by Guest Contributor | Dec 10, 2012 | Opinion
By Gary Flomenhotf
Not everyone follows the actions of central banks, such as the private bank cartel called the US federal reserve (the fed), but you should know what the fed is up to lately: QE3[1] PLUS! See article here. You may know that QE3 is a fed program to purchase $40 Billion in mortgage bonds per month from banks, basically taking crap off their hands and making US citizens pay for it. The latest plan is to add $45 billion in Treasury bonds to that. These are open market operations where the Treasury bonds are bought from banks, thereby increasing the money supply and supposedly lowering interest rates further.
The US Treasury pays interest on Treasury bonds, and the fed supposedly returns most of it to the US government as profit. But the fed only owns a small fraction of the US debt, much of it is owned by foreigners and banks. The government doesn’t get that interest back, and it is the cause of sovereign debt crises, when interest on governments’ debts becomes unpayable.
Just to remind people where the fed’s money comes from, the fed prints it, or nowadays types it into a computer account as a bank balance. Since the US Treasury outsourced the creation of money in 1913, the fed has produced a small part of the money supply directly, and the rest is created through fractional reserves by private banks, about 95%. This is called variously seigniorage, money creation, or monetary supply, which is a sovereign privilege of the state given over to central banks and private commercial banks worldwide. Under 100% reserve requirements, the central bank would create the entire money supply and not commercial banks. The IMF recently published a surprising essay called “The Chicago Plan Revisited” discussing this idea, first promoted by major economists in the 1920’ and 30’s. A trial balloon perhaps?
The Treasury could also issue the entire money supply as interest-free US Notes or bank balances and do away with the central bank entirely. The US Treasury has issued these notes in the past starting with Greenbacks issued by President Lincoln to finance the US Civil War. 100% reserve requirements are essential to end the loss of money creation to banks and the resultant interest paid on every dollar of money in the economy. Banks opposed the Chicago Plan in the 1930’s because it takes away their privilege of collecting interest on money they create from nothing, when they make loans using fractional reserves.
The total of QE3 PLUS is $85 Billion per month. Doesn’t sound like much these days with debts in the trillions, and derivatives in the hundreds of trillions, but let’s figure it out. Take the US population of about 315 million and divide into $85 billion and you get $270 per month or $3240 per year. How would you like that or $12,960 per year for a family of four as a basic income?
The fed is not allowed to finance citizens, states, or municipalities, only banks and the Treasury. And remember that US states are forbidden from issuing “bills of credit” by the Constitution (Article 1, Section 10, Clause 1). For more on this see Vermont currency commons website. Now this reminds me of a joke I heard when Iraq was writing their new constitution after we invaded and instituted “regime change”. “Why don’t they take our constitution, we’re not using it.” Congress is supposed to coin the money supply, not banks, as stated in Article I, Section 8, Clause 5. I see no reason to follow this prohibition since the national government isn’t following the Constitution, but let’s leave it be. States can create public banks, and these banks can issue credit that is not considered an illegal state bill of credit. States could also issue warrants or other IOUs as California has done on two occasions. See currency commons article on California.
The problem in Europe is that countries have given up their sovereign monetary policy when they joined the Eurozone, as US states did when they ratified the Constitution and joined the union in 1789. Even EU countries that haven’t joined the Euro like England, Denmark, and Sweden still let banks issue most of the money with interest, so they are at the mercy of the banksters. I suspect even Iceland, which told the bondholders to take a hike, is still letting banks create all the money with interest. Old habits die hard…
Anyone traveling to the Eastern Caribbean, for example, will find transactions taking place in Eastern Caribbean Dollars, US dollars, and Euros side-by-side without much difficulty. So there is no practical reason for countries to give away their monetary policy to a central authority. It is the interest paid on private money creation that is the problem, not the sovereign monetary authority of individual countries. For more on this see Dr. Margrit Kennedy’s website.
So what would happen if central bank quantitative easing and open market operations were redirected to basic income payments to individuals rather than loans to banks? Let’s not forget that the fed has already issued QE1 and QE2 without much result. QE1 was $1.25 trillion and QE2 was $600 billion for a total of $1.85 trillion. That is $5873 for every person in the US given to banks, in a form of “trickle-down” theory that it will eventually benefit the economy. Don’t you think it would have been more effective to pay directly in a dividend check to citizens amounting to $23,492 for a family of four? A sovereign state or country could issue its own public credit money without interest, and get out of the bankster racket that pays interest on money they create out of thin air. Guernsey did it starting in 1822. Any country or state could do it, and even issue it as an interest-free basic income, trickle-up, not “tinkle-down.”
About the author:
Gary Flomenhoft is an International Post-Graduate (IPRS) and University of Queensland Centennial Scholar and PhD Candidate at Centre for Social Responsibility in Mining. His research area is the economic value of common wealth and governance of Sovereign Wealth Funds.
Prior to enrolling at SMI, Gary was a faculty member for 11 years in Community and International Development and Natural Resources at the University of Vermont (UVM), serving as a Lecturer in Applied Economics, Renewable Energy, International Development, and Public Policy. He conducted many development projects in The Commonwealth of Dominica, St. Lucia, and Belize with students and local partners. He also originated and coordinated the Green Building Design Program at UVM.
He had a secondary appointment as a Research Associate and Fellow at the Gund Institute for Ecological Economics under Director Robert Constanza. His primary research was in public finance for the state of Vermont including green/environmental taxes, common wealth and common assets, subsidy reform, and public banking. His 2013 report on Vermont public banking formed the basis of the “10% for Vermont” legislation passed in 2014, which allocated $35 million of state funds to local investment. He directed the grant funded Green Tax and Common Assets project at the Gund Institute for seven years, where he originated the Vermont Common Assets Trust Fund (VCAT) bill, which was submitted to the legislature twice. His chapter on Vermont Common Assets appeared in the book “Exporting the Alaska Model”, which promotes the Alaska Permanent Fund and Dividend as a model for basic income around the world using Sovereign Wealth Funds.
[1] QE means quantitative easing, a fed policy of purchasing bank securities in order to increase the money supply to encourage additional lending by banks, and lower interest rates
by Citizens' Income Trust | Oct 22, 2012 | Opinion
It is always interesting to read detailed arguments for a Citizen’s Income, but might I invite your readers to consider a broader reform programme which would entail a long-term foundation for the Citizen’s Income we all want to see? A reform programme which would reconcile socialism and capitalism? Of course a claim such as this cannot be fully argued in the space of a letter, but the principles can be simply stated.
The most important element in a new framework for the economy would be the evaluation of the social costs and benefits of each kind of enterprise and, through a system of levies and grants, their introduction into market prices. Other demands on industry and commerce, most notably taxation of profits, would cease. Taxation would be confined to individual participants in the economy, but in their capacity as citizens or residents paying for the benefits society brings them. The Citizen’s Income should not be paid for out of a levy on economic enterprise.
Society, for its part, should recognise its capital value as an instrument which makes enterprise possible. And it should translate this value into a practical tool by the creation of a sovereign wealth fund which would invest in stocks and shares at home and abroad in parallel with other funds. Income from the fund would be dedicated to the citizens, thus providing a funding base for a true citizen’s income, though the fund could also be used for collective initiatives. The model would be Alaska’s Permanent Fund. I leave on one side the priority support needed by those who cannot be expected to support themselves in the economy, that is: children, who are too young to work; the very elderly, who are past working; and people who suffer chronic sickness or disability.
The size of the fund ultimately required to make it worthwhile should not be underestimated. As to practicalities, nations such as China already have sovereign wealth funds. The way forward will become clearer once the principles and implications are widely understood. Even if one doesn’t want to go the whole way in redesigning the framework of the economy, the creation of a sovereign wealth fund surely provides a way forward by translating the value of society into a practical reality for the benefit of all its members without imposing a levy on the economy. At the same time, the fund would help to reduce the serious inequality in the ownership of our capital.
The way to pursue the objectives of a basic income needs to be looked at in the light of a reconciliation of socialism and capitalism, which has been the great unsolved problem of the last 100 years. The advent of globalisation has pointed up a way to do this.
The starting point is the recognition that it is no longer satisfactory to treat the economy as if it were simply society at work, the way in which its members make their living. Globalisation has made it as clear as can be that society needs to clarify and redefine the framework within which it allows the economy to operate.
Here are the principal elements of a new framework:
- Capitalism must be required to operate in its most competitive forms, subject only to the laws of the land and effective constraints on monopoly ( whilst recognising that some monopolies are an indispensable adjunct of privately owned initiatives ).
- Market prices of products and services must reflect social as well as private costs and benefits. These costs would include such things as the use of public communications systems, the consequences of pollution and effects on health of products sold.
- The most instructive example of this is the labour market. Employers provide the indispensable benefit to society of gainful work by its members. On the other hand they receive the benefit from society of a readily available labour force. Recognising their joint interest society and industry and commerce should jointly meet the cost of maintaining the supply of readily available labour. A great advantage of this approach is that employers of all kinds would immediately apply their minds to the invention and support of all kinds of scheme for reducing and even eliminating unemployment.
- Alongside this would be a requirement that all those participating in the economy must insure themselves against the risk of unemployment – through ill health or redundancy for example – under a system of mandatory minimum cover and optional higher levels. Society would no longer pay benefit to unemployed people capable of working.
- Profits as such would no longer be subject to tax, for which there would no longer be any justification. Taxation would be confined to individuals as citizens or visitors.
- Society would, of course, continue to play its own direct part in the economy through social enterprises such as health services, and education and, increasingly it seems, local and national collective initiatives.
We turn now to the changes in society itself which will secure the objectives of socialism alongside its wholehearted commitment to capitalism as the best way of maximising the national product. Society’s financial support for its members should be concentrated in the first place on those who cannot be expected to support themselves in the economy, that is: children, who are too young to work; the very elderly, who are past it; and those who are chronically sick or disabled. The funds for this support should be provided by the collective ownership of productive capital. The amount of capital required to generate the necessary income should not be underestimated. But support will gather as taxpayers realise that the demands on them will fall as the capital increases.
Beneficiaries would receive their income as of right but expenditure would be administered in a three-way partnership with a family carer, if any, and the state, normally represented by a dedicated social worker. The capital funds would be managed by professional investment managers alongside their commercial analogues.
Once we have provided for those who cannot operate in the economy income from the sovereign funds can be used to introduce a basic income for all. It is entirely right that this, rather than the income of working taxpayers, should be the source of the basic income.
by Citizens' Income Trust | Oct 18, 2012 | Opinion
Matthew C. Murray and Carole Pateman (eds), Basic Income Worldwide: Horizons of Reform, Palgrave Macmillan, 2012, xv + 271 pp, hbk, 0 230 28542 2, £57.50
This book is a most useful survey of international experience of Basic or Citizen’s Income, of benefits sufficiently similar to enable them to be regarded as on the way to a Citizen’s Income, and of significant legislative attempts at Citizen’s Incomes. The book complements Basic Income Guarantee and Politics, edited by Richard Caputo and recently published by the same publisher, with which it overlaps to some extent, but not too much. Both books are essential reading for anyone interested in how experience of Citizen’s Income, and debate about it, are developing worldwide.
Some of the material in the first part of the book will be familiar to readers of this Newsletter, but some will not be. The Alaska Permanent Fund Dividend will be well known, but less well known will be some highly positive results from United States and Canadian Negative Income Tax experiments. This Newsletter has already reported stunning results from the Namibian Citizen’s Income pilot project, but less well known are the complexities of Brazil’s and Canada’s political economies and their effects on benefit reform.
The second part of the book describes Basic Income proposals for East Timor, Catalonia, South Africa, Ireland, Germany, New Zealand, and Australia. The overall impression is of a widespread global debate, different in different countries, but with lots of connections between the different national debates.
Murray’s concluding chapter is understandably effusive about the results of the Namibian pilot project, and about the brake on inequality provided by the Alaskan Permanent Fund Dividend. Conditional schemes, on the other hand, are found to lead to new inequalities (p.253), and tax credit and negative income tax schemes to have similar problems (p.255). Murray recognises the different effects of different political contexts, and this reviewer was particularly struck by ways in which more federal political arrangements, such as those in the USA and Brazil, can make the debate more possible locally but quite complex nationally.
One issue over which the editors seem to be somewhat confused is that of terminolog. In this book, ‘Basic Income’ usually means an unconditional and nonwithdrawable income for every citizen, but sometimes it means a class of benefit types of which an unconditional benefit is one member (e.g., p.251), which leaves the unconditional and universal benefit without a name. A similar problem arises in the introductory chapter, which lists some important questions: What form should the payment take? How much should it be? Should it be unconditional? Should it be universal? Can it be afforded? How should it be funded? Some of these questions are ‘controversial questions’ surrounding ‘Basic Income’ (p.2) if ‘Basic Income’ is understood as an unconditional, nonwithdrawable and universal income: but some are not. The question ‘Should the payment be universal?’ is a question about whether we should have a Basic Income. It is not a question about a Basic Income. Similarly, ‘Should the income be paid unconditionally?’ is a question about whether or not we should have a Basic Income. By the end of the introduction we are entirely unsure about what the term ‘Basic Income’ means.
I know that this has been said in these pages before, but it clearly needs saying again: clarity of definition is essential to rational debate.
Our position is this: A ‘Citizen’s Income’ or a ‘Basic Income’ is an unconditional, nonwithdrawable income for every individual as a right of citizenship. The terms should not be used for anything else. Other terms, such as ‘social dividend’ and ‘universal grant’ are equivalent, but only if they mean the same thing. (We do not use ‘Basic Income Guarantee’ because a guaranteed income can mean an income achieved by means-tested benefits.) Widespread agreement on the meaning of terminology would considerably help the clarity of debate, both individual national debates and the global debate, and it would have helped the editors and authors of the book under review to express themselves more clearly.
But having said all that: Murray and Pateman have provided us with a most useful collection of essays on some highly significant Citizen’s Income experiences and debates, and anyone interested in that debate should read this book.
by Karl Widerquist | Sep 14, 2012 | Research
Toll Road News, July 8, 2012
This article proposes creating an Alaska-style sovereign wealth fund out of toll road fees and using the returns to the fund to pay dividends to citizens.
Online at:
https://www.tollroadsnews.com/node/6041
by Karl Widerquist | Aug 27, 2012 | Research
The N.D. Capitol and Beyond: The latest North Dakota state news, July 3, 2012
In this article Teri Finneman, of the Forum Communications Company, argues that even though North Dakota is now the second largest oil producer in the United States, it is not in position to create a dividend-paying sovereign wealth fund along the lines of the Alaska Dividend.
It’s online at:
https://northdakota.areavoices.com/2012/07/03/bonus-holiday-edition-ask-your-government/