Inoculating Against Finance Fever: Money Reform Speech, Chicago
- Alistair McConnachie
- 4 hours ago
- 7 min read
The following speech was delivered by Alistair McConnachie to the fourth annual American Monetary Institute Conference, at Roosevelt University, Michigan Avenue, Chicago, on Friday 26 September 2008 at 10am. Alistair is pictured above with the organiser, Stephen Zarlenga, the Director of the American Monetary Institute, and the author of the foremost book on monetary history ever written, 'The Lost Science of Money' (2002) on Sunday 28 Sept 2008. North Avenue Beach, Chicago.
The speech was entitled "Inoculating Against Finance Fever" and it was subtitled "Injecting debt-free money into Wasilla, not Wall Street". Below is the text he was working from. As Alistair explained to the audience…
That is to say, we need to inject debt-free, publicly-created money (1) into small-town USA, not into financial-markets USA – into Main Street, America, not Wall Street, America.
If there is money needing to go into the system, then let's invest in America.
Let's invest at the bottom, not bail-out at the top! Let's not prop up a failed system!
Let's not prolong the agony!
That is the proposition to which the next few minutes is dedicated – and it is this idea of investing in Main Street, that I want to impress upon you as a Money Reformist Response to the present crisis.
But let's back-track a little. What's the root of the problem?
Michael Rowbotham said it well, 10 years ago, in his 1998 book The Grip of Death. He said:
…the fundamental reason why financial markets do not function according to theory and which explains why those markets have turned into gambling shops in which everything is given a value and traded mercilessly for gain, is that the whole edifice is erected upon the instability and opportunism of debt. (2)
That is, since banks create debt-based money out of nothing, then – if they are allowed – their reckless lending will fuel the financial markets…and this is especially so when they are allowed to be involved in speculation.
Debt is, to the financial markets, what high-octane fuel is to a jet engine, it sets it off at speed. House prices, for example, shoot along the runway and then take off! But it's not a jet-propelled flight, it's a debt-propelled flight!
PREVENT BANKS LENDING for SPECULATION and TRADING in SPECULATIVE INSTRUMENTS
It is this creation of money for speculative purposes which causes the damage to the financial markets.
Again, Michael Rowbotham – whose reform in his book, The Grip of Death, does not go as far as the AMI reform – has suggested nevertheless that creating money for speculative purposes be banned:
These are financial activities at least one step removed from actual productive investment, and little of the money involved actually filters through to commerce. They are also activities which, though not wholly undesirable, certainly do not merit the right to leverage volumes of additional money into existence – if they are to take place, there is a compelling case for arguing that this should only be with money that the agents actually possess – ie money already in existence – ie not additional bank credit. (3)
What that is also implying is that we need to re-impose something like the Glass-Steagall Act – which was abolished by the Clinton administration. This Act prohibited commercial banks from getting involved in investment banking, and from the speculation involved in that field.
That is to say, we need to prevent commercial banks from being able to lend money for, and to trade in, derivatives such as collateralised debt obligations and mortgage-backed securities.
We need to separate commercial banking from the business of investment banking once again.
That means that the speculators, if they are trading in derivatives, will need to do so with money that already exists, rather than money which has been created and borrowed specifically for the purposes of speculation.
Then – it could be argued – that having to speculate with real money again, may even help these currency markets return to their original purpose of evening-out trade related imbalances.
Of course, we should also go further.
As we know, the American Monetary Institute reform will prohibit banks from creating money in the first place.
So not only should banks be prohibited from getting involved in the speculative field, but, if they lend money, to anyone, they will have to find real money from somewhere.
BANKING REFORMS to COMBAT SYSTEMIC DEBT
There are also some basic banking reforms, which should be established as proper banking practice once again. And we should ground these basic banking reforms in two principles.
Principle 1: Banks are Creatures of Our Law:
They are "incapable of existence without life support from our legal system, entirely dependent on the juridical and political system". (4)
We have the right and duty to regulate and supervise them (5) – to ensure they are accountable to the society upon which their actions impact.
In effect this means, if the government is going to be taking on board toxic assets – and we argue that they should not, but if they are to do so – then we have every right to demand that it is with very strict conditions attached – otherwise the bank should be allowed to fail.
Principle 2: We are Downsizing the Financial Sector and Moving to a Productive Economy Again (6):
That is, an economy which produces real things, not just financial instruments for gambling – so the "rocket scientists" in Wall Street will be forced to get proper jobs, producing...rockets!
When we have a productive economy again then we will be able to generate levels of income which will mean we don't have to obtain money by borrowing, and indebting ourselves.
Going into debt will become a choice, not a necessity.
Policy 1: Reign in Easy Credit:
Easy credit is inflating house prices and driving society into debt. We need to lend like we did in the 1970s. That is to say, we need to:
a) Bring down the income/borrowing ratio.
In the 1970s it was not possible to obtain a mortgage where the monthly repayments exceeded the weekly net income of the main wage earner. (7)
b) Establish controls which place limits on the duration of a mortgage.
c) Raise the initial deposit level required from the borrower. (8)
Policy 2: Regulate and Inspect Financial Instruments Properly (9):
Just as we regulate for the health and security of the nation, we can regulate for the health and security of its economy.
The consequences of trading in these speculative instruments are impacting negatively upon our society.
As we've said, banks should be prohibited from lending for them, and trading in them.
But the instruments themselves should also be subject to regulation and inspection, and non-transparent instruments should be banned.
That will involve expanding the remit of the Regulatory Authorities to not only regulate bank company structures, but regulate the financial instruments in which they deal.
In relation to the UK, Elliot and Atkinson point out to those who think that regulation has to be "global", that if banks choose to move their business offshore then they should know that their contracts will not be enforceable in British courts. (10)
The same applies to the USA. If banks start trading off-shore, they won't have those contracts recognised in American courts!
THE BIG ONE: Move to a Publicly-Created Money Supply:
But, if we really want to downsize the financial sector and free ourselves from the chains of debt which entangle us, then we need to move from a privately-created money supply to a publicly-created money supply.
That is, we need the reform promoted by the AMI.
Which brings us back to where we started, and the situation right now. If the economy needs liquidity, and if we're going to pump money in, then let's make sure it goes to the people at the grass-roots, not to the gamblers at the top.
Let the new money – created by a fourth branch of government, as advocated by the AMI – be invested into society, and then find its way, trickling up, into the banks, via new savings deposits, put there by the men and women who create the goods and services which represent the real wealth of this nation!
To secure the long-term, sustainable prosperity of the nation – and indeed the long-term health of the banks themselves – then let's invest money directly into society so that the wealth created will find its way into banks, via savings deposits.
Don't just give the banks more money to lend, unsustainably, in order to perpetuate a debt bubble, which will do nothing but continue to create more bad debts, which will continue to drive up the cost of living for the American household, which will continue to be income-starved and debt-laden.
That's the worst response you can make. Instead: invest in the real economy, not the global casino.
Don't reward the gamblers for their failures by bailing them out! Don't dump their rotting assets on the taxpayer!
Rather, spend, not lend, publicly-created, debt-free money, on projects in the real economy which will represent sustainable investment in the future of America, and which will create lasting physical assets to benefit generations to come, and which will provide real streams of on-going value long into the future – and which will also help the American taxpayer to pay off any debts owed!
That's exactly the sort of infrastructural investment which the AMI has been advocating so resolutely, all these years.
To conclude: The life-support remedy of publicly-created money, needs to be injected into the hearts and muscles of the people of this nation, and nothing should be going into the pockets of the gamblers on Wall Street, who are responsible!
You can watch the Speech here:
REFERENCES
1. "Publicly-created money" is the debt-free money created, not for profit, by a department of the state, which is spent into existence. It stands in direct opposition to almost all the money we have today which is "privately-created money" – money created as a debt, for profit, by the private, corporate banking system, and which is lent into existence.
2. Michael Rowbotham, The Grip of Death: A study of modern money, debt slavery and destructive economics, [Charlbury, Oxon: Jon Carpenter Publishing, 1998] at 166.
3. Michael Rowbotham, Creative Accountancy: Options for Monetary Reform, [Self published booklet, circa 1998] at 21.
4. Larry Elliot and Dan Atkinson, The Gods that Failed: How Blind Faith in Markets has Cost us our Future, [London, The Bodley Head, 2008] at 287.
5. Ibid at 299.
6. Ibid at 305.
7. See Clive Evans, letter reprinted in Prosperity, October 2006, at 1.
8. For these points, see Frank Taylor, "Making the Case – 2: Broadening Economic Management", Prosperity, July 2007 at 2.
9. Elliot and Atkinson, op cit at 304.
10. Ibid at 303-304.
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