The American Economy:
What It Was Intended to Be, Why It is Broken, and How We Can Fix It
Many Americans have been misled and don't realize the extent to which the U.S. Government betrays the intent of most of America's Founders. Thus most Americans are unaware that the American economy leading up to the financial and economic crash of 2007-2008 was much like it was leading up to the 1929 financial and economic crash which caused the Great Depression. In both instances it resulted in a devastating economic crash caused by the rampant greed and corruption of very rich people who were given free license to do as they pleased without proper and sufficient government regulation.
In other words, in both cases Laissez Faire government enabled and entitled the rich to indulge themselves at the expense of the great majority.
The difference in outcomes is that President Roosevelt fixed it in the 1930s, saved the country, and enabled the American middle class to gradually grow large and great. But, since 2008 the only things and the only ones that have been saved are the banks, corporations, and the wealthiest few who caused the problems in the first place.
That's because money now rules absolutely. No matter which party has "control," that control is an illusion, because the wealthiest few who hold 95 percent of the nation's wealth have the control.
That is why during President Obama's first term and even after he won a second term convincingly, Republicans have ignored the will of the majority of the people and they have prevented any significant progressive reforms by using slanderous, obstructionist tactics to tie the president's hands. And they are able to get away with it because Mr. Obama is no Roosevelt, and no Jefferson. He will not fight for what is right. He does what is politically expedient, pays lip service to moral and humanitarian values, and will not rock the boat. Consequently, the whole political economic system continues to be rigged in favor of the rich, at our expense.
For example, Republicans, Libertarians and "Tea Partiers" reject and resist the overwhelming public demand to require the wealthiest few to pay at least a little more toward a fair share of taxes, and they persist in insisting that there must be cuts in "spending" and "Entitlements" like Social Security and Medicare.
Social Security and Medicare
The right wing forces of greed and self-interest ignore and deny the truth about this, because much of what they call "spending" is in fact what we need now to invest in the people and in the country. And beyond that, Social Security and Medicare are not "Entitlements." They are insurance programs, and the people pay a lot in premiums for them all their working lives.
Republicans and Libertarians still insisted that there must be cuts not only in social services but also in Social Security and Medicare as if they were "entitlements" or social service when they are not. Again, they are insurance programs which all working people pay premiums for all their working lives. And even though there must be a significant increase in revenue to reduce the debt that the Bush Regime created and that the Obama administration had to increase to try to pull the country out of the economic mess the Reaganites and Bushites had created.
The problem is that they do not want to reform Social Security and Medicare properly or fairly, so that those who really need it can benefit sufficiently from the retirement insurance that they have paid premiums on. Furthermore, they do not want to reform Social Security and Medicare so that it is solvent and ample, such as by ensuring that only those who really need it may take advantage of it. Instead, independently wealthy elderly people take the most out of the trust fund even though they do not need it.
Even worse, rich right-wing fearmongers claim that Social Security will fail because they want to get rid of it. And profiteering "wealth management" and "retirement" financial service companies are paying for a lot of television ads to scare people into paying for their services, in an obvious attempt to convince people that they should forget about their Social Security insurance. But these profit-making companies simply want us to pay them, rather than pay Social security premiums.
Most politicians in public office are just as bad. Instead of establishing proper and fair Social Security reform to ensure that the public Social Security retirement insurance is secure and adequate, Republicans and even some Democrats say that "reform" means simply cutting and reducing the benefits of all the recipients, including the poor who are desperately in need.
The amazing thing about it is that the Republicans, Libertarians and "Tea Party" members have been so vehement and so successfully misleading about it that even most media pundits agree that revenue increases must be accompanied by cuts in social services and "Entitlements."
That, however, is simply not true. It is right-wing propaganda designed to perpetuate government entitlements to the rich, at the expense of all Americans and especially those who actually need help.
It would be grossly unfair, not merely because it would cause even more severe hardship to the poor and the working poor, but because the wealthiest few have so much more than they need or can possibly use, it is incredible. So the real problem is that the wealthiest fair simply do not pay their fair share of taxes.
The Risks and Dangers of “Reverse Mortgages”
Another retirement funding scam money lenders try to sell retirees is a “reverse mortgage,” and they advertise it as if will be a great boon to retired people and provide them with a lot of money to enjoy themselves. However, according to an article on Forbes.com, “A reverse mortgage is more debt and one of the most expensive forms of credit you can get.”
At the San Francisco 7th Annual Conference on Elder Abuse, a panel spoke on this subject, drawing back the curtain that cloaks the truth: reverse mortgages are not for just anyone and they can create some new problems the broker isn’t telling you about.
If you read the article you will find that there are many risks and dangers in reverse mortgages. For example: 1) The loan can go into default if an elder with a reverse mortgage fails to pay property taxes, to keep up insurance on the home, or fails to maintain the home, and the lender can then foreclose; 2) When the elder dies, the heirs must pay off the loan even if their inheritance is not enough to pay it off; 3) The elderly might need a care home in the future; 3) It can affect any dependent in the home who could be displaced if a borrowing elder has to go to a care facility, and it could be a non-borrowing spouse, child or grandchild; 4) The entire principal, plus accrued interest and service fees must be paid in full to the lender before heirs can take possession of the home, and if they can’t pay the debt, the lender has the right to foreclose and sell the property.
Now, we must prohibit such unfairness and inequity. Creating a strong, solvent Social Security Retirement Insurance Program would help considerably, and would free us from having to give our money to profit-making money lenders and "money managers." After all, because of them and many other right-wing schemes that benefit the wealthy and rob us, during the last 30 years the wealth of the nation has been redistributed so that the wealthiest 20 percent of the population now own 95 percent of the total financial wealth of the nation, while 80 percent of the population now owns only 5 percent of it.
Now also consider that during that same period of time, while the wealthiest few have been enabled to get incredibly richer, everyone else has become less financially secure, the middle class population has shrunk, more and more people fall into the working poor population which is rapidly growing, and more and more people fall into poverty, are hungry, and even homeless.
In fact, 20 percent of American children live in poverty, because while the wealthiest few get richer, the median (average) household income keeps falling. The incomes of the richest 20 percent of the population grew by 30 percent during the last two decades while the incomes of the lowest paid 20 percent of us declined by more than 20 percent in the same time period, and the buying power of the minimum wage declined significantly.
Politicians may want you to simply forget or ignore all that. But we cannot. We need to be sane, reasonable, honest, and fair. We need to have sufficient revenue to make necessary investments in our people and in our country.
Furthermore, to cut social services and Social Security would be a crime. And the only "Entitlements" we need to cut are those that have been going to the wealthiest few, since we have entitled them to pay far less than their fair share of taxes and deprive the national treasury of what it should have because of their taking advantage of tax breaks, loopholes, deductions, shelters, havens, subsidies and other "welfare for the rich" that we have been allowing them to take.
Therefore, be aware of and beware of all the propaganda efforts by right-wing politicians and corporations who are trying to brainwash Americans about Social Security by trying to make us think that we cannot and should not depend on our Social Security insurance, and that we should invest our money in profit-making private retirement accounts. They are up to no good.
The Intent of America's Founders
America is in deep trouble economically because too many Americans have either forgotten or denied some very valuable lessons of American history --- not only the lessons we should have learned from the 1920s, ‘30s, ‘40s and ‘50s, but the lessons provided by the Founders during the early decades of the nation’s formative period.
Therefore, to start at the beginning, all Americans should realize that most of America’s Founding Fathers intended to establish a government of, by and for the people, rather than a government that would produce and perpetuate plutocratic rule by the wealthiest few.
John Adams wrote: “Government is instituted for the common good; for the protection, safety, prosperity and happiness of the people; and not for the profit, honor, or private interest of any one man, family, or class of men. Therefore the people alone have an incontestable, unalienable, and indefeasible right to institute government and to reform, alter, or totally change the same, when their protection, safety, prosperity and happiness require.”
In a letter to James Madison in 1785, Thomas Jefferson suggested that taxes could be used to reduce "the enormous inequality" between rich and poor. He wrote that one way of "silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise." And Madison then said using laws to "reduce extreme wealth towards a state of mediocrity (referring to the middle) and raise extreme indigence towards a state of comfort."
In Thomas Jefferson's writings he showed he felt strongly about providing the average citizen with equal opportunity. He even wanted to establish publicly funded higher education so that all citizens, regardless of their personal or family wealth, could fulfill their highest potential. Of course, he was unable to do that (as is painfully evident now since higher education is rapidly becoming out of reach for the majority), but Jefferson tried to make public education complete because believed in equal opportunity for all.
Interestingly, regarding taxation, the Founders originally established a government that relied mainly on tariffs to collect revenue, because they recognized that wealthiest people bought most of the imports and they thought it only fair that the wealthy should pay most of the taxes.
Even in 1811 Jefferson wrote: “The rich alone use imported articles, and on these alone the whole taxes of the general government are levied.”... “The poor man, who uses nothing but what is made in his own farm or family, will pay nothing. (With) our revenues applied to canals, roads, schools, etc., the farmer will see his government supported, his children educated and the face of his country made a paradise by the contributions of the rich alone, without his being called on to spend a cent from his earnings.”
Regarding banks and corporations, as president in 1801, Jefferson warned against the unregulated and unchecked power of banks and corporations. He realized they had already created a wealthy ruling class of men in America, and he recognized the terrible threat that insufficiently regulated or unlimited banking and corporate power represents.
Unfortunately, the Hamiltonian “Royalist” view regarding economics, banks and corporations prevailed over the Jeffersonian view. For while most people admired and respected Jefferson’s views on democracy and freedom from Theocracy, the wealthiest European Americans still preferred the aristocratic British traditions that heavily favored and benefited the very rich property and land owners. Therefore, banks and corporations thrived and still enjoyed a great deal of power and free rein to exercise it.
That had inevitable consequences, and finally by 1929 the consequences of plutocracy and unbridled greed, self-interest and corruption became painfully apparent and nearly ruined the nation’s economy. There was a terrible stock market crash. Tens of thousands of banks failed and $140 Billion of depositor money disappeared – all of which caused the Great Depression which made millions of Americans jobless, poverty stricken, and homeless.
Roosevelt's New Deal Establishes Fairness, But Not For Long
In 1932 Democratic President Franklin D. Roosevelt provided a New Deal and began implementing needed reforms and regulations on the banks and corporations, provided a safety net and Social Security for those who needed it, and by 1947 he had won World War II and made America the greatest nation in the world by making its middle class large and great.
Then, however, between 1947-1957 McCarthyism or the “Second Red Scare” began to turn the tide of progress and advancement. Republicans like Senators Joseph McCarthy and Richard Nixon and Hollywood collaborator Ronald Reagan resorted to the strategy of “red-baiting” and calling New Deal Democrats “socialists” and “communists.”
That was a very dark period in which many good, conscientious people were “black listed” and treated very badly simply because they had shown concern for the poor and the least of their brethren. And that misleading, slanderous, mean-spirited tactic has been revived again during the last five years by Republicans, Libertarians, and "Tea Party" politicians.
During the last 40 years Republicans have sporadically but consistently resorted to that strategy to slander and denigrate Democrats and progressives. Nixonian and especially Reaganite Republicans, Libertarians and “Tea Party” members have nearly destroyed Roosevelt’s legacy and the New Deal. They have caused the middle class to shrink, the working poor population to grow, and increased the rates of unemployment, poverty, hunger and homelessness. And Democrats have been either unable or unwilling to do much about it.
Now most Americans may not know all those facts, and most Americans do know what the basic problem is regarding the economy.
Most Americans know very well that the wealthiest few rule at our expense. The trouble is, very few office holders in the U.S. Government will admit it or do what needs to be done, and those who should be telling the most relevant and crucial truths are not. Commercial journalism has become tabloid journalism, focusing on fluff and sensationalism rather than reporting the truth the people should know.
The vast majority of the people know the most essential and basic truth, though, in spite of all the distractions, rhetoric and propaganda. We know that the political economic system in America has been rigged to favor and benefit the wealthiest few at the expense of the vast majority — regardless of whether a Democrat or Republican sits in the oval office of the White House.
That's why it could be said that in the 2012 election "the lesser of two evils" won again. And, while that will surely help a little bit more, it will not bring the reform and progress we need. Just as very little changed in the last four years, very little will change in the immediate future because the basic problem remains.
The Cause and Impact of Insufficient Regulation of Banks, Financial Institutions and Lenders
Thomas Jefferson said that “banking institutions are more dangerous to our liberties than standing armies.” He warned of the danger of private banks getting too big and having too much power, and he warned that they could “deprive the people of all property until their children wake-up homeless.”
Jefferson also criticized “the aristocracy of our monied corporations” and said they were in “defiance to the laws of our country.” He said they would create government “founded on banking institutions and moneyed incorporations” that would operate under a “guise and cloak.”
Jefferson was absolutely right. And America should have heeded his words then, and in the 1920s, and especially during the last 30 years, because that guise and cloak is feigned patriotism and religiosity, which people put on to gain or maintain political power.
But Jefferson’s words fell on deaf ears even back then. The Hamiltonian ideology regarding banks, corporations and the economy still dominated. And despite the fact that it inevitably proved divisive, damaging and destructive, and despite the fact that Roosevelt New Deal then saved the country and made it great, along came the Nixonians, the Reaganites, Libertarians and Neo-Conservatives who revived the Hamiltonian ideology, which was sold under the cloak of Reaganism and the Reaganite “Gospel of Prosperity” in collusion with the "religious right."
The consequences of that are painfully obvious to the 80 percent of the population that now owns only 5 percent of the financial wealth of the nation, while the wealthiest 20 percent of the population owns 95 percent of the total wealth.
More incredible is the fact that one percent of the population owns 42 percent of the financial wealth of the nation, and the next wealthiest 19 percent of the population owns 53 percent of the total wealth.
That is the consequence of what’s been happening for a long time, beginning in the 1950s when Republicans began to wage war on the ideals and principles of President Franklin D. Roosevelt’s New Deal. However, it is especially the consequence of what Reaganomics has accomplished in 30 years due to Ronald Reagan’s skill as a television pitch man.
But, Reaganomics did not just impact America. The whole world was impacted by Reaganomics, and by the similar policies of British Prime Minister Margaret Thatcher. Consequently, it's not just America that is plagued by the consequences of Laissez Faire government and the unrestrained, unbridled greed, self-interest and corruption that it fosters and allows. That is why the largest banks, financial institutions and multi-national corporations are still raking in record profits even after nearly ruining the American and world economies.
The misguided theory of "supply side, trickle down Reaganomics" is the main problem (which was concocted by two Libertarians from the Cato Institute that Ronald Reagan trusted and hired as part of his economic advisers). However, the mentality and attitude that Reaganomics spawned infected the whole economic system, because it was based on the idea that the wealthy were more superior, smarter, more virtuous and therefore more entitled to power, and that enabling them to get richer would benefit everyone and the whole country.
Unfortunately, some people get wealthy because they are greedy, ruthless and far from virtuous, and Reaganomics inevitably backfired. For example, it enabled American jobs to be outsourced, and it enabled corporations and banks to run wild. It brought about the re-invention of mortgage-backed securities and the growth of sub-prime lending. It also enabled corruption of the culture of Wall Street, and Fannie Mae and Freddie Mac. Even worse, the key players also deliberately weakened the means to measure risk and did not utilize other financial management tools, and thereby enabled greedy, self-serving exploitation and abuse of the system.
Exacerbating the problem, every president since Ronald Reagan has served the interests of the wealthiest few, Wall Street, and predatory lenders, and that was especially the case during the presidency of George W. Bush (2000-2008). But the warnings that many economists, state attorneys general and consumer protection advocates made during Bush’s first term about predatory lenders were simply ignored.
Those economists, state attorneys general and consumer protection advocates had noted a marked increase in predatory lending practices by mortgage lenders, who were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, tempting them with deceptive initial rates that later increased beyond ability to pay, sneaking in undisclosed charges and fees, and even paying illegal kickbacks.
These and other practices were having a devastating effect on home buyers even during Bush’s first term, but warnings that if those tactics were unchecked it would threaten our financial markets were simply ignored by Washington. The Bush Regime, which took Reaganomics to new heights of corruption, chose instead to align itself with the banks and lending institutions that were victimizing consumers (and not much has changed since then in that regard, even with so-called "financial reform" the Obama administration initiated).
Over the last 30 years politicians have enabled predatory lenders and given them free license to put their own excessive profits ahead of customers’ financial security, and ahead of public good. And while Reaganite Republicans blame the sub-prime mortgage crisis on "irresponsible" home buyer-borrowers for "getting in over their head," we should understand where the blame lies.
The fault lies in unchecked greed, and in the corruption enabled by deregulation and a terrible lack of proper government regulation and oversight, which enabled corrupt predatory lenders to get away with making shady deals and enabled corrupt corporations and insurance companies to take advantage of a Laissez Faire government’s enabling permissiveness. That is what enabled and caused the “housing bubble” that inevitably burst in 2008.
Now, President Obama’s efforts at financial and economic reforms did not fix the problems. That’s partly because of Republican obstruction, slander and deception, which they resort to in an effort to prevent reform and protect to status quo. But, it’s also because President Obama unwisely and obligingly chose Wall Street insiders to make up his economic team. That’s one reason so little progress has been made toward making the changes and reforms we really need to establish economic equity and fairness.
In fact, the power of "Corporate Democrats" (like Obama and the Clintons) is one of the reasons things have gotten worse, such as in the housing market in which predatory hedge fund managers and other profit seeking holders of great wealth have been buying up homes either as investments or as rental properties, making money with money while gradually decreasing the ability of average people to own their own homes.
Despite the truth, politicians and the corporate commercial television media avoid it and refuse to face it, and most people rely on corporate commercial television and pay no attention to the most honest and truthful sources, so the general public remains in the dark. Consequently those who have caused the problems remain powerful and influential. That’s why Americans need to learn the truth.
“At one time, calling the large multinational banks a ‘cartel’ branded you as a conspiracy theorist. Today the banking giants are being called that and worse, not just in the major media but in court documents intended to prove the allegations as facts. Charges include racketeering (organized crime under the U.S. Racketeer Influenced and Corrupt Organizations Act or RICO), antitrust violations, wire fraud, bid-rigging, and price-fixing. Damning charges have already been proven, and major damages and penalties assessed. Conspiracy theory has become established fact.” – Ellen Brown
Ms. Brown is an attorney, president of the Public Banking Institute, and author of 11 books including Web of Debt, and that quote is the lead paragraph in an article she wrote titled Titanic Banks Hit LIBOR Iceberg: Will Lawsuits Sink the Ship?
In a subsequent and more recent article titled The Global Banking Game Is Rigged, and the FDIC is Suing, Ms. Brown has explained that LIBOR (the London Interbank Offering Rate) is the benchmark rate by which banks themselves can borrow. It is a crucial rate involved in hundreds of trillions of dollars in derivative trades, and it is set by sixteen of the largest banks in the world – JPMorgan Chase, Bank of America and Citigroup in the U.S., the three largest UK banks, the largest German bank, the largest Japanese bank, and several of the largest Swiss banks. And the trouble is that the rate is determined privately and in secret, and they game has been rigged from the start.
Ms. Brown is not alone in her view by any means. Many conscientious and honest economists (like those at The Public Bank Project and The Public Banking Institute) and other scholarly experts realize that the obvious solution to profiteering corrupt banks is in banks and lending institutions that are publicly owned and non-profit.
That’s because with public banking systems, governments can keep the interest and reinvest it locally. That benefits the public and reduces costs across the board. Taxes can be cut, services increased, and market stability established.
An example is North Dakota’s state bank, even though it is the only publicly owned depository bank in the country today. It contains all the state's funds, and was originally established by the state legislature to free farmers and small businessmen from the control of profit-making bankers and railroad companies. The bank is very successful and continually produces big budget surpluses, and North Dakota is the only state to have escaped the 2008 banking crisis. It has the lowest unemployment rate in the country, the lowest foreclosure rate, and the lowest default rate on credit card debt.
In Ms. Brown’s article, The Leveraged Buyout of America, she states that: “Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy.”
There are, reports Brown, reasonable legislators who are so concerned they have written to the Federal Reserve Chairman about their concern that “large banks have recently expanded their businesses into such fields as electric power production, oil refining and distribution, owning and operating of public assets such as ports and airports, and even uranium mining."
Brown cites other experts who realize that these financial services companies have become global merchants and renters, using the “legal” authority in the Graham-Leach-Bliley banking deregulation “to subvert the ‘foundational principle of separation of banking from commerce.’"
Ms. Brown concludes that “All this helps explain why the largest Wall Street banks have radically scaled back their lending to the local economy. It appears that their loan-to-deposit ratios are low not because they cannot find creditworthy borrowers but because they can profit more from buying airports and commodities through their prop trading desks than from making loans to small local businesses.”
“Small and medium-sized businesses are responsible for creating most of the jobs in the economy, and they are struggling today to get the credit they need to operate. That is one of many reasons that we the people need to own some banks ourselves. Publicly-owned banks can direct credit where it is needed in the local economy ...”
Of course, the movement toward public banks has been fought by profiteering private bankers who claim it is unconstitutional. But, it is not. (And Ms. Brown has written another more recent article about that. Click here to read it.)
An ironic fact is that public banks were actually what the Founders of America preferred. In fact, one of the reasons the American Revolutionary War was fought was because of the order by the British King George for American colonists to use only British currency and shut down the public banks. The king’s order was issued after Benjamin Franklin had told the British how well the colonies were thriving because they were issuing their own currency and using public banks.
The public bank in North Dakota is like the 40 percent of banks in the world that are publicly owned in countries that also escaped the 2008 banking crisis. Unlike European and North American countries, those countries grew economically by 92 percent in the last decade, while European and North American economies have been plagued with problems and have been failing the majority of the people.
Why is that? It's because Ronald Reagan and Margaret Thatcher lauded and touted “privatization” and business and industry for profit. And even though profit-making free enterprise certainly has its place, it must be regulated and kept on a tight rein, which Reagan and Thatcher did not do. In fact, they practically gave business and industry free rein, and in that respect Reagan insisted that government is best that governs least, and the "government is the problem."
Regardless of their intentions, the effect and consequences of Reagan’s and Thatcher’s policies have been devastating, because many of the wealthiest few who loved them and still love their ideology became more and more corrupt, as did the culture of their banks and financial institutions. And in America their greedy and corrupt operations have been "cloaked," just as Thomas Jefferson warned.
In America that happened mainly because the Reaganites, in collusion with the theocratic “religious right,” sold their Gospel of Prosperity under the guise of patriotism and religiosity. Thus they were able to convince many Americans that wealth is a reward from God and that the poor deserve to be poor because the are lazy and lack ambition. The Reaganites justified themselves by pointing to what Jesus said about the "haves and have nots,"but in fact their claims are a distortion of Christianity, and it is not what Jesus of Nazareth or preceding prophets taught (which is explained in articles on Poverty: America's Greatest Shame, and About Christianity, here on this site).
That is why Republicans for the last 30 years have been parroting Reagan, claiming that allowing the rich to profit and prosper freely and getting government “off their back” would benefit the whole country and was the “right” thing to do. And despite the fact that by 2008 it was obviously clear that claim was false, Reaganomics and Reaganism still thrive, even as Democrats now control the Senate and the White House.
Another way the operations of banks, financial lending institutions and private equity companies have been "cloaked" is because much of their profits come fees, charges and interest rates that are deliberately hidden or made difficult to understand. And the interest that we pay to bankers, financiers and bondholders is really the thing that robs us and provides them with unjust profits.
To make that point, Professor Margrit Kennedy, in her new book, the subtitle of which is Creating an Economy Where Everybody Wins (published October 30, 2012), reports that bankers, financiers and bondholders take 35 to 40 percent out of our Gross Domestic Product (GDP) in interest.
Dr. Kennedy reports that this interest is accrued not merely because of the interest charged on loans and credit purchases. It is also accrued in other ways, since everyone along the chain of production adds interest to production costs which are passed on to the consumer. And we pay that kind of interest for most commodities and services, on almost everything we pay for.
In financial sector profits in the United States, 40 percent of profits in 2006 were from interest. That was five times the 7 percent made by the banking sector in 1980 (before Reaganism kicked in), since bank assets, financial profits, interest, and debt grew exponentially between 1982 when Ronald Reagan became president to 2008 at the end of George W. Bush’s presidency, when it became painfully obvious that greed and financial corruption caused our current crises.
Furthermore, President Barack Obama has been unable or unwilling to do what needs to be done. By 2010, one percent of the population owned 42 percent of the financial wealth, while 80 percent of the population owned only 5 percent. As Dr. Kennedy points out, the bottom 80 percent of the population still pays the hidden interest charges that the wealthiest 10 percent collect, which makes interest a strongly regressive tax that most of us pay to the wealthiest few.
(By the way, Dr. Kennedy’s most famous book, Interest and Inflation Free Money, Creating an Exchange Medium that Works for Everybody and Protects the Earth, was published in 1987 in response to the economic policies of U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher. That book has been revised several times and translated into 22 languages because she is not afraid to tell the truth that everyone should know. Kennedy holds a Masters Degree in Urban and Regional Planning and a Ph.D. in Public and International Affairs from the University of Pittsburgh.)
Unfortunately, even though many Americans bought into the huckster's claim that borrowing, debt, and living beyond your means were okay, and even though some Americans therefore bear some of the responsibility for their financial problems, the focus of the corporate commercial media pundits is to lay the entire blame on the victims of predatory lenders.
In fact, blaming the victims is a typical Republican tactic, and it has become the popular thing to do rather than point out the culpability of banks and lending institutions that indulged in predatory lending practices, misrepresented the terms of loans, made loans without regard to consumers' ability to repay, tempted them with deceptive initial rates that later increased beyond ability to pay, sneaked in undisclosed charges and fees, and even paid illegal kickbacks.
Pope Francis Chimes In
A sign of progress in terms of media coverage is the message Pope Francis has delivered to the world by way of his “bully pulpit.” His message has reminded people of the core, universal message of Jesus of Nazareth, and Francis' June 2015 encyclical is a crucial and important part of his message, which reflects the message that has been delivered by the author of this site.
Francis’ encyclical is called "Praised Be," a title based on an ancient song attributed to Saint Francis, and while the main focus of the encyclical has been thought to be on climate change and a call for saving our environment, it also calls for other reforms, including significant reform of the banking system.
It states in Section IV:
“Today, in view of the common good, there is urgent need for politics and economics to enter into a frank dialogue in the service of life, especially human life. Saving banks at any cost, making the public pay the price, forgoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises after a slow, costly and only apparent recovery. The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world. . . . A strategy for real change calls for rethinking processes in their entirety, for it is not enough to include a few superficial ecological considerations while failing to question the logic which underlies present-day culture.”
Taking such a stance helps to explain why Pope Francis took his name from the good Saint Francis from whom the Pope took his name, and his statement about the economic and banking system is a continuation of his advocacy for the poor and the least of our brethren. For if one is to advocate for the average people and the poor, one also has to expose and rebuke the forces of greed and self interest that exploit and oppress others in order to gain personal wealth and power.
There is precedence for Francis’ stance, since during the mid-fifteenth century Franciscan monks defied their conservative rival orders and created an alternative public banking model to serve the poor at a time when they were being exploited by being charged excessive interest rates by Jewish money lenders.
You see, indulging in “usury” – charging interest on lent money – was forbidden to Christians. After all, Jesus had rebuked the money lenders in the temple who had turned it into a “den of thieves.” And Luke 6:34-36 states: “If you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back. Then your reward will be great, and you will be children of the Holy One, who is kind even to the ungrateful and wicked. Be merciful, just as your God is merciful.”
However, in the mid-fifteenth century there was a shortage of precious metal coins, and that shortage created a need to expand the money supply with loans on credit. So Jews were allowed to lend money, and they did so with relish, despite the fact that Exodus 22:25-26 states: “If you lend money to any who are poor, you shall not be to them as a usurer, nor shall you lay upon him usury [interest].”
Jews ignored that then, just as Jews and Christians ignore it today, and thus Jews had a virtual monopoly on lending and they charged excessively high interest rates, which were raised as high as 60 percent.
That is why Franciscan monks formed charitable pawnshops that lent money at low or no interest on the security of valuables pawned. That practice grew, gradually, and a new form of banking emerged. Franciscan monks then established “montes pietatis” in Italy that lent at low rates of interest, and they did not seek to make a profit on their loans. Of course, they faced fierce opposition from traditional bankers, as well as from traditional theologians, and it was not until 1515 CE that the Franciscan montes were generally accepted as meritorious and good.
When they were generally accepted in Italy, their practice spread rapidly to other European countries, and they evolved into public banks which served public and charitable purposes. This public bank tradition persisted and still exists as a European tradition of public, cooperative and savings banks. And, as Ellen Brown has pointed out in another article, it is particularly strong today in the municipal banks of Germany called Sparkassen.
As Brown has written: “The public banking concept at the heart of the Sparkassen was explored in the 18th century by the Irish philosopher Bishop George Berkeley, in a treatise called The Plan of a National Bank. Berkeley visited America and his work was studied by Benjamin Franklin, who popularized the public banking model in colonial Pennsylvania. In the US today, the model is exemplified in the state-owned Bank of North Dakota.”
As Brown explains, “What was condemned as usury in the Middle Ages today goes by the more benign term ‘financialization’ — turning public commodities and services into ‘asset classes’ from which wealth can be siphoned by rich private investors. Far from being condemned, it is lauded as the way to fund development in an age in which money is scarce and governments and people everywhere are in debt.”
Further, “Land and natural resources, once considered part of the commons, have long been privatized and financialized. More recently, this trend has been extended to pensions, health, education and housing. Today financialization has entered a third stage, in which it is invading infrastructure, water, and nature herself. Capital is no longer content merely to own. The goal today is to extract private profit at every stage of production and from every necessity of life.”
This “financialization” scheme is related to the “privatization” movement which strives to turn public assets and public services into private profit-making businesses for the rich. But the whole scheme is based on a faulty economic model in which money is created “out of thin air” by private banks and lent to governments and people at interest.
The reason Western economies are having so much trouble is because of private banking, as opposed to public banking, because whether governments borrow money from their own central banks or from private banks, the money borrowed is still created from nothing. The difference is that private bank-created money originates as a debt and is lent at a high private interest rate, thus creating huge profits for private banks. Having created a dollar and lending it, they get it back in “real” money many times over.
Under this faulty and corrupt system the only way private banks can fail is if and when they get far too greedy, as they did leading up to the 1929 financial and economic collapse, and as they did leading up to the 2007-2008 financial and economic collapse. And we must realize that while President Franklin D. Roosevelt saved America for a good while by establishing needed reforms and regulation of banks and corporations, his reforms and regulations have been repealed by Reaganites. And the 2010 Wall Street Financial Reform Act (Dodd-Frank), which restored some needed reforms, is now in danger as well, because Republicans want to repeal it as well. Thus today, because of that, and because Republicans and corporate Democrats bailed out the banks even though they failed, and thus made them more profitable than ever before, we, the people, need to do something about it.
As Ms. Brown points out, we can break free from this exploitative system by returning the power to create money to governments and the people they represent. The strategy for real change called for by Pope Francis can be furthered with government-issued money of the sort originated by the American colonists, augmented by a network of publicly-owned banks of the sort established by the Order of Saint Francis in the Middle Ages.
(Continued at The American Economy, Part 2, which discusses the Cause and Impact of Insufficient Regulations and the Reaganite War on Labor and "Big Government," the Reaganite "Gospel of Prosperity," and further discusses how we can progress and advance and leave all this hypocrisy, unfairness, inequity and conflict behind us.)