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Martin

I have commented in red below each number

From: Martin Carbone <martycarbone@yahoo.com>
To: John Gelles <indexed-savings@sbcglobal.net>
Cc: Marty Carbone <martycarbone@yahoo.com>
Sent: Wed, November 11, 2009 1:24:03 AM
Subject: Five random thoughts

Is there anything you disagree with in the writing below and the two links?

from <<file:///Users/martincarbone/Desktop/bugsbunny/fiverandomthoughts.html>>

Five random, but important, thoughts about money and banking

1) Money and Banking Myth #1 -- Banks make money by lending their own money and money they borrow from depositors and charging interest on those loans. In fact, banks make money by creating money and lending that money out at interest. There is virtually no limit to how much a bank can create It all depends on the bank finding worthy borrowers. See "money creation".

Banks must keep 10% of deposits in reserve in America, and their capital to deposits ratio must comply with rules. Yet in practice, credit worthy borrowers will be able to borrow all their real worth justifies.  In hard times this will not be enough to create jobs enough for recovery.


2) Money reformers are, for the most part, feckless -- I am growing suspicious of many people who call themselves money reformers. They seem to be more interested in
(a) keeping the public riled up than
(b) presenting reasonable, well-thought-out solutions to our banking and money systems.

It is astounding that the reformers do not simply suggest that we follow the Constitution and put the control of our money under Congress and the checks and balances that will naturally follow.

The reformers should also focus on the fact that the main problem obviously is that the Federal Reserve System, a private organization has no checks and balances that protect the interests of the federal government or the people of this country.

Money reformers like Ron Morrison http://www.ustaxreform.us/kwod.htm tell the truth and do everything right. Among the others, selling books and lectures is often their motive. But I think the great majority are up against habitual thought and vested interest. I believe government spending and lending new money directly with sellers and borrowers is necessary to sustain full employment and end poverty. The "market" will not do this because demand will be less than supply when hard money rules the day. The Fed is OK -- Congress can always change its structure and its rules. Congress is the major villain. It is elected to serve campaign contributors. This is the crooked crazy fly in the ointment.

3) The “creation of money out of nothing” through loans is often bemoaned by reformers, students and analysts. But the fact is that creating money out of nothing is wonderful -- As long as (1) each debt is backed by good collateral (assets or income) and (2) the lender suffers if the debt is not paid back. The system should be set up that way and it would undoubtedly work if it were followed. But The Federal Reserve has not set up a system that (a) makes sure all loans have good collateral and (b) the bank / lender suffers when loans go bad.

I believe the Congress and  today's Fed, in the aftermath of current crises, will comply with your requirement. BUT THAT WILL NOT BE ENOUGH: We will not have money enough for all our urgent needs unless government spends and lends money enough to buy all it will take to satisfy them. That will mean full employment of all people, machines, robots and the like. With no slack in the labor market, there will be no invisible hand to optimize operations. We will have to run the economy the way we run the army--with genius at the top and outstanding leadership from top to bottom. Correcting inevitable mistakes has to be our religion. I spent 1943 to 1946 in the Navy, 39 months in all. My shipmates were first class types. From top to bottom their was more competence than incompetence. The same has been true in civilian life. But Congress today has been bought by corporate wealth; and our desire to leave leadership to a mindless market has done us in.  Unless we introduce enormous amounts of wartime like spending and the financial and management tools of WW II -- improved to reflect 70 years of progress in science and technology -- we will be bested by Asian and European systems. And we may fall to pieces on account of legalistic nonsense and corruption replacing leadership and character where they are essential. Money reform to encourage wealth creation without the friction caused by debt, and plain brief language to reform the law, are vital programs to pursue. You and I are in this for many years. So are many others with talent and honest purpose. We will succeed if law and economics embrace science and technology to the same degree as has logistics and modern medicine.  We must have money reform to break the chains of debt -- campaign finance reform to reduce corruption -- legal reform to prevent the triumph of form over substance -- religious and political reform to end terrorism as a way of life -- economic reform to rebuild the industrial might of rich nations -- and reforming reform to get it all together before it's too late.

4)    The other big problem is that the Federal Reserve System charges the government interest on the money it lends to the government -- and this in the face of the Constitution’s mandate that Congress should control the money supply.

This is contrary to fact. The Fed is the government. Government owns the Fed. Government can use the Fed as its central bank to do what need be done. Mariner Eccles in WW II guided the Fed in its role as a money monopoly. Ron Paul wants an audit. He may get it. I'm against it--except as follows:

     The Fed is a weapon for defense of the United States. An audit for the eyes of our national security team OK.  A limited audit for the general public OK.  But care must be taken.  We have a lot to lose if we open the books to enemy eyes.

5)    The present money system is a disgrace. The public’s acceptance of the system is amazing. It is probably accepted because hardly anyone understands how it works. See our suggestions for an education program at our Silver Bullet Plan

The present system is a fatal malady. It is immoral and disgusting. It urgently needs radical reform: tons more government spending by federal and state governments; money based on wealth and not only on debt; everything else we've said and more. The task is monumental. We may fail due to events like global warming -- a risk we can avoid with zero cost if we see it as good reason to spend money we have to spare on the path to full employment. 

I'll copy all this to NFED (Network for Econ. Democracy) files. Thanks for initiating the thought process.  "Thought experiments" are in order until everyone is rich.


John

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