Category Archives: Federal Reserve

How Fascist Loot Funded US Anti-Communism

In Gold Warriors, by Sterling and Peggy Seagrave, the authors reveal one of the most shocking secrets of the 20th century. It is the story of the vast treasure Japan managed to loot across Asia, today worth billions or even trillions of dollars, the concealment of it in hundreds of sites, and the secret recovery of much of it by what would become America’s Central intelligence Agency. America helped Japan cover up this vast fortune, fooling the world into believing Japan was bankrupt after the war and was unable to pay reparations for their mass murder and material damage.

Most of Japan’s vast stolen fortune would remain in the hands of imperialist war criminals, and would for decades be used to prop up Japan’s corrupt one party democracy ruled by the Liberal Democratic Party, with the CIA and the Yakuza pulling the strings behind the scenes. It would be controlled by men like Allen Dulles and John J. McCloy through their Black Eagle Trust, which managed both Japanese and Nazi War loot. The Gold would be deposited in the Federal Reserve, the Bank of England, Union Banque Suisse (UBS) in Switzerland, Citibank, HSBC and other major banks who often stole it for themselves.  The gold was also used to manipulate the global economy, finance assassinations and covert ops, bribe politicians, and finance right wing political movements like the John Birch Society domestically.

Gold Warriors tells a compelling tale of secrecy, greed, treachery, murder and lies. The book offers a window into the vast and mysterious world of offshore banking and the Gold Cartel. The authors estimate that today, the ultra-rich are hoarding over 23 trillion dollars, mostly in offshore bank accounts. Meanwhile around the world, health and education are being cut, poverty and homelessness are on the rise, and the rest of us are constantly told to tighten our belts.

The Seagraves destroy the myth that America reformed Japan after the war, revealing the shocking story of the MacArthur occupation and its alliance with fascists along with Japan’s ruthless imperial family and their huge corporate backers like Mitsui, Mitsubishi, Kawasaki and Sumitomo. They used this loot to finance Japan’s postwar recovery and meteoric rise. Companies that have since become household names made their fortunes through looting Asia and employing slave labor, including that of American POWS. When the survivors tried to sue for reparations, State Department officials like Tom Foley with corrupt ties to these Japanese corporations compared these victims to terrorists.

The Seagraves begin their book with the brutal assassination of the Korean Queen Min on October 7 1895 by the imperialist Japanese. In Japan, like in America, big business, organized crime, and intelligence were strongly interrelated. The Japanese Empire, like all empires, were cynical liars and claimed that Queen Min had been murdered by Koreans. With the strong-willed Queen Min out of the way, her weak husband King Kojong quickly became a Japanese puppet and soon Korea was a Japanese colony, while China suffered a humiliating defeat at Japan’s hands when it tried to intervene.

Japan seized Taiwan and parts of Manchuria from China. Korea became Japanese property, and they began to loot the accumulated wealth of centuries, including gold silver and prized celadon porcelains. Japan employed an army of antiquarians to seize and catalog hundreds of ancient Korean manuscripts, sending them to Japan or burning them to destroy Korea’s cultural heritage.  The Japanese even resorted to grave robbery on a massive scale, targeting Korean Imperial tombs.

Japan targeted Taiwan, colonizing the island and setting up massive heroin laboratories. Taiwan would for decades become a center of the global drug trade. Japan launched a sneak attack on the Russian Empire in 1904 and Russia was forced to sign a humiliating peace deal giving Japan control of its possessions in Manchuria like the South Manchurian Railway it had built. To turn a quick profit, Japan set up a massive opium growing operation. They bribed warlords and began buying up Chinese industries and land. Manchuria became what the authors call the center of “carpetbaggers, spies, secret policemen, financial conspirators, fanatical gangsters, drug dealers and eccentric army officers.” The Mitsui and Mitsubishi Corporations ran everything, making a fortune from their cut of the illegal drug trade. Through a series of provocations involving the patriotic societies and Japanese intelligence, Japan was whipped into a war frenzy and more Chinese land was stolen. Japan unleashed an army of experts to steal as much art and priceless manuscripts as they could.

Around the same time Japan had been conquering Korea, America had conquered the Philippines while claiming they wanted to liberate it from Spain. With its usual cynical hypocrisy, once Spain surrendered, America crushed the Filipino independence movement with the brutal tactics it would later employ in Greece, Korea, Vietnam, Afghanistan, Iraq and a long list of other countries. Of course, it had been America itself which had forced Japan to end its long isolation setting into motion the chain of events that had led to Japan’s rapid modernization and imperialist adventures in the first place. When the Second World War began to go very badly by 1943, Japan was no longer able to ship its loot back to Japan, and so began to hide it all over the Philippines and Indonesia. Prisoners of war and the local Filipinos were forced to dig massive tunnels. These slave laborers were often massacred or buried alive to keep the tunnels secret. The Japanese often buried their loot near historical landmarks and hospitals because they were less likely to be bombed. They smuggled gold into the Philippines on phony hospital ships, since they would be less likely to be sunk by American submarines. They hid some of the gold by loading ships full of treasure and sinking them for later recovery, and huge underground chambers were filled with thousands of tons of gold.

The Americans managed to discover gold was being hidden during the war, thanks to one of their spies. There were at least 176 treasure sites in the Philippines. By the time the war ended, the Americans had found so much gold that if it became publicly known it would have destroyed the Bretton woods system which relied on gold being valued at 35 dollars an ounce. The Bretton Woods system was itself backed with the huge sums in Nazi gold the US had managed to seize and hide, the authors of Gold Warriors suggest.

Back in Washington, there was already a group dedicated to stealing and hiding Nazi gold: the Black Eagle Trust. With their massive off-the-books money, they would bribe politicians and finance coups, covert operations and psychological warfare. Soon, the Golden Lily loot was being managed by the same people. It was being moved across the world, being used to prop up banks around the world. UBS in Switzerland, HSBC in Hong Kong, the Bank of England, Chase Manhattan. Hidden in 42 countries between 1945-47, the gold was used to make huge loans to Britain, Egypt, and the Kuomintang in China. Politicians around the world were bribed with gold certificates. The intersection between Wall Street and intelligence involved vast sums completely unknown to the public. The notion that the CIA could ever be held in check once it had control of this vast fortune was a joke, and it perhaps led to events like the Kennedy assassination. A nearly 60-year cover-up after that event would not be surprising when one remembers that the entire mainstream American media was controlled by former Office of Strategic Services men, as discussed in Science of Coercion by Christopher Simpson. The CIA and Office of Policy Coordination controlled much of the media worldwide as part of Frank Wisner’s infamous Operation Mockingbird, putting out nonstop Cold War propaganda.

In Japan, criminal Yoshio Kodama made a deal to turn over $100 million to the CIA for his immunity (worth 1 billion dollars today). During the war, Kodama had managed to save 13 billion in gold, platinum, diamonds and other loot. America had not bombed Japanese industries, instead targeting workers’ homes. This was likely because American corporations were heavily invested in Japan, just as they were in Nazi Germany, where American-owned factories supplying the German war machine were spared during the war. In occupied West Germany, Denazification was a scam, and so too was the removal of imperialism in Japan. Trials targeting Japanese war criminals were fixed to prevent the Emperor’s role being known. The US set up a special fund to bribe witnesses. Kodama was put on the CIA payroll, and behind the scenes he created the misnamed Liberal Democratic Party headed by corrupt politicians. The Yatsuya fund was used to  control the Japanese underworld. The Keenan fund named after Joseph Keenan, the chief war crimes prosecutor, was used to bribe witnesses to protect the Emperor and his cronies.

The M-Fund was named after General William Frederic Marquat, who was in charge of restructuring the Japanese economy. Marquat was also entrusted to disband Japan’s infamous Unit 731 that ran bio-warfare research using prisoners as guinea pigs during the war, but instead of disbanding, they were recruited by the Pentagon and used to develop germ warfare against China and North Korea. The M-Fund was used to bribe politicians, and evolved into one of the most scandalous financial scams in history. Soon, it would corrupt American politicians as well. Nixon turned the M-Fund, which had been run by MacArthur’s cronies like General Marquat along with the CIA and the corrupt Liberal Democratic Party, over to the full control of Japan in exchange for illegal kickbacks funneled into the 1960 presidential Campaign he lost to Kennedy. Part of the deal was for Nixon to return Okinawa to Japan, which he later did once he finally got elected.

Golden Lily loot was funneled back to far right movements in the US, and would help finance Joseph McCarthy’s witch hunts. Another source of such wealth was the global drug trade, as the CIA would manage it in cooperation with the Chinese Kuomintang and Japanese and Korean organized crime. Together, these sources of wealth would be used to fund the World Anti-Communist League or WACL the global network of fascist drug dealers and terrorists loved by Ronald Reagan. In the final chapter of their book, the authors provide a brilliant summary of the politics of heroin, relying heavily on Doug Valentine’s classic The Strength of the Wolf. In Japan, McCarthyism took a much bloodier course with a massive assassination program combined with a COINTELPRO-style war on anyone who dared to dissent. Even American and British officials could be targeted for assassination if they threatened to expose MacArthur’s alliance with war criminals and gangsters. For assassinations that were even more sensitive, KOTOH was employed – an acronym formed from the names of five Japanese army officers who performed assassinations.

Much of Gold Warriors describes the hunt for treasure in the Philippines. The Japanese were the masters of this, quietly returning for decades to recover their loot. Future Philippines president Ferdinand Marcos learned of the gold by befriending Santa Romana and making deals with the Japanese to recover gold, becoming one of the richest men in the world through his discoveries. It was Marcos gold that paved the way for Nixon’s visit to China, with Marcos agreeing to deposit 72 billion in Gold in China’s Bank accounts. Marcos had long been used by the CIA to bribe Asian governments into supporting American policy, and in return they allowed him to get rich by selling his gold to Saudi princes or trading it for drugs from Asian or Latin American cartels. The golden Lily loot that led to his rise also led to his downfall, when he bargained too forcefully with the Reagan White House and the CIA who wanted him to use his fortune to back Reagan’s scheme to create Rainbow dollars. Marcos then became one of the first victims of a CIA color revolution. As CIA-backed NGOs flooded the streets with angry protestors, his American sponsors kidnapped him and airlifted his fortune out of the country.

Gold Warriors reveals that from the underworld to the military and intelligence agencies, to the corrupt politicians to the titans of finance we are ruled at every level by gangsters. After reading it, one may even wonder how much of the CIA’s gold is involved today in financing charlatans like Alex Jones and the rest of the US “patriot” movement, since their radio stations are heavily involved in selling gold and silver. It is a fantastic book that anyone with an interest in the CIA, drugs, or fascism should read, because it offers a window into the shadowy world of offshore banking, where around a trillion dollars is transferred around the world every day. It names some of the most powerful families in the world: the Krupps, the Rothschilds, the Oppenheimers, the Warburgs and the Rockefellers. All are tied to banking and the gold cartel, where fortunes are incalculable. In fact, the gold and diamond cartels are still looting the world today with the same greed and brutality as imperial Japan. In the Democratic Republic of the Congo alone, ten million people have been killed in a brutal war to loot the country of gold, diamonds, uranium, and rare earth elements. Furthermore, most of the world’s gold is hoarded today in the Swiss Alps, in secret bunkers and underground tunnels designed to survive a nuclear war. The hunt for the gold stolen by imperial Japan even resumed as recently as 2001, when George W. Bush sent navy seals on a secret mission to recover it.

The Underworld of Banksters

The financial industry is but one of many industries in the modern world. Besides whatever their stated purposes may be, every one of their modus operandi can be “unmasked” to reveal some degree and form of wrongdoing and harm done, as I did once in a very cursory way.1

One of those industries, the financial industry, is comprised of numerous sectors such as the insurance industry, for instance. I have written about how it along with its government ally are financially soaking the public.2 This present article burrows into another sector, what I call the industry’s “underworld of banksters.” A bankster is a bank or banker that relies on illegal or unethical wrongdoing in their financial dealings. The wrongdoing to be found in their underworld is monumental and incalculable in size and harm done.

Hijacking a Public Domain

Permit me to issue and control a nation’s money and I care not who makes the laws.

— Mayer Amschel Rothschild3

Mayer Amschel Rothschild was a German banker and the “founding father of international finance” that grew into the Rothschild banking dynasty that still exists today in full force, with ownership or control of banks in over 150 countries.4 In 2005 he was ranked seventh on the Forbes’ magazine list of “The Twenty Most Influential Businessmen of All Time.”5

Forbes, naturally, did not characterize him as a bankster of the financial underworld, but we can judge whether that is so just from the above quote. In its first clause he says he would like to privatize what should be in the public domain, namely, the exchange of money for goods and services, an exchange essential to any society’s existence. In its second clause he is saying exactly what would be expected of a bankster.

Bankrolling Wars

All wars are banksters’ wars!

The Rothschild banking dynasty has bankrolled “war operations for the past several centuries.”6  And they bankrolled both sides!7  And why not? Why would they care so long as they profited from the bloodshed? Mayer Rothschild’s wife reportedly quipped on her deathbed “If my sons did not want wars, there would be none.”8 Such was the power of her five sons sent by their father to establish banks in five countries. I don’t think there is any evidence to show that they did not want wars.

The banksters do not wait for wars to just happen, they help get them started and then bankroll them for munificent profits. For instance, President Woodrow Wilson promised to keep the U.S. out of WWI, but the Morgan Bank, then the most powerful bank, nudged him into declaring war and then promptly bankrolled over 75 percent of the financing for the allied forces.9  Behind US involvement in more recent wars was the banksters’ intention of enfolding all countries into a Western, private central banking powerhouse.10

Woodrow Wilson was hardly the only captive U.S. president. A knowledgeable insider once examined archives of U.S. presidents for over a century and discovered that banksters were “in constant communication with the White House — not just about financial and economic policy, and by extension trade policy, but also about aspects of World War I, or World War II, or the Cold War.”10 U.S. presidents obviously listen when the banksters come calling!

Besides its full war operations, declared or undeclared, the U.S. government officially approves millions of dollars to fund terrorist groups.11 It should come as no surprise, therefore, that the banksters unofficially milk the fund. Successfully suing them on behalf of families of U.S. military members slain by the funded terrorists seems to be an insurmountable hurdle, especially when the banksters being sued were a conduit to other banks that did the funding. But indirect funding should be irrelevant, as one of the lawyers who filed the lawsuit observed; “Does it matter whether a particular bank was the physical conduit of the transfers to the terror apparatus, or is it enough that they were in a conspiracy which made that possible, and that they were, as a legal matter, deliberately indifferent to that result?”12  Well, Mr. Lawyer, you are dealing with the banksters, whether first hand or second hand.

Banksters are also profiting from and preparing for the ultimate war, a nuclear blowout. PAX recently issued a report on its findings from January 2014 through October 2017 that showed “329 banks, insurance companies, pension funds and asset managers from 24 countries that invest significantly in the top 20 nuclear weapon producers.”13  If blowback gets the banksters nuked that would be poetic justice, but it is not something to wish for since the fallout would engulf everyone else as well.

Arranging Assassinations

Befitting Mafia hit men, banksters have been suspected of arranging the assassinations of several U.S. presidents, a member of Congress and a Justice, all of whom dared defy the banksters: Andrew Jackson (attempt failed), Zaccary Taylor, James Buchannan (survived arsenic poisoning), Abraham Lincoln, James Garfield, William McKinley, Louis T. McFadden (a member of the House of Representatives in the twenties and thirties), Justice Martin V. Mahoney, and John F. Kennedy.14

Banksters are cunning enough to arrange for perfect murders, ones that will never be solved in a court of law. Each of the assassinated had with their policy decisions angered the banksters, a strong enough reason to suspect their complicity in the murders. In each case the banksters undoubtedly had foils with their own grievances against their targets do the assassinating. This account obviously amounts to conspiracy theorizing, yet there may be some truth to it. For instance, one author claims in his book that “persuasive evidence suggested that Lincoln’s assassin, John Wilkes Booth, had been hired for the job by Judah Benjamin, Treasurer of the Confederacy. Judah Benjamin was a close associate of Benjamin Disraeli (1804-1881), British Prime Minister and an intimate of the London Rothschilds.15  As time rolls on and with more digging the theory may start looking more like reality.

Bankrupting America

When America Suffers, the Banksters Thrive

There have been three major economic calamities in America’s history. The first and third were geographically widespread in scope. The first is known as the Great Depression that occurred from 1929 to 1939. The third that started around 2008 and has never ended is generally referred to as The Second Great Depression, although I named it Economic Katrina after the second, a localized calamity, Hurricane Katrina, that devastated the New Orleans area in 2005.16 The banksters, of course, were behind all three of these calamities.

The Great Depression

Poor Americans were devastated by this economic meltdown. Unemployment soared. Home foreclosures soared. Homelessness soared. The suicide rate soared. Repossessions soared. I was a little boy in the second half of this meltdown and recall how my parents struggled to make ends meet. Since my father held onto his job, my mother’s job was given to someone without a job. Yet, as a lower middle-class family, we fared much better than did millions of Americans.

So too, needless to say, did the wealthy, and that included, of course, the banksters, not to be confused with the thousands of small bankers whose banks folded. The mysteriously poisoned Congressman Louis McFadden had contended shortly before his death that the Great Depression “was no accident. It was a carefully contrived occurrence. The international bankers sought to bring about a condition of despair, so they might emerge as rulers of us all.”17

Hurricane Katrina

Hurricane Katrina was reportedly the costliest natural disaster to hit America. To Naomi Klein, author of The Shock Doctrine, hurricane Katrina was an example of how commercial interests such as the banksters swoop down in an “orchestrated raid” to capitalize on new market opportunities.18 The banksters themselves obviously window dress their role in the disaster, as exemplified in this remark by a spokesperson for one of the bank members of the Federal Reserve Board, which is a citadel for the really big banksters; “resourceful banks have designed creative ways to resume business, incorporating “flexibility” and “customization” into their vocabulary, engaging in recovery area investment projects and forming alliances with community partners.”19  That quote is sheer PR. No bankster, of course, other than anyone like a Mayer Rothschild, would boast about turning any disasters to others into bonanzas for themselves.

The Second Great Depression

America has never recovered from this third calamity that in 2008 started sweeping away main street and keeping the banksters and Wall Street high and dry, for the most part through unconscionable and astronomical government bailouts. After doing extensive research on the matter, I have concluded that there is one single, pivotal event that triggered this economic calamity, and I see that at least one Wall Street insider agrees with me.20 That event was the repeal of the Glass-Steagall Act that had prevented banks from operating both regular commercial loans and investments. The banksters gradually were able through lobbying and arm twisting to puncture some loopholes into the law, and then in 1994 the Act was replaced by one that allowed a bank to do both forms of business. The new law led to the creation of megabanks, but because they got greedy and careless with their selling of securities they suffered a financial setback of their own making but still had enough influence to get bailed out by government. It was simply a quid pro deal. One dirty hand washes the other. Or Napoleon Bonaparte would have put it differently; “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes.”21

A Line Up of the Banksters

(a) Bank for International Settlement

Before doing the research for this article I had never heard of BIS. Now I know it is the most powerful private central bank in the world with the avowed aim of coordinating and controlling all monetary activities in the industrialized world and indebting it to the International Monetary Fund (a member of the Unholy Trinity to be discussed shortly). It was established in 1930 by bankers and diplomats of Europe and the United States to collect and disburse Germany’s World War I reparation payments. In WWII the BIS was used to launder money for the Nazis.22  As you can see, the BIS is not a wholesome bank to say the least.

(b) The Unholy Trinity

This well-deserved nickname refers to the International Monetary Fund (IMF), the World Bank (WB), and the World Trade Organization (WTO).23  They became the primary enabler of the globalization of the world’s money.

The trios’ purpose ostensibly from the beginning has been to reduce poverty and to develop the economies of Third World countries. In reality the aim of its work has been totally different, very “unholy.” Huge amounts of money masquerading as developmental loans and contingent on the currency devaluation and paring of the borrowing country’s social programs are siphoned off to huge, transnational corporations, many of which are U.S. firms, and the pockets of the governing and power elite of the country. The country goes further into debt and becomes even more vulnerable to being further exploited, including being subjected to sham debt relief programs.

No matter where on the globe the exploitation takes place there is a similar pattern of corporate/bankster behavior involved that includes such despicable, inhumane practices as relying on militaries and militias to purchase commodities made by forced labor; using armed groups to protect corporate assets; supplying arms to rebel and government forces; actually participating in military actions; engaging in smuggling, money laundering, and illegal currency transactions; and sweat-shop production of goods.24

(c) The Federal Reserve Board

The Fed is America’s banksters’ subordinate counterpart to the BIS and the Unholy Trinity.

A cabal of banksters got together in 1913 at the idyllic Jekyll Island resort off the coast of Georgia (where my family has stayed several times, not knowing we may have slept in banksters’ bedrooms). They coyly added the adjective “Federal” to disguise the intent, since twice before efforts to establish similar controlling banks had failed.17

As you may know, the Fed is made up of 12 branches around the country. All 12 and the headquarters are owned by 10 mega banks, four of which are headquartered in the U.S. As you might suspect, two of the owners are Rothschild banks, one in London and one in Berlin. About 100 very powerful individuals own those banks and thus also own the Fed. It is, therefore, no more a “Federal” agency of the government than is “Federal” Express. Being a private entity, one would expect the government would tax it. Not so, the Fed only pays property tax.17

Remember my including U. S. Congress Representative Louis T. McFadden as one of the likely victims of an arranged assassination? At the time he was Chairman of the Committee on Banking and Currency. Here is what he said that angered the banksters; “The Federal Reserve Board has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. Our people’s money, to the tune of $1,200,000,000, has within the last few months been shipped abroad to redeem Federal Reserve Notes and to pay other gambling debts of the traitorous Federal Reserve Board and the Federal Reserve Banks.”17  Today’s Fed is no less of an abominable bankster.

(d) Mega Banksters at Home

These mega banksters in the U.S. have assets totaling trillions of dollars. They didn’t get these assets through socially responsible investments to help the common good. They got them through bankrolling wars, through bankrupting the U.S. economy with fraudulent subprime securities that plummeted the U.S. into its Second Great Depression, and through all sorts of other ways to fleece the public out of its money. Put simply, these mega banksters are criminals on the loose throughout the country.

The Medium

Bad Capitalism

People, banksters included, do not depend only on themselves to go from birth to death. They must also depend on the circumstances and situations they encounter and sometimes help create. These circumstances and situations are the medium of life.  Bad capitalism is the banksters’ medium. Without it there would be no underworld of banksters.

Adam Smith, the putative “father of capitalism,” was a moral philosopher. He understood the importance of morality and the difference between good and bad capitalism and thought the emerging corporations of his time posed threats emanating from their unlimited life span; unlimited size; unlimited power; and unlimited license.25  How prescient he was!

I have written copiously about good and bad capitalism and have presented a plethora of my own as well as others’ proposals to turn bad capitalism into good capitalism.26 They have all come to naught. The banksters would guffaw if they read my work.

Public Banking to the Rescue?

Since the banksters made America’s public money private it stands to reason that a straightforward solution to ridding America of the banksters or at least curtailing them would be to establish a network of public banks throughout America. That is precisely what Ellen Brown, President and Chair of the Public Banking Institute is trying to accomplish. Through her stature and persuasive skills, she managed to get published in the OpEd section of the establishment paper, New York Times, no less, a piece promoting public banking.27 Her efforts are quite commendable and worth following.

Two additional strategies I should think would be to abolish the Fed and replace it with a truly Federal Reserve of Public Banks, and to prosecute and jail banksters instead of looking the other way or giving them token fines. Doing all this would take a herculean political effort, and I don’t expect it will ever happen.

Conclusion

A two-sentence conclusion ought to be enough. One, the banksters control most of the world’s money and will stop nothing short of fueling wars and creating economic havoc to keep growing their money and control. Two, commercializing peace or commercializing war — never the first, daily routine the second.

Acknowledgments

Wrongdoing is like mushrooms, thriving in the dark. The Fed shrouds itself in secrecy. In 2012, the Fed attempted to rebuff a Freedom of Information Lawsuit by Bloomberg News claiming that as a private banking corporation and not actually a part of the government, the Freedom of Information Act did not apply to the “trade secret” operations of the Fed.17

It is basically through the alternative media that we learn about the Fed’s secret dealings and its adverse impact on society at large. It was an article from the alternative media, for example, that told us the Fed is ruining our economic future because it caters to itself and the rest of the banksters.28  People drawn to the alternative media should rightly be fed up with the Fed.

As the author of this article who relied so heavily on one individual’s trailblazing efforts to dig up the facts that the government withholds, I must acknowledge Michael Rivero, who dominates my list of footnotes. He is my Internet friend of yesteryear. Without his efforts I could not have written this article. It was his quote, “Behind all wars are bankers” that I cited in one of my books. It was only after rereading one of my book reviews about corporate gangs, which ironically had little to say about banking, that I conceived the opprobrious “banksters.”29

  1. Brumback, GB. “Corporate America Unmasked“, The Greanville Post, January 3; OpEdNews, January 4; Dissident Voice, January 4; Uncommon Thought Journal, January 7, 2018
  2. Brumback, GB. Soaking the Public: The Insurance Industry and Captive Government, OpEdNews, July 11; Dissident Voice, July 12; 2016.
  3. Lendman, S. Banker Occupation: Waging Financial War on Humanity, Clarity Press, Inc., 2012.
  4. See: Complete List of BANKS Owned or Controlled by the Rothschild Family.
  5. Noer, M. “The Twenty Most Influential Businessmen of All Time”, Forbes, July 29, 2005.
  6. Dmitry, B. “Rothschild Wealth Is Now Greater Than 75% Of World Population Combined,” January 21, 2017.
  7. USWGO. The Rothschild Dynasty Funded Both Sides of Every War, USWGO, March 14, 2011.
  8. Collier, A. “Perspective on the World”, March 7, 2014.
  9. Washington Blog. “Bankers are Behind the Wars“, April 18, 2014.
  10. Ibid.
  11. Khabieh, B. “Obama Approves $800m Funding for Terrorist Groups in Syria and Ukraine”, Reuters, November 28, 2015.
  12. Profess, B. & Clifford, S. “Suit Accuses Banks of Role in Financing Terror Attacks”, The New York Times, November 10, 2014.
  13. Beenes, M. & Snyder, S. “Don’t Bank on the Bomb, A Global Report on the Financing of Nuclear Weapons Producers”, PAX, March, 2018.
  14. Rivero, M. “All Wars are Bankers’ Wars“.  See also, pik_artist, “Judge Poisoned After Ruling Bank Forclosure Is Illegal and All Mortgages Are Null and Void, Hub Pages, January 17, 2018.
  15. Engdahl, WF. Gods of Money: Wall Street and the Death of the American Century, 2009.
  16. Brumback, GB. The Devil’s Marriage: Break Up the Corpocracy or Leave Democracy in the Lurch, 2011, pp. 151-152.
  17. Rivero, Op. Cit.
  18. Klein, N. The Shock Doctrine: The Rise of Disaster Capitalism. 2007.
  19. Owens, D. “After the Storm: Banks Respond to Katrina’s Punch”, Federal Reserve Bank of St. Louis, Spring, 2006.
  20. Rickards, J. “Repeal of Glass-Steagall Caused the Financial Crisis”, U.S. News and World Report, August. 27, 2012.
  21. Rivero, OpCit.
  22. Epstein, E.J. “Ruling the World of Money”, Harper’s Magazine, 1983.
  23. Peet, R. Unholy Trinity: The IMF, World Bank and WTO, 2009 (Second Edition).
  24. For more on the Unholy Trinity and the globalization of the world’s economy see John Perkins’ riveting book, Confessions of an Economic Hit Man, 2004, and my review of it in Personnel Psychology, Vol. 59, No. 2-Summer, 2006, Book Review Section, pp. 489-493.
  25. Smith, A. The Wealth of Nations, 1776.
  26. See Brumback, Op. Cit. 2011; and also, Brumback, GB. Corporate Reckoning Ahead, 2015.
  27. Brown, E. “Public Banks Are Essential to Capitalism”, NYTimes Op Ed, October 2, 2013.
  28. Parramore. LS. “How the Federal Reserve is Destroying Your Economic Future”, Alternet, April 16, 2015.
  29. Nace, T. Gangs of America: The Rise of Corporate Power and the Disabling of Democracy, 2003. I reviewed this book in the 2004 Fall Issue of the Book Review Section of Personnel Psychology, pp. 780-783.

Fox in the Hen House: Why Interest Rates Are Rising

The Fed is aggressively raising interest rates, although inflation is contained, private debt is already at 150% of GDP, and rising variable rates could push borrowers into insolvency. So what is driving the Fed’s push to “tighten”?

On March 31st the Federal Reserve raised its benchmark interest rate for the sixth time in 3 years and signaled its intention to raise rates twice more in 2018, aiming for a fed funds target of 3.5% by 2020. LIBOR (the London Interbank Offered Rate) has risen even faster than the fed funds rate, up to 2.3% from just 0.3% 2-1/2 years ago. LIBOR is set in London by private agreement of the biggest banks, and the interest on $3.5 trillion globally is linked to it, including $1.2 trillion in consumer mortgages.

Alarmed commentators warn that global debt levels have reached $233 trillion, more than three times global GDP; and that much of that debt is at variable rates pegged either to the Fed’s interbank lending rate or to LIBOR. Raising rates further could push governments, businesses and homeowners over the edge. In its Global Financial Stability report in April 2017, the International Monetary Fund warned that projected interest rises could throw 22% of US corporations into default.

Then there is the US federal debt, which has more than doubled since the 2008 financial crisis, shooting up from $9.4 trillion in mid-2008 to over $21 trillion in April 2018. Adding to that debt burden, the Fed has announced that it will be dumping its government bonds acquired through quantitative easing at the rate of $600 billion annually. It will sell $2.7 trillion in federal securities at the rate of $50 billion monthly beginning in October. Along with a government budget deficit of $1.2 trillion, that’s nearly $2 trillion in new government debt that will need financing annually.

If the Fed follows through with its plans, projections are that by 2027, US taxpayers will owe $1 trillion annually just in interest on the federal debt. That is enough to fund President Trump’s original trillion dollar infrastructure plan every year. And it is a direct transfer of wealth from the middle class to the wealthy investors holding most of the bonds. Where will this money come from? Even crippling taxes, wholesale privatization of public assets, and elimination of social services will not cover the bill.

With so much at stake, why is the Fed increasing interest rates and adding to government debt levels? Its proffered justifications don’t pass the smell test.

“Faith-Based” Monetary Policy

In setting interest rates, the Fed relies on a policy tool called the “Phillips curve,” which allegedly shows that as the economy nears full employment, prices rise. The presumption is that workers with good job prospects will demand higher wages, driving prices up. But the Phillips curve has proven virtually useless in predicting inflation, according to the Fed’s own data. Former Fed Chairman Janet Yellen has admitted that the data fails to support the thesis, and so has Fed Governor Lael Brainard. Minneapolis Fed President Neel Kashkari calls the continued reliance on the Phillips curve “faith-based” monetary policy. But the Federal Open Market Committee (FOMC), which sets monetary policy, is undeterred.

“Full employment” is considered to be 4.7% unemployment. When unemployment drops below that, alarm bells sound and the Fed marches into action. The official unemployment figure ignores the great mass of discouraged unemployed who are no longer looking for work, and it includes people working part-time or well below capacity. But the Fed follows models and numbers, and as of April 2018, the official unemployment rate had dropped to 4.3%. Based on its Phillips curve projections, the FOMC is therefore taking steps to aggressively tighten the money supply.

The notion that shrinking the money supply will prevent inflation is based on another controversial model, the monetarist dictum that “inflation is always and everywhere a monetary phenomenon”: inflation is always caused by “too much money chasing too few goods.” That can happen, and it is called “demand-pull” inflation. But much more common historically is “cost-push” inflation: prices go up because producers’ costs go up. And a major producer cost is the cost of borrowing money. Merchants and manufacturers must borrow in order to pay wages before their products are sold, to build factories, buy equipment and expand. Rather than lowering price inflation, the predictable result of increased interest rates will be to drive consumer prices up, slowing markets and increasing unemployment – another Great Recession. Increasing interest rates is supposed to cool an “overheated” economy by slowing loan growth, but lending is not growing today. Economist Steve Keen has shown that at about 150% private debt to GDP, countries and their populations do not take on more debt. Rather, they pay down their debts, contracting the money supply; and that is where we are now.

The Fed’s reliance on the Phillips curve does not withstand scrutiny. But rather than abandoning the model, the Fed cites “transitory factors” to explain away inconsistencies in the data. In a December 2017 article in The Hill, Tate Lacey observed that the Fed has been using this excuse ever since 2012, citing one “transitory factor” after another, from temporary movements in oil prices, to declining import prices and dollar strength, to falling energy prices, to changes in wireless plans and prescription drugs. The excuse is wearing thin.

The Fed also claims that the effects of its monetary policies lag behind the reported data, making the current rate hikes necessary to prevent problems in the future. But as Lacey observes, GDP is not a lagging indicator, and it shows that the Fed’s policy is failing. Over the last two years, leading up to and continuing through the Fed’s tightening cycle, nominal GDP growth averaged just over 3%; while in the two prior years, nominal GDP grew at more than 4%. Thus “the most reliable indicator of the stance of monetary policy, nominal GDP, is already showing the contractionary impact of the Fed’s policy decisions,” says Lacey, “signaling that its plan will result in further monetary tightening, or worse, even recession.”

Follow the Money

If the Phillips curve, the inflation rate and loan growth don’t explain the push for higher interest rates, what does? The answer was suggested in an April 12th Bloomberg article by Yalman Onaran, titled “Surging LIBOR, Once a Red Flag, Is Now a Cash Machine for Banks.”  He wrote:

The largest U.S. lenders could each make at least $1 billion in additional pretax profit in 2018 from a jump in the London interbank offered rate for dollars, based on data disclosed by the companies. That’s because customers who take out loans are forced to pay more as Libor rises while the banks’ own cost of credit has mostly held steady.

During the 2008 crisis, high LIBOR rates meant capital markets were frozen, since the banks’ borrowing rates were too high for them to turn a profit. But US banks are not dependent on the short-term overseas markets the way they were a decade ago. They are funding much of their operations through deposits, and the average rate paid by the largest US banks on their deposits climbed only about 0.1% last year, despite a 0.75% rise in the fed funds rate. Most banks don’t reveal how much of their lending is at variable rates or is indexed to LIBOR, but Oneran comments:

JPMorgan Chase & Co., the biggest U.S. bank, said in its 2017 annual report that $122 billion of wholesale loans were at variable rates. Assuming those were all indexed to Libor, the 1.19 percentage-point increase in the rate in the past year would mean $1.45 billion in additional income.

Raising the fed funds rate can be the same sort of cash cow for US banks. According to a December 2016 Wall Street Journal article titled “Banks’ Interest-Rate Dreams Coming True”:

While struggling with ultralow interest rates, major banks have also been publishing regular updates on how well they would do if interest rates suddenly surged upward. . . . Bank of America . . . says a 1-percentage-point rise in short-term rates would add $3.29 billion. . . . [A] back-of-the-envelope calculation suggests an incremental $2.9 billion of extra pretax income in 2017, or 11.5% of the bank’s expected 2016 pretax profit . . . .

As observed in an April 12 article on Seeking Alpha:

About half of mortgages are . . . adjusting rate mortgages [ARMs] with trigger points that allow for automatic rate increases, often at much more than the official rate rise. . . .

One can see why the financial sector is keen for rate rises as they have mined the economy with exploding rate loans and need the consumer to get caught in the minefield.

Even a modest rise in interest rates will send large flows of money to the banking sector. This will be cost-push inflationary as finance is a part of almost everything we do, and the cost of business and living will rise because of it for no gain.

Cost-push inflation will drive up the Consumer Price Index, ostensibly justifying further increases in the interest rate, in a self-fulfilling prophecy in which the FOMC will say, “We tried – we just couldn’t keep up with the CPI.”

A Closer Look at the FOMC

The FOMC is composed of the Federal Reserve’s seven-member Board of Governors, the president of the New York Fed, and four presidents from the other 11 Federal Reserve Banks on a rotating basis. All 12 Federal Reserve Banks are corporations, the stock of which is 100% owned by the banks in their districts; and New York is the district of Wall Street. The Board of Governors currently has four vacancies, leaving the member banks in majority control of the FOMC. Wall Street calls the shots; and Wall Street stands to make a bundle off rising interest rates.

The Federal Reserve calls itself “independent,” but it is independent only of government. It marches to the drums of the banks that are its private owners. To prevent another Great Recession or Great Depression, Congress needs to amend the Federal Reserve Act, nationalize the Fed, and turn it into a public utility, one that is responsive to the needs of the public and the economy.

• This article was originally published at Truthdig.com.

Trump’s Trade War: Or De-Globalization?

President Trump’s bold ‘protectionist’ move of introducing import duties of 25% and 10% for steel and aluminum, respectively – and possibly more to come – may be more than just ‘populism’ and fulfilling a campaign promise. And why is the term ‘populism’ always used with a derogative slant? As if it was way below the intellect of those who deride it as addressing the thoughtless and primitive behavior by the people? Aren’t politicians supposed to work for the people? Educate them with the truth instead of ridiculing them; giving them real news instead of ‘fake news’ – and giving them jobs and decent livelihood? Is that addressing “populism”?

President Trump, or whoever directs him, may have noticed the steady decline of the American economy into a hollow war and service machine, with rising unemployment at the tune of more than 20% (though the fake statistics pretend otherwise, putting it below 5%); a country gradually choking on junk consumption, anti-Russia propaganda and a rapidly deteriorating physical infrastructure and civil society.

This unexpected protectionist decision may also be a genuine move against globalization – which, as we know, is controlled by neoliberal economics and has, in fact, nothing to do with real economics. It is sheer criminalizing of economics. It has done enormous harm to the 99.9 % and benefitted only the 0.1% (or less). “Make America Great Again” is supposed to address this fallacy. Bring production and jobs back, primarily for the domestic market and second only, for international trade, for trade that doesn’t harm the local economy. This is a recipe which would also suit many European countries – Greece is a case in point, but Spain, Italy, Ireland and even France would fall into the same category. “Local production for local markets” is indeed the model that helped rescue the US from the depression of the 30’s and Europe, in particular Germany, after WWII.

The so-called Free Trade Agreements (FTA) and multi country Trade Agreements like, NAFTA, TTIP, and TPP – the former being renegotiated and the latter two suspended – are quite different from “local production for local markets”. They all, without fault, favor US corporations’ maximizing profit objective, but not the United States local economy. Insofar Trump is right, when he says that all these trade deals have been bad for his country. They were and are a bonanza for US corporations, but indeed bad for the US national economy, because they are incentives for more and more outsourcing of production and services into low labor cost countries.

By granting corporations tax breaks and incentives to invest at home rather than in low-wage countries, and by levying import duties, President Trump is taking a decisive step – maybe willy-nilly – to rehabilitate a faltering US economy. Will it work? It might. It’s too early to say. Economy is no precise science, but rather the result of the dynamic interaction between different, at times unpredictable, elements. True economics are certainly not based on a set of blueprints; they are not black and white, as neoliberal theories would like us to believe. Real economics do not fit today’s most popular teachings of ‘modelling’ – a complex linear approach of algorithm which produces desired results for propagating neoliberal ideas – that depart from reality by a long shot. The fact of reestablishing trust in local labor may have power way beyond that of capital investments.

Trump capitalizes on this momentum and, simultaneously, may set a signal for the rest of the world to follow – and for the end of globalization. Interestingly, he said at the World Economic Forum (WEF) in Davos in January this year, that all the American partner countries should think, “Make my country great again”. Isn’t this a slap in the face of globalization?

Of course, there will be noises of ‘retaliation’ by Europe, China, Japan – so what?  Steps of retaliation may actually trigger a political rethinking of globalized WTO propagated trade. It may reveal who are the winners and losers. It may have taken 30 years to realize that the winners are an ever-smaller corporate elite, while the bedrock of national economies, local labor, is the big loser. That is precisely the direction into which the neofascist West is moving – towards selling the national economy out to corporate profits. The people are understandably unhappy.

Today’s economists are in shock whenever somebody dares to question the mainstream globalized economic models, depicting a linear right or wrong vision of the world. Remember George Bush – “you are either for us or against us”; the phrase that set the eternal war on terror in motion; the war that brought death to millions, intimidation to hundreds of millions and billions of profits to the war industry.

Yet, we were and are still indoctrinated with the neoliberal norm, which consists of open-border trade, limitless cross-border transfer of capital but very restricted transfer of labor. And worst of all, today and for the last 100 years, is our (western) dollar-based monetary system (born from the Federal Reserve Act of 1913) that shapes and manipulates the western boom–bust economy. Logic would rather dictate a reverse monetary system, where a nation’s economic output is the basis for its monetary system, not the other way around.

This monetary anomality has been driven to extremes with the US-dollar’s offspring, the euro, which has zero connection with the European economy, let alone with the economy of each member country. The western monetary system on which international trade is based is a fraud, a mere house of cards, a Ponzi scheme, the collapse of which is inevitable.

The Donald is a largely unpredictable character. As a war monger, he screams “fire and fury” at North Korea, threatening to wipe out the entire country; yet is willing to sit down to negotiate with Kim Jong-un – under certain conditions – debating whose Red Button is bigger, Kim’s or the Donald’s. At the same time, driven by Netanyahu, the same Donald has only slander and insults left for Iran, threatening the country with annihilating war and imposing more sanctions, knowing quite well that Europe, mainly France and Germany, has established billion euros worth of trade relations since the lifting of the original sanctions after the signing of the ‘nuclear deal’ in July 2015.

So, let’s not get this wrong. Trump is no panacea for the good of the world. By a very long shot. He is a loose cannon, shooting from the hips, he may have hit the target by declaring unilateral import tariffs on steel and aluminum. This may be just the beginning, a trial balloon so to speak, for more protection measures to follow. His neocolonial trained chief economic adviser, Gary Cohn, can’t see the logic and quit. Trump is unmoved and stays the course. He knows these tariffs won’t affect consumer prices at home, but they may be a boost for the US rust-belt – reviving investments, including the local car industry, a key economic indicator, creating thousands of much needed jobs and reestablishing labor’s trust in Washington’s leadership – to “Make America Great Again.”

Funding Infrastructure: Why China Is Running Circles Around America

“One Belt, One Road,” China’s $1 trillion infrastructure initiative, is a massive undertaking of highways, pipelines, transmission lines, ports, power stations, fiber optics, and railroads connecting China to Central Asia, Europe and Africa. According to Dan Slane, a former advisor in President Trump’s transition team, “It is the largest infrastructure project initiated by one nation in the history of the world and is designed to enable China to become the dominant economic power in the world.” In a January 29th article titled “Trump’s Plan a Recipe for Failure, Former Infrastructure Advisor Says,” he added, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

On Monday, February 12th, President Trump’s own infrastructure initiative was finally unveiled. Perhaps to trump China’s $1 trillion mega-project, the Administration has now upped the ante from $1 trillion to $1.5 trillion, or at least so the initiative is billed. But as Donald Cohen observes in The American Prospect, it’s really only $200 billion, the sole sum that is to come from federal funding; and it’s not even that after factoring in the billions in tax cuts in infrastructure-related projects. The rest of the $1.5 trillion is to come from cities, states, and private investors; and since city and state coffers are depleted, that chiefly means private investors. The focus of the Administration’s plan is on public-private partnerships, which as Slane notes are not suitable for many of the most critical infrastructure projects, since they lack the sort of ongoing funding stream such as a toll or fee that would attract private investors. Public-private partnerships also drive up costs compared to financing with municipal bonds.

In any case, as Yves Smith observes, private equity firms are not much interested in public assets; and to the extent that they are, they are more interested in privatizing existing infrastructure than in funding the new development that is at the heart of the president’s plan. Moreover, local officials and local businessmen are now leery of privatization deals. They know the price of quick cash is to be bled dry with user charges and profit guarantees.

The White House says its initiative is not a take-it-or-leave-it proposal but is the start of a negotiation, and that the president is “open to new sources of funding.” But no one in Congress seems to have a viable proposal. Perhaps it is time to look more closely at how China does it …

China’s Secret Funding Source: The Deep Pocket of Its State-owned Banks

While American politicians argue endlessly about where to find the money, China has been forging full steam ahead with its mega-projects. A case in point is its 12,000 miles of high-speed rail, built in a mere decade while American politicians were still trying to fund much more modest rail projects. The money largely came from loans from China’s state-owned banks. The country’s five largest banks are majority-owned by the central government, and they lend principally to large, state-owned enterprises.

Where do the banks get the money? Basically, they print it. Not directly. Not obviously. But as the Bank of England has acknowledged, banks do not merely recycle existing deposits but actually create the money they lend by writing it into their borrowers’ deposit accounts. Incoming deposits are needed to balance the books, but at some point these deposits originated in the deposit accounts of other banks; and since the Chinese government owns most of the country’s banks, it can aim this funding fire hose at its most pressing national needs.

China’s central bank, the People’s Bank of China, issues money for infrastructure in an even more direct way. It has turned to an innovative form of quantitative easing in which liquidity is directed not at propping up the biggest banks but at “surgical strikes” into the most productive sectors of the economy. Citigroup chief economist Willem Buiter calls this “qualitative easing” to distinguish it from the quantitative easing engaged in by Western central banks. According to a 2014 Wall Street Journal article:

In China’s context, such so-called qualitative easing happens when the People’s Bank of China adds riskier assets to its balance sheet – such as by relending to the agriculture sector and small businesses and offering cheap loans for low-return infrastructure projects – while maintaining a normal pace of balance-sheet expansion [loan creation]. …

The purpose of China’s qualitative easing is to provide affordable financing to select sectors, and it reflects Beijing’s intention to dictate interest rates for some sectors, Citigroup’s economists said. They added that while such a policy would also put inflationary pressure on the economy, the impact is less pronounced than the U.S.-style quantitative easing.

Among the targets of these surgical strikes with central bank financing is the One Belt, One Road initiative. According to a May 2015 article in Bloomberg:

Instead of turning the liquidity sprinkler on full-throttle for the whole garden, the PBOC is aiming its hose at specific parts. The latest innovations include plans to bolster the market for local government bonds and the recapitalisation of policy banks so they can boost lending to government-favoured projects. …

Policymakers have sought to bolster credit for small and medium-sized enterprises, and borrowers supporting the goals of the communist leadership, such as the One Belt, One Road initiative developing infrastructure along China’s old Silk Road trade routes.

“Non-Performing Loans” or “Helicopter Money for Infrastructure”? Money that Need Not Be Repaid

Critics say China has a dangerously high debt-to-GDP ratio and a “bad debt” problem, meaning its banks have too many “non-performing” loans. But according to financial research strategist Chen Zhao in a Harvard review called “China: A Bullish Case,” these factors are being misinterpreted and need not be cause for alarm. China has a high debt to GDP ratio because most Chinese businesses are funded through loans rather than through the stock market, as in the US; and China’s banks are able to engage in massive lending because the Chinese chiefly save their money in banks rather than investing it in the stock market, providing the deposit base to back this extensive lending. As for China’s public “debt,” most of it is money created on bank balance sheets for economic stimulus. Zhao writes:

During the 2008-09 financial crisis, the U.S. government deficit shot up to about 10 percent of GDP due to bail-out programs like the TARP. In contrast, the Chinese government deficit during that period didn’t change much. However, Chinese bank loan growth shot up to 40 percent while loan growth in the U.S. collapsed. These contrasting pictures suggest that most of China’s four trillion RMB stimulus package was carried out by its state-owned banks. . . . The so-called “bad debt problem” is effectively a consequence of Beijing’s fiscal projects and thus should be treated as such.

China calls this government bank financing “lending” rather than “money printing,” but the effect is very similar to what European central bankers are calling “helicopter money” for infrastructure – central bank-generated money that does not need to be repaid. If the Chinese loans get repaid, great; but if they don’t, it’s not considered a problem. Like helicopter money, the non-performing loans merely leave extra money circulating in the marketplace, creating the extra “demand” needed to fill the gap between GDP and consumer purchasing power, something that is particularly necessary in an economy that is contracting due to shrinking global markets following the 2008-09 crisis.

In a December 2017 article in the Financial Times called “Stop Worrying about Chinese Debt, a Crisis Is Not Brewing”, Zhao expanded on these concepts, writing:

[S]o-called credit risk in China is, in fact, sovereign risk. The Chinese government often relies on bank credit to finance government stimulus programmes. . . . China’s sovereign risk is extremely low. Importantly, the balance sheets of the Chinese state-owned banks, the government and the People’s Bank of China are all interconnected. Under these circumstances, a debt crisis in China is almost impossible.

Chinese state-owned banks are not going to need a Wall Street-style bailout from the government. They are the government, and the Chinese government has a massive global account surplus. It is not going bankrupt any time soon.

What about the risk of inflation? As noted by the Citigroup economists, Chinese-style “qualitative easing” is actually less inflationary than the bank-focused “quantitative easing” engaged in by Western central banks. And Western-style QE has barely succeeded in reaching the Fed’s 2 percent inflation target. For 2017, the Chinese inflation rate was a modest 1.8 percent.

What to Do When Congress Won’t Act

Rather than regarding China as a national security threat and putting our resources into rebuilding our military defenses, we might be further ahead studying its successful economic policies and adapting them to rebuilding our own crumbling roads and bridges before it is too late. The US government could set up a national infrastructure bank that lends just as China’s big public banks do, or the Federal Reserve could do qualitative easing for infrastructure as the PBOC does. The main roadblock to those solutions seems to be political. They would kill the privatization cash cow of the vested interests calling the shots behind the scenes.

What alternatives are left for cash-strapped state and local governments? Unlike the Fed, they cannot issue money directly; but they can establish their own banks. Fifty percent of the cost of infrastructure is financing, so having their own banks would allow them to cut the cost of infrastructure nearly in half. The savings on infrastructure projects with an income stream could then be used to fund those critically necessary projects that lack an income stream.

For a model, they can look to the century-old Bank of North Dakota (BND), currently the nation’s only publicly-owned depository bank. The BND makes 2 percent loans to local communities for infrastructure, far below the 12 percent average sought by private equity firms. Yet as noted in a November 2014 Wall Street Journal article, the BND is more profitable than Goldman Sachs and JPMorgan Chase. Before submitting to exploitation by public-private partnerships, state and local governments would do well to give the BND model further study.

• This article was originally published on Truthdig.org.

The Venezuelan “Petro”: Towards a New World Reserve Currency?

Imagine an international currency backed by energy? By a raw material that the entire world needs, not gold – which has hardly any productive use, but whose value is mostly speculative – not hot air like the US dollar. Not fiat money like the US-dollar and the Euro largely made by private banks without any economic substance whatsoever, and which are coercive. But a currency based on the very source for economic output – energy.

On February 20, 2018, Venezuela has launched the “Petro” (PTR), a government-made and controlled cryptocurrency, based on Venezuela’s huge petrol reserves of about 301 billion barrels of petrol. The Petro’s value will fluctuate with the market price of petrol, currently around US $61 per barrel of crude. The Petro was essentially created to avoid and circumvent illegal US sanctions, dollar blockades, confiscations of assets abroad, as well as to escape illegal manipulations from Florida of the Bolivarian Republic’s local currency, the Bolívar, via the black-market dollars flooding Venezuela; and, not least, to trade internationally in a non-US-dollar linked currency. The Petro is a largely government controlled blockchain currency, totally outside the reach of the US Federal Reserve (FED) and Wall Street – and it is based on the value of the world’s key energy, hydrocarbons, of which Venezuela has the globe’s largest proven reserves.

In a first batch Venezuela released 100 million Petros, backed by 5.342 billion barrels of crude from the Ayacucho oil fields of Orinoco; a mere 5% of total proven Venezuelan reserves. Of the 100 million, 82.4% will be offered to the market in two stages, an initial private Pre-Sale of 38.4% of so-called non-minable ‘tokens’, followed by a public offering of 44% of the cryptomoney. The remaining 17.6 million are reserved for the government; i.e., the Venezuelan Authority for Cryptomoney and Related Activities, SUPCACVEN.

When launching the currency, on 20 February 2018, Vice-president Tareck El Aissami declared:

Today, the Petro was born and we will formally launch the initial pre-sale of the Venezuelan Petro. Venezuela has placed herself in the vanguard of the future. Today is a historic day. Venezuela is the first nation to launch a cryptomoney, entirely backed by her reserves and her natural riches.

President Maduro has later affirmed that his country has already entered contracts with important trading partners and the world’s major blockchain currencies.

Can you imagine what this means? It sets a new paradigm for international trade, for safe payment systems that cannot be tampered with by the FED, Wall Street, SWIFT, New York courts, and other Washington puppets, like the European Central Bank (ECB), the unelected European Commission (EC) and other EU-associated Brussels institutions. It will allow economic development outside illegal ‘sanctions’. The Petro is a shining light for new found freedom from a hegemonic dollar oppression.

What is valid for Venezuela can be valid for other countries eager to detach from the tyrannical Anglo-Zion financial system. Imagine, other countries following Venezuela’s example, other energy producers, many if not most of whom would be happy to get out from under the Yankee’s boots of blood dollars inundating the world thanks to uncountable wars and conflicts they finance – and millions of innocent people they help kill.

Rumors have it, that in a last-ditch effort to salvage the faltering dollar, the FED might order the IMF to revert to some kind of a gold standard, blood-stained gold. Of the 2,300 to 3,400 tons of gold mined every year around the globe, it is estimated that about a quarter to a third is illegally begotten, so called ‘blood’ gold, extracted under the most horrendous conditions of violence, murder, opaque mafia-type living (and dying) conditions, child labor, sexual enslavement of women, many of whom way under-age, abject poisoning of humans with heavy metals, mercury, cyanite, arsenic and more, contamination of surface and underground water ways, vast illegal deforestation of tropical rain forests – and more. That’s the legacy of gold, the MSM, of course, doesn’t talk about.

That’s what the west based its monetary system on until 1971, when Nixon decided to replace gold with the fiat dollar which then became de facto the world’s major reserve currency, albeit declining rapidly over the last twenty years. In desperation, Washington might want to apply another gold-based international norm to salvage the faltering dollar. Of course, a norm designed to favor the US, with the rest of the western and developing world destined to absorb the astronomical US debt.

Since the world’s major goldmining corporation and the illegal gold-digging mafia networks work hand-in-hand, smuggled gold works its way intricately into the dominium of shady traders, many of whom also deal with so-called white gold (drug powder), washing gold and drug-money simultaneously, thereby confounding and obscuring the origins of either. Eventually this illegal gold is purchased by major gold mining or refining corporations mixed with ‘legal’ gold, so that the illegal portion is no longer traceable.

Therefore, every ounce of gold that would back our money, the purchases of our livelihoods would be smeared in blood, in children’s abuse and death, in murdered and enslaved women and men, in poisoned water ways and in a contaminated environment. But the world wouldn’t go for it. No more. There are healthier and more transparent physical assets to back up international currencies, i.e. the Petro, backed by energy. Though not free from socio-environmental damage, petrol-energy may gradually convert into alternative sources of energy, like solar, wind and aquatic power or a combination of all of them.

What the world is to aim for is a monetary system based on each nation’s or group of nations or societies economic output. Today it’s the other way around – it’s the fiat money, designed by the Anglo-Zionist masters of finance, that defines economies. Thus, economies in our western world are prone to be manipulated by the rulers and their institutions – FED, IMF, World Bank, World Trade Organization (WTO) – that support the debt/interest-based monetary rules. They are purposefully maneuvered into booms and busts. With every bust, more capital is transferred from the bottom to the top, from the poor to an ever-smaller elite. The energy-based Petro is a first step away from this sham.

Imagine the Petro was to become the new OPEC currency! The world would need Petros, as it used to need US dollars to buy hydrocarbon energy. But Petros are blockchain-safe, less vulnerable for manipulation. They are not coercive, they are not made for blackmailing ‘unwilling’ nations into submission; they are not tools for violence. They are instruments of equitable production and trade. They are also instruments of protection from the fiat money abuses.

Source: TeleSUR

The world’s ten largest hydrocarbon reserve holders have a capital base of 1.4 trillion barrels of crude. Not bad to start a worldwide cryptocurrency, based on energy, controlled by energy and by all those who will use energy – that might become a world reserve currency, at par with the Chinese economy and gold-backed Yuan, but much safer than the fiat currencies of the US-dollar, Euro, British Pound and Japanese Yen.

We are talking about a seismic paradigm shift. Its potential is unfathomable. The move away from the US-dollar hegemony might result in an implosion of the western monetary structure as we know it. It may stop the predator empire of the United States in its tracks, by simply decimating her economy of fraud, built on military might, exploitation and colonization of the world, on racism, and on a bulldozing scruple-less killing machine. The Petro, a secured cryptocurrency based on energy that everybody needs, might become the precursor for an international payment and trading scheme towards a more balanced and equitable approach to worldwide socio-economy development.

Campaign Finance and other Rackets

If you haven’t already, you should check out the article by The New Yorker, “How Ivanka Trump and Donald Trump, Jr., Avoided a Criminal Indictment.” To be brief, the Trump family was under investigation in 2012 by the Manhattan District Attorney’s office for misleading potential buyers about their Trump SoHo property.

This is being overly concise, but the investigation was dropped after Trump’s attorney made a $25,000 donation to the campaign of the Manhattan District Attorney, Cyrus Vance.

That report by The New Yorker was essentially overshadowed in the media cycle due to another story related to Cyrus Vance. Harvey Weinstein’s lawyer donated $10,000 to Vance’s campaign days after the sexual assault case against Weinstein was dropped.

Anyhow, that monetary figure of $25,000 is a relevant number as it was the amount of money donated from the Donald J. Trump foundation to the Political Action Committee (PAC) of Florida Attorney General, Pam Bondi. Bear in mind, Pam Bondi personally sought a donation from Donald Trump six days before it was received and this occurred while her staff was considering a case against Trump University. Predictably, that case never came to fruition and Bondi was named as a top member of Trump’s transition team.

To be clear, it’s illegal for charities to make political donations. Furthermore, Trump’s organization didn’t properly disclose the source of the contribution by listing another group with a similar name. Despite this horribly unethical and illegal behavior, Donald Trump was merely fined $2,500 by the IRS.

The issue of campaign finance receives a rather cursory level of media attention during every presidential election cycle. However, there are numerous lower-level races, the type that only policy wonks seem to follow, in which the issue is virtually ignored by the press. Unfortunately, these elections fly under the radar of the average voter, such as District Attorney or State Attorney General, even though these are positions that have a tremendous impact on our society.

During the campaign, Donald Trump openly stated that he personally knew the ins and outs of how special interests have corrupted the system. After all, with a smirk, he also alluded to his own role in this systemic corruption, without providing exact details. Hence, that type of rhetoric appealed to his base because they believed that he would reform the system.

Obviously, that hasn’t happened and that brings us back to the present with the latest articles from The New Yorker. This is fantastic investigative journalism. In fact, the content is so impressive that it may leave you wishing that our government officials were acting in the same manner.

Here’s the bitter truth. Often times, the heavy lifting of an important investigation gets spiked at the end by an ambitious bureaucrat. In both of these stories, the Manhattan District Attorney overruled his staff and dropped the case. Suffice it to say, the prison industrial complex is a finely tuned machine as long as the defendants aren’t wealthy white-collar criminals or the social elite.

The Manhattan District Attorney’s Office, like most others in the country, has a history of implementing a two-tiered justice system. Nonetheless, Cyrus Vance had received a lot of positive press as a “progressive” prosecutor by simply recognizing the problems. For instance, in 2014 he allowed the Vera Institute to examine the complete records of his office to examine racial disparities, which earned him a lot of kudos in liberal circles.

However, Vance’s office has seemingly only practiced “progressivism” when it involved wealthy defendants, such as when it dropped the case against Harvey Weinstein despite possessing an audio tape of Weinstein admitting to committing the crime.

The Manhattan District Attorney’s Office has aggressively prosecuted misdemeanor offenses, with minorities being the primary targets. Last year, black and Hispanic defendants were convicted of marijuana possession in Manhattan at rates of 51% and 46% respectively. Whereas, white defendants were only convicted 23% of the time for the same offense. That was the widest disparity in all five boroughs.

This is the same office that is supposed to preside over Wall Street, yet not a single executive of a “Too Big to Fail” bank faced criminal charges after the 2008 mortgage-fraud scandal. The lack of action can’t be blamed on a lack of evidence. Instead, there were several highly-credible whistleblowers who came forward with solid information that should have resulted in putting many white-collar criminals behind bars and creating legal consequences for predatory behavior in the future.

In particular, Matt Taibbi profiled a JPMorgan Chase whistleblower, Alayne Fleischman, who singlehandedly gave a slam-dunk case to the DOJ. However, in the end, Jamie Dimon negotiated a settlement in which the company avoided any criminal charges, didn’t have to admit to any wrongdoing, and the financial penalty essentially served as a tax write-off.

That wasn’t a one-off situation as there were several other whistleblowers who risked their careers all for naught, such as Citigroup executive Richard M. Bowen. However, time and again, the DOJ avoided Wall Street’s power players like the plague. Instead, New York’s prosecutors have built solid careers by targeting vice crimes, such as drugs, gambling, and prostitution. After all, it’s a wise career decision for bureaucrats to avoid confronting our nation’s most powerful white-collar criminals because there’s a better payday in the future. (This is one of the themes of my book series, Rackets.)

One of the central causes behind this systemic corruption is the revolving door between government and the private sector. After serving as the U.S. Attorney General in the aftermath of the largest financial scandal in our nation’s history, Eric Holder returned to the private practice and a multi-million dollar salary.

In fairness, it would be inaccurate to single-out Holder as the only former DOJ official to cash-in on his way out. Holder’s former Assistant Attorney General, Lanny Breuer, went to the same firm for reportedly $4 million a year. In fact, there were other members of Holder’s team at the DOJ who returned to Covington & Burling, which happens to be one of the top defense firms for Wall Street’s high-profile clientele.

There are many ways in which the revolving door has corrupted our system. Most notably, there has been a mass exodus from Capitol Hill to K Street. Remarkably, there are now 434 former members of Congress working as professional lobbyists and the conflict of interest is obvious. Congressmen can make much more money on the backend as lobbyists as long as they play ball for the special interest groups while in office.

This type of quid pro quo relationship is quite visible with government regulators as well. There are too many examples to list in an article, but the current opioid crisis may be the most relevant. It’s no secret that various drug manufacturers and distributors played a major role in the current problem. On the other hand, it isn’t widely known that the DEA regulates those drugs and sets the maximum production levels. The DEA continued setting higher production quotas while the crisis escalated. Bear in mind, many of the former DEA officials who were directly involved in these regulations subsequently found lucrative work with the same drug companies.

Then again, Barack Obama was supposed to “fundamentally transform” the way Washington D.C. functioned. In a campaign speech, he promised to “turn the page on policies that put greed and irresponsibility by Wall Street before the hard work and sacrifice of folks on Main Street.” Understandably, it’s much easier to read a speech than to implement actual political reforms at the highest level. However, Obama never acted upon the progressive rhetoric that launched him into office. Thus, he’s now quite welcome on Wall Street. As a matter of fact, it was reported recently that the Obamas are considering purchasing an apartment in Manhattan’s Upper East Side.

Their potential new home is only a ten-minute drive from Wall Street, which would be very convenient for his next paid speaking gig. As a reminder, just three months after leaving office, Obama accepted a $400,000 speaking fee from the investment bank, Cantor Fitzgerald. Sure, he can read a teleprompter with the best of them, but no one can truly justify such speaking fees in the free market, particularly Wall Street firms that are laser-focused on profitability. That is, unless, such fees are actually helpful for a firm’s bottom line. Hence, there’s no other way to look at such exorbitant fees as anything other than part of an unofficial kickback scheme.

Hillary Clinton deservedly took a lot of flak for participating in this corrupt practice, which, in her case, functioned like a preemptive bribe. Conversely, Obama’s $400,000 speaking gig was more like payment for services rendered. By the way, that $400,000 figure is very symbolic because Obama vetoed a bill that would have reduced pensions for former presidents if their incomes surpass $400,000. Even more symbolic, he vetoed that bill on his last possible day in office.

Obviously, these types of speeches involving former presidents or presidential candidates capture much media coverage. However, this paid-speaking racket is also fairly common among our nation’s most prominent former financial regulators. For instance, Ben Bernanke, the past chairman of the Federal Reserve who presided over the banking industry in the wake of the 2008 financial crisis, received $250,000 for a single speech after leaving office. He’s not alone. Virtually, every high-level official from the Federal Reserve or the Treasury Department has participated in this shady practice, including Timothy Geithner, Alan Greenspan, Larry Summers, among many more.

To wrap up, Donald Trump accurately labeled our political system as a “rigged game,” but there may be a bright spot. Trump’s numerous blunders and scandals seem to be providing the public with a valuable education about the flaws of our government. With luck, this newfound attention may force some necessary reforms.

How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders

During his visit to hurricane-stricken Puerto Rico, President Donald Trump shocked the bond market when he told Geraldo Rivera of Fox News that he was going to wipe out the island’s bond debt. He said on October 3rd:

You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.

How did the president plan to pull this off? Pam Martens and Russ Martens, writing in Wall Street on Parade, note that the U.S. municipal bond market holds $3.8 trillion in debt, and it is not just owned by Wall Street banks. Mom and pop retail investors are exposed to billions of dollars of potential losses through their holdings of Puerto Rican municipal bonds, either directly or in mutual funds. Wiping out Puerto Rico’s debt, they warned, could undermine confidence in the municipal bond market, causing bond interest rates to rise, imposing an additional burden on already-struggling states and municipalities across the country.

True, but the president was just pointing out the obvious. As economist Michael Hudson says, “Debts that can’t be paid won’t be paid.” Puerto Rico is bankrupt, its economy destroyed. In fact, it is currently in bankruptcy proceedings with its creditors. Which suggests it’s time for some more out-of-the-box thinking . . . .

Turning Disaster into a Win-Win

In July 2016, a solution to this conundrum was suggested by the notorious Goldman Sachs itself, when mom and pop investors holding the bonds of bankrupt Italian banks were in jeopardy. Imposing losses on retail bondholders had proven to be politically toxic, after one man committed suicide. Some other solution had to be found.

Italy’s non-performing loans (NPLs) then stood at €210bn, at a time when the ECB was buying €120bn per year of outstanding Italian government bonds as part of its QE program. The July 2016 Financial Times quoted Goldman’s Francesco Garzarelli, who said, “by the time QE is over – not sooner than end 2017, on our baseline scenario – around a fifth of Italy’s public debt will be sitting on the Bank of Italy’s balance sheet.”

His solution: rather than buying Italian government bonds in its quantitative easing program, the European Central Bank could simply buy the insolvent banks’ NPLs. Bringing the entire net stock of bad loans onto the government’s balance sheet, he said, would be equivalent to just nine months’ worth of Italian government bond purchases by the ECB.

Puerto Rico’s debt is only $73 billion, one third the Italian debt. The Fed has stopped its quantitative easing program, but in its last round (called “QE3”), it was buying $85 billion per month in securities. At that rate, it would have to fire up the digital printing presses for only one additional month to rescue the suffering Puerto Ricans without hurting bondholders at all. It could then just leave the bonds on its books, declaring a moratorium at least until Puerto Rico got back on its feet, and better yet, indefinitely.

According to the Bureau of Labor Statistics jobs data, 33,000 US jobs were lost in September, the first time the country has had a negative figure since 2010. It could be time for a bit more economic stimulus from the Fed.

Successful Precedent

Shifting the debt burden of bankrupt institutions onto the books of the central bank is not a new or radical idea. UK Prof. Richard Werner, who invented the term “quantitative easing” when he was advising the Japanese in the 1990s, says there is ample precedent for it. In 2012, he proposed a similar solution to the European banking crisis, citing three successful historical examples.

One was in Britain in 1914, when the British banking sector collapsed after the government declared war on Germany. This was not a good time for a banking crisis, so the Bank of England simply bought the banks’ NPLs. “There was no credit crunch,” wrote Werner, “and no recession. The problem was solved at zero cost to the tax payer.”

For a second example, he cited the Japanese banking crisis of 1945. The banks had totally collapsed, with NPLs that amounted to virtually 100 percent of their assets:

But in 1945 the Bank of Japan had no interest in creating a banking crisis and a credit crunch recession. Instead it wanted to ensure that bank credit would flow again, delivering economic growth. So the Bank of Japan bought the non-performing assets from the banks – not at market value (close to zero), but significantly above market value.

Werner’s third example was the US Federal Reserve’s quantitative easing program, in which it bought $1.7 trillion in mortgage-backed securities from the banks. These securities were widely understood to be “toxic” – Wall Street’s own burden of NPLs. Again the move worked: the banks did not collapse, the economy got back on its feet, and the much-feared inflation did not result.

In each of these cases, he wrote:

The operations were a complete success. No inflation resulted. The currency did not weaken. Despite massive non-performing assets wiping out the solvency and equity of the banking sector, the banks’ health was quickly restored. In the UK and Japanese case, bank credit started to recover quickly, so that there was virtually no recession at all as a result.

The Moral Hazard Question

One objection to this approach is the risk of “moral hazard”: lenders who know they will be rescued from their bad loans will recklessly make even more. That is the argument, but an analysis of data in China, where NPLs are now a significant problem, has relieved those concerns. China’s NPLs are largely being left on the banks’ books without writing them down. The concern is that shrinking the banks’ balance sheets in an economy that is already slowing will reduce their ability to create credit, further slowing growth and triggering a downward economic spiral. As for the moral hazard problem, when researchers analyzed the data, they found that the level of Chinese NPLs did not affect loan creation, in small or large banks.

But if Puerto Rico got relief from the Fed, wouldn’t cities and states struggling with their own debt burdens want it too? Perhaps, but that bar could be set in bankruptcy court. Few cities or states can match the devastation of Puerto Rico, which was already in bankruptcy court when struck by hurricanes that left virtually no tree unscathed and literally flattened the territory.

Arguably, the Fed should be making nearly-interest-free loans to cities and states, allowing them to rebuild their crumbling infrastructure at reasonable cost. That argument was made in an October 2012 editorial in The New York Times titled “Getting More Bang for the Fed’s Buck”. It was also suggested by Martin Hutchinson in Reuters in October 2010:

An alternative mechanism could be an extension of the Fed’s [QE] asset purchases to include state and municipal bonds. Currently the central bank does not have the power to do this for maturities of more than six months. But an approving Congress could remove that hurdle at a stroke . . . .

The Fed lent $29 trillion to Wall Street banks virtually interest-free. It could do the same for local governments.

Where There’s a Will

When central banks want to save bankrupt institutions without cost to the government or the people, they obviously know how to do it. It is a matter of boldness and political will, something that may be lacking in our central bankers but has been amply demonstrated in our president.

If the Fed resists the QE alternative, here is another possibility: Congress can audit the Department of Housing and Urban Development and the Department of Defense, and retrieve some of the $21 trillion gone missing from their accountings. This massive black money hole, tracked by Dr. Mark Skidmore and Catherine Austin Fitts, former assistant secretary of HUD, is buried on the agencies’ books as “undocumented adjustments” – entries inserted without receipts or other documentary support just to balance the books. It represents money that rightfully belongs to the American people.

If our legislators and central bankers can find trillions of dollars to bail out Wall Street banks, while overlooking trillions more lost to the DoD and HUD in “undocumented adjustments,” they can find the money to help an American territory suffering the worst humanitarian crisis in its history.

Saving Illinois: Getting More Bang for the State’s Bucks

Illinois is teetering on bankruptcy and other states are not far behind, largely due to unfunded pension liabilities; but there are solutions. The Federal Reserve could do a round of “QE for Munis.” Or the state could turn its sizable pension fund into a self-sustaining public bank.

*****

Illinois is insolvent, unable to pay its bills. According to Moody’s, the state has $15 billion in unpaid bills and $251 billion in unfunded liabilities. Of these, $119 billion are tied to shortfalls in the state’s pension program. On July 6, 2017, for the first time in two years, the state finally passed a budget, after lawmakers overrode the governor’s veto on raising taxes. But they used massive tax hikes to do it – a 32% increase in state income taxes and 33% increase in state corporate taxes – and still Illinois’ new budget generates only $5 billion, not nearly enough to cover its $15 billion deficit.

Adding to its budget woes, the state is being considered by Moody’s for a credit downgrade, which means its borrowing costs could shoot up. Several other states are in nearly as bad shape, with Kentucky, New Jersey, Arizona and Connecticut topping the list. U.S. public pensions are underfunded by at least $1.8 trillion and probably more, according to expert estimates. They are paying out more than they are taking in, and they are falling short on their projected returns. Most funds aim for about a 7.5% return, but they barely made 1.5% last year.

If Illinois were a corporation, it could declare bankruptcy; but states are constitutionally forbidden to take that route. The state could follow the lead of Detroit and cut its public pension funds, but Illinois has a constitutional provision forbidding that as well. It could follow Detroit in privatizing public utilities (notably water), but that would drive consumer utility prices through the roof. And taxes have been raised about as far as the legislature can be pushed to go.

The state cannot meet its budget because the tax base has shrunk. The economy has shrunk and so has the money supply, triggered by the 2008 banking crisis. Jobs were lost, homes were foreclosed on, and businesses and people quit borrowing, either because they were “all borrowed up” and could not go further into debt or, in the case of businesses, because they did not have sufficient customer demand to warrant business expansion. And today, virtually the entire circulating money supply is created when banks make loans. When loans are paid down and new loans are not taken out, the money supply shrinks. What to do?

Quantitative Easing for Munis

There is a deep pocket that can fill the hole in the money supply – the Federal Reserve. The Fed had no problem finding the money to bail out the profligate Wall Street banks following the banking crisis, with short-term loans totaling $26 trillion. It also freed up the banks’ balance sheets by buying $1.7 trillion in mortgage-backed securities with its “quantitative easing” tool. The Fed could do something similar for the local governments that were victims of the crisis. One of its dual mandates is to maintain full employment, and we are nowhere near that now, despite some biased figures that omit those who have dropped out of the workforce or have had to take low-paying or part-time jobs.

The case for a “QE-Muni” was made in an October 2012 editorial in The New York Times titled “Getting More Bang for the Fed’s Buck” by Joseph Grundfest et al. The authors said Republicans and Democrats alike have been decrying the failure to stimulate the economy through needed infrastructure improvements, but shrinking tax revenues and limited debt service capacity have tied the hands of state and local governments. They observed:

State and municipal bonds help finance new infrastructure projects like roads and bridges, as well as pay for some government salaries and services.

. . . [E]very Fed dollar spent in the muni market would absorb a larger percentage of outstanding debt and is likely to have a greater effect on reducing the bonds’ interest rates than the same expenditure in the mortgage market.

. . . [L]owering the borrowing costs for states, cities and counties should not only forestall tax increases (which dampen individual spending), but also make it easier for local governments to pay for police officers, firefighters, teachers and infrastructure improvements.

The authors acknowledged that their QE-Muni proposal faced legal hurdles. The Federal Reserve Act prohibits the central bank from purchasing municipal government debt with a maturity of more than six months, and the beneficial effects expected from QE-Muni would require loans of longer duration. But Congress was then trying to avoid the “fiscal cliff,” so all options were on the table. Today the fiscal cliff has come around again, with threats of the debt ceiling dropping on an embattled Congress. It could be time to look at “QE for Munis” again.

Getting More Bang for the Pensioners’ Bucks

Scott Baker, a senior advisor to the Public Banking Institute and economics editor at OpEdNews, has another idea. He argues that the states are far from broke. They may not be able to balance their budgets with taxes, but a search through their Comprehensive Annual Financial Reports (CAFRs) shows that they have massive surplus funds and rainy day funds tucked away around the state, most of them earning minimal returns. (Recall the 1.5% made by the pension funds collectively last year.)

The 2016 CAFR for Illinois shows $94.6 billion in its pension fund alone, and well over $100 billion if other funds are included.  To say it is broke is like saying a retired couple with a million dollars in savings is broke because they can earn only 1.5% on their savings and cannot live on $15,000 a year. What they need to do is to spend some of their savings to meet their budget and invest the rest in something safe but more lucrative.

So here is Baker’s idea for Illinois:

  1. Make an iron-clad pledge by law, even in the State Constitution if they can get quick agreement, to provide for pension payouts at the current level and adjusted for inflation in the future.
  2. Liquidate the current pension fund and maybe some of the other liquid funds too to pay off all current debts.
  3. This will leave them with a great credit rating . . . .
  4. Put the remaining tens of billions into a new State Bank, partnering with the beleaguered small and community banks . . . . Use that money to finance state and local businesses and individuals instead of Wall Street schemes and high fund manager fees that will no longer be necessary or advisable, saving the state hundreds of millions a year.

The Public Bank could be built roughly on the model of the hugely successful Bank of North Dakota example, one of the country’s greatest banks, measured by Return on Equity, and scandal-free since its founding in 1919.

The Bank of North Dakota (BND), the nation’s only state-owned bank, has had record profits every year for the last 13 years, with a return on equity in 2016 of 16.6%, twice the national average. Its chief depositor is the state itself, and its mandate is to support the local economy, partnering rather than competing with local banks. Its commercial loans range from 2.4% to 7.5%. The BND makes cheaper loans as well, drawing on loan funds for special programs including infrastructure, startup businesses and affordable housing. Its loan income after deducting allowances for loan losses was $175 million in 2016 on a loan portfolio of $4.7 billion. (2016 BND CAFR, pages 28-29.) That puts the net return on loans at 3.7%.

Illinois could follow North Dakota’s lead. Looking again at the Illinois CAFR (page 45), the amount paid out for pension benefits in 2016 was only $1.833 billion, or less than 2% of the $94.6 billion pool. An Illinois state bank could generate that much in profit, even after paying off the state’s outstanding budget deficit.

Assume Illinois guaranteed its pension payouts, as Baker recommends, then liquidated its pension fund and withdrew $10 billion to meet its current budget shortfall. This would significantly improve its credit rating, allowing it to refinance its long-term debt at a reduced rate. The remaining $85 billion could be put into the state’s own bank, $8 billion as capital and $77 billion as deposits. [See chart below.] At a loan to deposit ratio of 80%, $60 billion could be issued in loans. At a return similar to the BND’s 3.7%, these loans would produce $2.2 billion in interest income. The remaining $17 billion in deposits could be invested in liquid federal securities at 1%, generating an additional $170 million. That would give a net profit of $2.37 billion, enough to cover the $1.8 billion annual pensioners’ payout, with $570 million to spare.

The salubrious result: the pension fund would be self-funding; the state would have a bank that could create credit to support the local economy; the pensioners would have money to spend, increasing demand; the economy would be stimulated, increasing the tax base; and the state would have a good credit rating, allowing it to borrow on the bond market at low interest rates. Better yet, it could borrow from its own bank and pay the interest to itself. The proceeds could then go to its pensioners rather than to bondholders.

Where there is the political will, there is a way. Politicians and central bankers will take radical, game-changing steps in desperate times. We just need to start thinking outside the box, a Wall Street-imposed box that has trapped us in austerity and economic servitude for over a century.

Sovereign Debt Jubilee, Japanese-Style

Japan has found a way to write off nearly half its national debt without creating inflation. We could do that too.

Let’s face it. There is no way the US government is ever going to pay back a $20 trillion federal debt. The taxpayers will just continue to pay interest on it, year after year.

A lot of interest.

If the Federal Reserve raises the fed funds rate to 3.5% and sells its federal securities into the market, as it is proposing to do, by 2026 the projected tab will be $830 billion annually. That’s nearly $1 trillion owed by the taxpayers every year, just for interest.

Personal income taxes are at record highs, ringing in at $550 billion in the first four months of fiscal year 2017, or $1.6 trillion annually. But even at those high levels, handing over $830 billion to bondholders will wipe out over half the annual personal income tax take. Yet what is the alternative?

Japan seems to have found one. While the US government is busy driving up its “sovereign” debt and the interest owed on it, Japan has been canceling its debt at the rate of $720 billion (¥80tn) per year. How? By selling the debt to its own central bank, which returns the interest to the government. While most central banks have ended their quantitative easing programs and are planning to sell their federal securities, the Bank of Japan continues to aggressively buy its government’s debt. An interest-free debt owed to oneself that is rolled over from year to year is effectively void – a debt “jubilee.” As noted by fund manager Eric Lonergan in a February 2017 article:

The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BoJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.

If the Federal Reserve followed the same policy and bought 40% of the US national debt, the Fed would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs.

Eight trillion dollars in money created on a computer screen! Monetarists would be aghast. Surely that would trigger runaway hyperinflation!

But if Japan’s experience is any indication, it wouldn’t. Japan has a record low inflation rate of .02 percent. That’s not 2 percent, the Fed’s target inflation rate, but 1/100th of 2 percent – almost zero. Japan also has an unemployment rate that is at a 22-year low of 2.8%, and the yen was up nearly 6% for the year against the dollar as of April 2017.

Selling the government’s debt to its own central bank has not succeeded in driving up Japanese prices, even though that was the BoJ’s expressed intent. Meanwhile, the economy is doing well. In a February 2017 article in Mother Jones titled “The Enduring Mystery of Japan’s Economy,” Kevin Drum notes that over the past two decades, Japan’s gross domestic product per capita has grown steadily and is up by 20 percent. He writes:

It’s true that Japan has suffered through two decades of low growth . . . . [But] despite its persistently low inflation, Japan’s economy is doing fine. Their GDP per working-age adult is actually higher than ours. So why are they growing so much more slowly than we are? It’s just simple demographics . . . Japan is aging fast. Its working-age population peaked in 1997 and has been declining ever since. Fewer workers means a lower GDP even if those workers are as productive as anyone in the world.

Joseph Stiglitz, former chief economist for the World Bank, concurs. In a June 2013 article titled “Japan Is a Model, Not a Cautionary Tale,” he wrote:

Along many dimensions — greater income equality, longer life expectancy, lower unemployment, greater investments in children’s education and health, and even greater productivity relative to the size of the labor force — Japan has done better than the United States.

That is not to say that all is idyllic in Japan. Forty percent of Japanese workers lack secure full-time employment, adequate pensions and health insurance. But the point underscored here is that large-scale digital money-printing by the central bank used to buy back the government’s debt has not inflated prices, the alleged concern preventing other countries from doing it. Quantitative easing simply does not inflate the circulating money supply. In Japan, as in the US, QE is just an asset swap that occurs in the reserve accounts of banks. Government securities are swapped for reserves, which cannot be spent or lent into the consumer economy but can only be lent to other banks or used to buy more government securities.

The Bank of Japan is under heavy pressure to join the other central banks and start tightening the money supply, reversing the “accommodations” made after the 2008 banking crisis. But it is holding firm and is forging ahead with its bond-buying program. Reporting on the Bank of Japan’s policy meeting on June 15, 2017, the Financial Times stated that BoJ Governor Kuroda “refused to be drawn on an exit strategy from easy monetary policy, despite growing pressure from politicians, markets and the local media to set one out. He said the BoJ was still far from its 2 per cent inflation goal and the circumstances of a future exit were too uncertain.”

Rather than unwinding their securities purchases, the other central banks might do well to take a lesson from Japan and cancel their own governments’ debts. We have entered a new century and a new millennium. Ancient civilizations celebrated a changing of the guard with widespread debt cancellation. It is time for a twenty-first century jubilee from the crippling debts of governments, which could then work on generating some debt relief for their citizens.