Another Bank is Possible
by Jim Deutsch
The international financial institutions’ structural adjustment programs and austerity measures are washing ashore on the industrialized world, inflicting destruction on the “First World” just as they have done to the so-called developing world.
In a recent conference on Modern Monetary Theory held this year in Rimini, Italy (http://www.democraziammt.info/documenti/17-summit-eng-home.html), economist and historian Michael Hudson and colleagues addressed the austerity measures being imposed on European countries. Initially, financiers providing credit for military adventures drove nation-states toward democracy. This meant the captive citizenry now became a guarantor of debt which was more reliable than a mortal monarch. More recent times have seen a takeover and deregulation of the states’ own financial systems by private oligarchies.
Hudson argues that academic economists teach a fiction of a “parallel universe” omitting the 99% of money flow that is essentially debt electronically created out of thin air. Economic forces, now largely divorced from real goods and services, push the European Union (E.U.) and the United States into increasingly massive indebtedness to the European Central Bank or the Federal Reserve Bank, both functionally privatized.
The result is an enormous drain on nation-states and their populations, with governments asserting there is no money to pay for social programs even while they accumulate more debt to pay for military and security and to subsidize wasteful and destructive industries. Asset prices balloon while wages and consumer prices stagnate. The status quo pits “financial interests against national self-determination”.
In her book, Web of Debt, and on her related website, www.webofdebt.com, lawyer and author Ellen Brown helpfully analyses public versus private banks and provides much detail regarding how the massive “shadow banking system” quietly moves enormous amounts of digital money around, gutting governments at all levels before they know what hits them. She describes numerous maneuvers that give private banks massive advantages.
In “Oh Canada! Imposing Austerity on the World’s Most Resource-rich Country” (April 1, 2012, www.webofdebt.com/articles/canada.php), Brown describes how the Canadian government’s debt skyrocketed beginning in 1974 when it ceased to borrow from its own government Bank of Canada. Prior to this, debt was “effectively interest-free, since the government owned the bank and received the benefit of interest.” Many projects could thus be achieved.
In 1974, Brown notes the Basel Committee was established by the Central Bank Governors of the Group of Ten countries of the Bank for International Settlements (BIS), which included Canada. By confusing the public with “central banks” that are actually in private hands, and with the fiction that government money creation (as opposed to that created by private banks) would cause inflation, a de facto coup took control of government finance in the name of “maintaining the stability of the currency.” However, as Brown further notes, “private banks create the money they lend, just as public banks do”. The corrupting special relationship between the politicians and the private banking sector becomes parasitic and potentially inflationary.
Money need not serve such destructive purposes. Brown tells how the Bank of North Dakota, the only state-owned bank in the US, weathered the credit crisis of 2008, and continues to belie the myth that “government bureaucrats are bad businessman”. The Bank of North Dakota provides a community service and is not profit-driven. It loans money to farmers and others to weather hard times and good times at rates that are essentially a service fee to cover costs and ensure sustainability over time. The money stays in North Dakota rather than being siphoned off by Wall Street schemes. In this manner, fluctuations in the economy are moderated. In the Great Depression of the nineteen-thirties, person-to-person contact meant that the Bank of North Dakota staff worked with bankrupt farmers to forestall foreclosures and maintain their farms.
Brown and Hudson call for nation-states to regain control over their monetary systems in order to avert otherwise inevitable monetary collapse. A large proportion of banks in the world, e.g., in the BRIC countries (Brazil, Russia, India, and China), are public-sector.
In December, 2011, a lawsuit was filed in Canadian federal court to restore the Bank of Canada to its original role. Citizen oversight is needed, to ensure the highest social justice and environmental standards. It remains to be seen whether truly democratic control can be achieved in such a way that efforts can be rapidly directed toward correcting social injustices and drastically reducing greenhouse gas emissions, including the massive quantities stemming from the military, extraction industries, agribusiness, and global trade, all currently supported or subsidized by heavily-indebted governments.
Jim Deutsch received his AB in analytical biology at Columbia, PhD in biochemistry at Caltech, and MD at Yale. He is on the faculty of the Dept. of Psychiatry at University of Toronto and of the Toronto Psychoanalytic Institute. He is interested in the challenges of understanding “the causes of the causes” of things.