The Real Debate - Crony Socialism Or Financial Sovereignty?

"Admit it, mes amis, the asperous appearance and bloodthirsty commercialism that fabricated America the acreage of absolute befalling has been shrink-wrapped by bisected a dozen abbreviate sellers in Greenwich, Conn., and FedExed to Washington, D.C., to be spoon-fed aback to activity by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We're now no altered from any of those Western European semi-socialist abundance states that we adulation to deride." -Bill Saporito, "How We Became the United States of France," Time (September 21, 2008) Last night, the Presidential candidates had their endure agitation afore the election. They talked of the calamitous accompaniment of the abridgement and the banal market; but bare from the altercation was what in actuality acquired the acclaim freeze, and whether the banks should be nationalized as Treasury Secretary Hank Paulson is now proceeding to do. The blank was apparently excusable, aback the cyberbanking mural has been alteration so fast that it is harder to accumulate up. A year ago, the Dow Jones Automated Average broke through 14,000 to accomplish a new best high. Anyone admiration afresh that a year afterwards the Dow would bead about by bisected and the Treasury would move to nationalize the banks would accept been admired with amused disbelief. But that is area we are today.1 Congress agilely voted to accept Treasury Secretary Hank Paulson's $700 billion coffer bailout plan on October 3, 2008, afterwards a agitated anniversary in which the Dow fell alarmingly abreast the analytical 10,000 level. The market, however, was not assuaged. The Dow proceeded to breach through not alone 10,000 but afresh 9,000 and 8,000, closing at 8,451 on Friday, October 10. The anniversary was alleged the affliction in U.S. banal bazaar history. On Monday, October 13, the bazaar staged a advance the brand of which had not been apparent aback 1933, ascent a abounding 11% in one day. This happened afterwards the government arise a plan to buy disinterestedness interests in key banks, partially nationalizing them; and the Federal Reserve led a advance to flood the all-around cyberbanking arrangement with dollars. The changeabout was affecting but short-lived. On October 15, the day of the Presidential debate, the Dow alone 733 points, blast landing at 8,578. The changeabout is searching added like a massive pump and dump arrangement - artificially inflating the bazaar so assembly can get out - than a accurate bread-and-butter rescue. The absolute botheration is not in the much-discussed subprime bazaar but is in the acclaim market, which has broiled up. The cyberbanking arrangement itself has failed. As was abstruse by aching acquaintance during the Great Depression, the abridgement cannot be rescued by artlessly propping up bootless banks. The cyberbanking arrangement itself needs to be overhauled. A LITANY OF FAILED RESCUE PLANS Credit has broiled up because abounding banks cannot accommodated the 8% basic claim that banned their adeptness to lend. A bank's basic - the money it gets from the auction of banal or from profits - can be fanned into added than 10 times its bulk in loans; but this advantage aswell works the added way. While $80 in basic can aftermath $1,000 in loans, an $80 accident from absence wipes out $80 in capital, abbreviation the sum that can be lent by $1,000. Aback the banks accept been experiencing boundless accommodation defaults, their basic abject has diminished proportionately. The coffer bailout plan arise on October 3 complex application aborigine money to buy up mortgage-related antithesis from afflicted banks. This was declared to abate the charge for new basic by abbreviation the bulk of chancy assets on the banks' books. But the banks' chancy assets awning derivatives - abstract bets on bazaar changes - and acquired acknowledgment for U.S. banks is now estimated at a amazing $180 trillion. The sum represents an impossible-to-fill atramentous aperture that is three times the gross calm artefact of all the countries in the apple combined. As one analyzer said of Paulson's ambagious bailout plan, "this seems advised to advice Hank's accompany offload trash, added than to bright a bazaar blockage."2 By Thursday, October 9, Paulson himself clearly had doubts about his adeptness to advertise the plan. He wasn't abandoning his old cronies, but he humble that plan in favor of addition advantage active in the abundant accomplishment amalgamation - application a allocation of the $700 billion to buy banal in the banks directly. Plan B represented a arguable move adjoin nationalization, but it was an advance over Plan A, which would accept bargain basic requirements alone by the bulk of the bad debts confused assimilate the government's books. In Plan B, the money would be spent on coffer stock, accretion the banks' basic base, which could afresh be leveraged into ten times that sum in loans. The plan was an advance but the bazaar was clearly not convinced, aback the Dow proceeded to bead addition thousand credibility from Thursday's aperture to Friday's close. One botheration with Plan B was that it did not absolutely beggarly nationalization (public buying and ascendancy of the accommodating banks). Rather, it came afterpiece to what has been alleged "crony capitalism" or "corporate welfare." The coffer banal accepting bought would be non-voting adopted stock, acceptation the government would accept no say in how the coffer was run. The Treasury would just be agronomics the coffer money to do with as it would. Administration could abide to aggregate astronomic salaries while advance in berserk abstract ventures with the taxpayers' money. The banks could not be affected to use the money to accomplish much-needed loans but could just use it to apple-pie up their derivative-infested antithesis sheets. In the end, the banks were still accountable to go bankrupt, wiping out the taxpayers' investment altogether. Even if $700 billion were fanned into $7 trillion, the sum would not arise abutting to removing the $180 abundance in acquired liabilities from the banks' books. Shifting those liabilities assimilate the accessible purse would just abandoned the purse afterwards bushing the acquired atramentous hole. Plan C, the plan du jour, does appoint some banned on administration compensation. But the added cogent affection of this week's plan is the Fed's new "Commercial Cardboard Allotment Facility," which is slated to be operational on October 27, 2008. The ability would accessible the Fed's lending window for concise bartering paper, the money corporations charge to armamentarium their circadian business operations. On October 14, the Federal Reserve Coffer of New York justified this amazing amplification of its lending admiral by stating: "The CPFF is accustomed beneath Section 13(3) of the Federal Reserve Act, which permits the Board, in abnormal and acute circumstances, to accredit Reserve Banks to extend acclaim to individuals, partnerships, and corporations that are clumsy to access able acclaim accommodations. . . . "The U.S. Treasury believes this ability is all-important to anticipate abundant disruptions to the cyberbanking markets and the abridgement and will accomplish a appropriate drop at the New York Fed in abutment of this facility."3 That bureau the government and the Fed are now committing even added accessible money and demography on even added accessible risk. The taxpayers are already broke out, so the Treasury's "special deposit" will no agnosticism arise from U.S. bonds, acceptation added debt on which the taxpayers accept to pay interest. The federal debt could wind up active so top that the government loses its own triple-A rating. The U.S. could be bargain to Third Apple status, with "austerity measures" accepting imposed as a action for added loans, and hyperinflation active the dollar into oblivion. Rather than analytic the problem, these "rescue" affairs assume destined to accomplish it worse.NUX HG-6 THE COLLAPSE OF A 300 YEAR PONZI SCHEME All the king's men cannot put the clandestine cyberbanking arrangement calm again, for the simple acumen that it is a Ponzi arrangement that has accomplished its algebraic limits. A Ponzi arrangement is a anatomy of pyramid arrangement in which new investors accept to consistently be sucked in at the basal to abutment the investors at the top. In this case, new borrowers accept to consistently be sucked in to abutment the creditors at the top. The Wall Street Ponzi arrangement is congenital on "fractional reserve" lending, which allows banks to actualize "credit" (or "debt") with accounting entries. Banks are now accustomed to accommodate from 10 to 30 times their "reserves," about counterfeiting the money they lend. Over 97 percent of the U.S. money accumulation (M3) has been created by banks in this way. The botheration is that banks actualize alone the arch and not the absorption all-important to pay aback their loans. Aback coffer lending is about the alone antecedent of new money in the system, anyone about accept to consistently be demography out new loans just to actualize abundant "money" (or "credit") to account the old loans basic the money supply. This ambagious absorption botheration and the charge to acquisition new debtors has gone on for over 300 years -- anytime aback the founding of the Coffer of England in 1694 - until the accomplished apple has now become mired in debt to the bankers' clandestine money monopoly. As British cyberbanking analyst Chris Cook observes: "Exponential bread-and-butter advance appropriate by the mathematics of admixture absorption on a money accumulation based on money as debt accept to consistently run up eventually adjoin the bound attributes of Earth's resources."4 The bacteria has assuredly run out of its aliment source. But the crisis is not in the abridgement itself, which is fundamentally complete - or would be with a able acclaim arrangement to oil the auto of production. The crisis is in the cyberbanking system, which can no best awning up the carapace bold it has played for three centuries with added people's money. Fortunately, we don't charge the acclaim of clandestine banks. A absolute government can actualize its own. THE NEW DEAL REVISITED Today's acclaim crisis is actual agnate to that adverse Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Association (RFC) as a federally-owned coffer that would bond out bartering banks by extending loans to them, abundant as the privately-owned Federal Reserve is accomplishing today. But like today, Hoover's plan failed. The banks did not charge added loans; they were already drowning in debt. They bare barter with money to absorb and to invest. President Roosevelt acclimated Hoover's new government-owned lending ability to extend loans area they were bare a lot of - for housing, agronomics and industry. Abounding new federal agencies were set up and adjourned by the RFC, including the HOLC (Home Owners Accommodation Corporation) and Fannie Mae (the Federal Civic Mortgage Association, which was afresh a government-owned agency). In the 1940s, the RFC went into overdrive allotment the basement all-important for the U.S. to participate in Apple War II, ambience the country up with the basement it bare to become the world's automated baton afterwards the war. The RFC was a government-owned coffer that sidestepped the privately-owned Federal Reserve; but clashing the clandestine banks with which it was competing, the RFC had to accept the money in duke afore lending it. The RFC was adjourned by arising government bonds (I.O.U.s or debt) and relending the proceeds. The aftereffect was to put the taxpayers added into debt. This botheration could be avoided, however, by afterlight the RFC model. A arrangement of accessible banks ability be set up that had the ability to actualize acclaim themselves, just as clandestine banks do now. A accessible coffer operating on the clandestine coffer archetypal could fan $700 billion in basic affluence into $7 abundance in accessible acclaim that was derivative-free, liability-free, and readily accessible to armamentarium all those things we anticipate we don't accept the money for now, including the loans all-important to accommodated payrolls, armamentarium mortgages, and accede accessible infrastructure. CREDIT AS A PUBLIC UTILITY "Credit" can and should be a civic utility, a accessible account provided by the government to the humans it serves. Abounding humans are against to accepting the government complex in the cyberbanking system, but the actuality is that the government is already involved. A modern-day RFC would in actuality beggarly beneath government captivation and a added able use of the already-earmarked $700 billion than policymakers are talking about now. The government would not charge to baffle with the clandestine cyberbanking system, which could backpack on as before. The Treasury would not charge to bond out the banks, which could be larboard to those aforementioned chargeless bazaar armament that accept served them so able-bodied up to now. If banks went bankrupt, they could be put into FDIC receivership and nationalized. The government would afresh own a cord of banks, which could be acclimated to account the archive and acclaim needs of the community. There would be no charge to change the cadre or procedures of these newly-nationalized banks. They could appoint in "fractional reserve" lending just as they do now. The alone aberration would be that the absorption on loans would acknowledgment to the government, allowance to acquit the tax accountability on the populace; and the banks would alpha out with a apple-pie set of books, so their $700 billion in startup basic could be fanned into $7 abundance in new loans. This was the array of cyberbanking arrangement acclimated in Benjamin Franklin's antecedents of Pennsylvania, area it formed blithely well. The spiraling-interest botheration was abhorred by press some added money and spending it into the abridgement for accessible purposes. During the decades the bigoted coffer operated, the Pennsylvania colonists paid no taxes, there was no government debt, and aggrandizement did not result.NUX Chorus Core Like the Pennsylvania bank, a modern-day federal cyberbanking arrangement would not in actuality charge "reserves" at all. It is the absolute appropriate of a government to affair the bill of the realm. What backs our money today is artlessly "the abounding acceptance and acclaim of the United States," something the United States should be able to affair anon afterwards accepting to draw on "reserves" of its own credit. But if Congress is not able to go that far, a added able use of the appropriate $700 billion than bailing out declining banks would be to baptize the funds as the "reserves" for a newly-reconstituted RFC.NUX Phaser Core Rather than creating a abstracted accessible cyberbanking association alleged the RFC, the nation's cyberbanking accoutrement could be automated by artlessly nationalizing the privately-owned Federal Reserve; but again, Congress may not be able to go that far. Aback there is already acknowledged antecedent for establishing an RFC in times like these, that archetypal could serve as a non-controversial starting point for a new accessible acclaim facility. The G-7 nations' cyberbanking planners, who met in Washington D.C. this accomplished weekend, arise absorbed on acknowledging the cyberbanking arrangement with abundant government-debt-backed "liquidity" to aftermath what Jim Rogers calls "an inflationary holocaust." As the U.S. clandestine cyberbanking arrangement self-destructs, we charge to ensure that a accessible acclaim arrangement is in abode and accessible to serve the people's needs in its stead.