doing the same thing over and over again and expecting different results.”
We have taken the consumer path twice with bad results and now want to repeat it for a third time. frobn
Agreed. Cheap consumer goods are a “mess of pottage” sold to the population as compensation for their stolen purchasing power. They are better than nothing but a far cry from true justice.
YS: “Where are people such as Marriner Eccles today?”
Diagnosis of current crisis: everything seems to be clear, if we combine Eccles with
– Foster & Magdoff on transition to financial capitalism,
– Hudson on rentier economy,
– Keen on sustaining aggregate demand with debt,
– MMT on “macroeconomic accounting”,
– YS, Stiglitz and Wray on financial industry and markets,
– and several analysis on inequality.
Recommendations: this is far more complicated, and several useful solution proposals were made.
Among them
– debt relief for indebted households,
– deficit spending by modernizing infrastructure,
– higher taxes for the rich,
– lower taxes for middle class and the poor,
– quantitative easing
– moderate inflation,
– negative interest rates,
– proposals to correct trade imbalances,
– helicopter drops of money,
– stronger regulation for financial institutions and markets.
Some of this recommendations are not reconcilable. A discussion process among US public intellectuals sharing the ‘Eccles analysis’ should be started to harmonize recommendations with respect to content and timing.
As for where the people are, there is an answer in the spirit of Eccles. The production capacity for such layperson friendly diagnosis and recommendations certainly exists today, but is dispersed in multiple minds. Someone should organize a joint effort, e.g. a book edited by YS with a carefully selected ‘dream team’ of contributors.
Well said. I too see a need for a confluence of these good ideas rather than an atomised landscape of competing diagnoses and prescriptions – too easy to divide and conquer, or simply ignore.
A Grand Unified Theory might not be possible but it seems to me counterproductive to have beavers for public credit unrelated in some way to the MMT barrow-pushers and the Tobin taxers, the tax haven abolitionists, the North Dakota state banking model proponents etc, all hoeing their own roads in perhaps a similar direction but not with the sort of co-ordination required to make the difference needed in the timeframe available.
As for the Marriner Eccleses of these times, you have listed a good many of them. They exist. The difference is that Eccles lived in an age when public excellence such as his could be recognised and rewarded with great public roles and responsibilities by enlightened political leadership. Or perhaps it was just that shit had met fan by that point and the desperation led to more radical action than would otherwise have been possible.
Nowadays, we have the sad sight of people like Stiglitz being passed over by Obama for people like Geithner and Bernanke and Summers. Roosevelt led his nation’s assault upon the guilty bankers, Obama protects the bankers so that they can continue to assault us. That’s progress.
Today is not the 1930’s!! We have an expert on the 1930’s at the FRB trying 1930’s solutions, note success. This is the 2000’s, let us not look back at what was done 70 years ago, let us find actions that fit the 2000’s
Introduced a few days ago.
http://kucinich.house.gov/UploadedFiles/NEED_Act_FINAL_112th.pdf
For the Money System Common
Or did you have something else in mind?
Thanks.
Reminds me of FDR’s words when he was nominated for the second time.
“I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.”
Sadly, we aren’t going to hear these words at the next Democratic convention.
Given the economic dynamics and the polled preferences of the electorate, 2012 would be an excellent time for a Democrat to run for president.