Stephen Zarlenga's American Monetary Act
Scott Baker
[Reprinted from
GroundSwell, November-December 2010]
Stephen Zarlenga spoke to a standing-room only crowd at the New
York City Henry George School on December 6th for two hours,
followed by a well-attended dinner at our regular restaurant,
Zana's, where we got to question him in more detail. You can read
about the act on the American Monetary Institute's site at
http://monetary.org/. The actual act is at
http://www.monetary.org/amacolorpamphlet.pdf.
Zarlenga spent about a third of the lecture quoting and
elaborating on George's views of money, credit and monetary policy,
which is based on his years of research both independently, and from
a research grant provided by the Robert Schalkenbach Institute.
In addition to supporting George's views - "he was right!"
Zarlenga said, several times - Zarlenga has a workable alternative
to the current debt-based money system.Just as importantly, it is
fairer, removes the function of money-creation, but, critically, not
banking, from the bankers, where it has led to bad judgment and
outright fraud, usury, and economic booms and busts for centuries.
Would his 9-member Monetary Authority - to be appointed by the
president and confirmed by the Senate - be immune from political
manipulation, as well as the usual financial establishment
influence?No, but if they are tasked by charter with maintaining
neither inflation nor deflation, that is a good start, and an even
better start is that they won't be creating money to bailout the
TBTF friends - at least their is no legal reason for them to do so.
I do worry about this government being capable of watching over
anything as essential as money-creation. In its limited way, the Fed
is acting as a Greenbacker (like Zarlenga) and is currently
providing money to a formerly weak area of the economy - the banking
industry.The problem, of course, is that money isn't making it onto
Main Street, but only to Wall Street for more gambling. We are
seeing inflation in the FIRE sectors as a result, not real
production in vital areas Zarlenga cites, like infrastructure,
education (here in NYC, thousands of teachers are about to be laid
off, which will raise the average public high school class size to
27), and health care for the uninsured.The Fed can't, by law,
provide money for any of that, only Congress can, but would a newly
empowered Congress, hampered only by a new Monetary Board, be any
less constrained than it is now?
It is worth remembering that the Fed, and the Administration, will
do absolutely ANYTHING to boost the markets, in part because that is
where 10s of trillions of dollars in agency, state, municipal
pension funds, and federal money, are stored - as documented in
Comprehensive Annual Financial Reports (CAFRs), available
online.According to some writers, and my own early and limited
analysis, there is enough money in these funds to make paying taxes
almost unnecessary, just from the interest alone.Governmental
budgets routinely look at current receipts (mostly from taxes) and
measure them against current and future liabilities - a sure way to
see red all the time.These accumulated but dedicated monies are
never considered part of the pie, except in the CAFRs.
Would this policy change under the AMA?Not likely. More likely it
would increase, as government investments, at least on the Federal
level, would suddenly become self-funding via money creation.The
government's love for all things on FIRE would lead to even more
inflation in that area, and trickle-down inflation, but not
trickle-down jobs, especially in commodities.
Now, Zarlenga, along with other Greenbackers like Ellen Brown,
make the case that money is not a "thing" that a
government can run out of, if it exercises its sovereign right,
already in the Constitution (Article 1, Section 8) to "coin
money." Still, given Congress's propensity to overspend, I view
the proposed 9-member Monetary Board as an insufficient safeguard,
particularly when that same Congress gets to confirm the appointees.
Zarlenga says we have to use our ballot power and "keep an eye
on them" to make sure they stay within their mandate to control
inflation, but if its constituents' own pet projects are those being
funded by New Money, who will vote against that?
This is why I cannot support the AMA without a commensurate
passage of a land value tax (LVT), from which ALL natural resources
could be taxed in their raw, undeveloped state, before speculators
can take their cut (it is now clear the super-spike in oil in the
summer of 2008 was mainly due to speculation, and we may be headed
there again next year, as the market practices "price
discovery," read: jacking up the prices until enough starving
people openly revolt).The LVT, broadly applied, would take the wind
out of the speculator-driven resource markets before it could get
started, and also provide sufficient revenues for government, and
even a citizen's dividend - a basic right since access to Land is a
basic human right.Without that, I don't see how you can have a
stable monetary system, even with better overseers who produce
public money instead of private credit.
Dissention among Greenbackers<
I also disagree with the American Monetary Institute's critique of
Ellen Brown's Public Banking proposal, with one important caveat: it
is very hard to know exactly what Brown's proposal actually, or
currently, is.
I know her proposal almost entirely from reading her dozens of
articles (she is a prolific writer, writing about an article a week
in Huffington Post, Yes! Magazine, Op Ed News etc. in the last year
or so), email, and her postings on the Public Banking Group, where
she invited me to become a member over a year ago, and where some
200 members keep up a lively and thought-provoking 50-100
message/day dialogue and preview her articles.I haven't read her
book, Web of Debt, which by her own admission has changed
considerably from the first to its, now, fourth edition, ranked #61,
122 on Amazon. She currently enjoys a bigger following than
Zarlenga, perhaps because of the populist appeal of wresting control
of the money function from the "shadow-banking elite" and
putting it closer to the people at the state level.
As far as a model of conservative state banking, Brown cites the
Bank of North Dakota (BND), making prudent non-securitized loans,
only in the state, and funded by all the revenues of North Dakota.
They haven't needed nor requested FDIC insurance since they opened
their doors in 1919. In 2009, they transferred $15 million to the
state's general fund. This strikes me as a conservative and workable
model, and I endorsed it in October when I presented to the New York
State Trilevel jobs task force (see the Sept/Oct issue of
GroundSwell). It is also probably easier to achieve than Zarlenga's
3-point monetary reform model - a significant consideration in
today's paralyzed political climate.
Yet, I also find myself agreeing with the American Monetary
Institute's reviewer, Jamie Walton, when he says, as Zarlenga says
and Henry George said, that banking is not the proper function of
government, and that fractional reserve banking is a system
destined, like musical chairs (my phrase), to leave someone standing
and bankrupt.This may sound contradictory to my support of
fractional-reserve state banking, but it is not necessarily, because
the public banking model described by Walton, if accurate, from
Brown's book, bears little resemblance to either the BND or to what
she talks about in her articles.The BND exists alongside independent
private banks in a harmonious relationship that benefits both
parties. Nowhere in Brown's articles does she advocate putting the
megabanks into permanent receivership, though she, and I, do
recommend dissolving them in an orderly way when they become
insolvent or even TBTF, and even prosecuting their officers for
fraud.I reject the argument that this would lead inevitably to
another Great Depression, though that is a topic for another
conversation.
I have looked at the Bank of North Dakota's balance sheet. Their
loan portfolio is less than either their assets or their
deposits.This is still fractional reserve banking in letter, but
maybe not in fact. This is an important distinction I was unable to
impress upon Zarlenga in our post-lecture dinner conversation.
So, I endorse the limited, BND-type model of State Banking, but
certainly not a government imprimatur on Goldman Sachs (which,
actually, they have already since being allowed to become a
bank-holding company, eligible for bailouts).I don't think this is
threading the needle too finely.You can ride a horse, but not a
shark, though both are animals.
I also endorse the AMA, but only with a LVT to check speculation
and provide revenues.
New Dangers from Old Politicians
I like Ron Paul. He is a Maverick.Paul is consistent in his views
on monetary reform. Alas, he is consistently wrong.
Paul wants the country to return to the Gold Standard, and as next
in line to head the powerful Banking Committee, with his son, Rand,
possibly as another member, he just might get his way.As Zarlenga
has proven in "The Lost Science of Money" commodity-based
money is a recipe for deflation and depression, as the supply of
precious metals is never enough for society's expanding need for
money. Wherever it's been tried, gold-backed money has led to a
shortage of the metal, depression, and even collapse (See TLSoM on
Rome's final collapse etc.).And the situation is even worse today,
when fully 1/7th of the gold volume traded, according to Business
Week, is in ETFs, where physical gold is not even delivered to the
traders (and sometimes, alarmingly, not even to the ETF!).The tools
to manipulate the market in gold exist on a scale that would have
made Midas blush.Certainly, this commodity, increasingly in short
supply, is the last kind of thing one wants to base their money
upon!
So, we have to watch and maybe protest Ron Paul's appointment to
the head of the banking committee (see the December 9th edition of
Business Week for more information:
http://www.businessweek.com/news/2010-12-09/ron-paul-author-of-end-the-fed-to-lead-fed-panel.html
, not only about his Goldbuginess, but also over his endorsement of
the Austrian school and scarcity models of economics. People seem to
flock to him in response to his promising to end the wars and lower
taxes, without seeing the specifics of his monetary policy, and
that's what counts right now.