Economy Ellen Brown Original

Ellen Brown: Interest Rate Hikes Will Not Save Us From Inflation

Rather than making money harder to get, the U.S. government needs to focus on the other side of the demand vs. supply inflation equation.
[olle svensson / CC BY 2.0]

By Ellen Brown | Original to ScheerPost

In prescribing cures for inflation, economists rely on the diagnosis of Nobel laureate Milton Friedman: inflation is always and everywhere a monetary phenomenon—too much money chasing too few goods. But that equation has three variables: too much money (“demand”) chasing (the “velocity” of spending) too few goods (“supply”). And “orthodox” economists, from Lawrence Summers to the Federal Reserve, seem to be focusing only on the “demand” variable. 

The Fed’s prescription is to suppress demand (borrowing and spending) by raising interest rates. Summers, a  former U.S. Treasury Secretary who presided over the massive post-2008 bank bailouts, is proposing to reduce demand by raising taxes or raising unemployment rates, reducing disposable income and thus people’s ability to spend. But those rather brutal solutions miss the real problem, just as Summers missed the crisis leading up to the 2008-09 crash. As explained in a November 2021 editorial titled “Too Few Goods – The Simple Explanation for October’s Elevated Inflation Rates,” we don’t actually have too much consumer money chasing available goods: 

M2 money supply surged [in 2020] as the Fed pumped out liquidity to replace businesses’ lost sales and households’ lost paychecks. But bank reserves account for nearly half of the cumulative increase since 2020 began, and the vast majority seem to be excess reserves sitting on deposit at Federal Reserve banks and not backing loans. Excluding bank reserves, M2 money supply is now growing more slowly than it did for most of 2015 – 2019, when inflation was mostly below the Fed’s 2% y/y target, much to policymakers’ chagrin. Weak lending also suggests money isn’t doing much “chasing,” a notion underscored by the historically low velocity of money. US personal consumption expenditures—the broadest measure of household spending—have already slowed from a reopening resurgence to rates more akin to the pre-pandemic norm and surveys show many households used stimulus money to repay debt or build savings they may not spend at all. It doesn’t look like there is a mountain of household liquidity waiting to do more chasing from here. [Emphasis added.]

In March 2022, the Federal Reserve tackled inflation with its traditional tools – raising interest rates and tightening the money supply by selling bonds, pulling dollars out of the economy. But not only have prices not gone down since then, they are going up. As observed in a July 15 article on Seeking Alpha titled “Fed-Induced Recession Looms As Rate Fears Roil All Markets”:

On Wednesday, the Consumer Price Index came in at a 9.1% annual rate. The higher-than-expected reading puts the CPI at a new 41-year high.

The biggest contributors to rising consumer prices are the basic necessities of food, fuel, and shelter. As households struggle to make ends meet, they are trimming discretionary spending, burning through savings, and running up credit card balances.

Businesses are also getting squeezed. On Thursday, the Producer Price Index showed wholesale costs rising at a massive 11.3% year-over-year.

When their own costs go up, producers must raise the prices of their products to cover those costs, regardless of demand. Less money competing for their products won’t bring producer costs down. It will just drive the companies out of business, as happened in the Great Depression. The Seeking Alpha article concludes:

… As both businesses and consumers are forced to tighten their belts, a slowdown looms.

And if the Federal Reserve makes another major policy misstep, then a severe recession and financial crisis may also be coming. 

Recession is already evident. The stock market has lost a cumulative $7 trillion in value this year, while the crypto market has lost $2 trillion since last November. Emerging markets are in even worse straits. According to a July 14 article by Larry McDonald on ZeroHedge, “Emerging and frontier market countries currently owe the IMF over $100 billion. US central banking policy plus a strong USD is vaporizing this capital as we speak.… A quarter-trillion dollars of distressed debt is threatening to drag the developing world into a historic cascade of defaults.” 

Every time the Fed raises rates, borrowing becomes more expensive. That means higher interest costs not only for governments but for borrowers with mortgages, home equity lines of credit, credit cards, student debt and car loans. For both large and small businesses, loans also get pricier.

To be clear, this is not the same sort of inflation that Paul Volcker was taming in 1980 when he raised the Fed funds rate to 20%. McDonald observes, “In 2021, global debt reached a record $303T, according to the Institute of International Finance .… Volcker was jacking rates into a planet with about $200T LESS debt.” [Emphasis added]

Volcker was also not dealing with the supply shortages we have today, generated by lockdowns that put more than 100,000 U.S. companies out of business; sanctions and war that cut off global supplies of fuel, food and resources; and farming crises such as that in the Netherlands, generated by overly stringent regulations. 

Higher interest rates don’t alleviate cost/push inflation caused by supply crises; they make it worse. Rather than making money harder to get, the government needs to focus on the supply side of the equation, stimulating local production to bring supply levels up. Rather than Volcker’s solution, what we need is that pioneered by Alexander Hamilton, Abraham Lincoln, and Franklin D. Roosevelt, who pulled us out of similar crises with public banking institutions designed to stimulate infrastructure and development. 

For foreign models, we can look to the infrastructure-funding central banks of Australia, New Zealand and Canada in the first half of the 20th century; and to China, which salvaged the global economy following the 2008 banking crisis with massive infrastructure and development funded through its state-owned development banks. 

China Did It

In the last 40 years, China has exploded from one of the world’s poorest countries to a global economic powerhouse. Among other notable achievements, from 2008 to 2022 it built 23,500 miles of high-speed rail, at a time when U.S. infrastructure projects were stalled for lack of funding. How did China pull this off? Rather than relying on taxpayer funds or foreign debt, it borrowed from its own banks. 

China has three massive state-owned infrastructure and development banks – the China Development Bank, the Export-Import Bank of China, and the Agricultural Development Bank of China. Called “policy banks,” they get their liquidity either (a) directly from the People’s Bank of China (PBOC) in the form of “Pledged Supplementary Lending,” or (b) by issuing bonds, which have higher credit ratings than commercial bank bonds and are in demand because they can be used as collateral to borrow from the central bank. China’s policy banks are limited to funding certain specific government policies; and these policies are all productive and public-purpose-driven, unlike the short-term private profit-maximization driving Wall Street banks.       

Besides its big state-owned banks, China has an extensive network of local banks, which know their local markets. The PBOC website lists seven tools it can use for adjusting monetary policy, including not just a short-term lending facility like the U.S. Fed’s discount window, but a facility to inject liquidity into banks for medium-term loans, as well as the “pledged supplementary lending” to fund long-term loans from the three policy lenders for specific sectors, including agriculture, small businesses, and shanty town re-development.   

Yet all this stimulus has not driven up Chinese prices. In fact consumer prices initially fell in 2008 and have hovered around 2% ever since. [See chart below.]

Prices are creeping up now, as is happening everywhere; but they have reached only 2.5%—far below the 9.7% seen in the U.S. in July. 

Our Forebears Did It, Too

State-owned infrastructure banks are not unique to China. In the United States, a similar model was initiated by Alexander Hamilton, the first U.S. Treasury Secretary. The “American System” of government-issued money and credit was key both to winning the American Revolutionary War and to transforming the nation from a collection of agrarian colonies to an industrial powerhouse. But after the War, the federal government was $70 million in debt, including $44 million from the colonies-turned-states. 

Hamilton solved the debt problem with debt-for-equity swaps. Debt instruments were  accepted in partial payment for stock in the First U.S. Bank. This capital was then leveraged into credit, issued as the first U.S. currency. Loans were based on the fractional reserve model. Hamilton wrote, “It is a well established fact, that Banks in good credit can circulate a far greater sum than the actual quantum of their capital in Gold & Silver.” 

That was also the model of the Bank of England, the financial engine of the colonial oppressors; but there were fundamental differences between the two models. The Bank of the United States (BUS) was designed for public development. The Bank of England (BOE) was intended for private gain. (See Hamilton Versus Wall Street: The Core Principles of the American System of Economics by Nancy Spannaus, and Alexander Hamilton: A Biography by Forrest McDonald.)

The BOE was chartered to fund a national war and was capitalized exclusively by public debt. The government would pay private lenders, who controlled what policies could be funded. Hamilton’s BUS, by contrast, was to be a commercial bank, funding itself by generating credit for infrastructure and development. 

Under Hamilton’s system of “Public Credit,” the primary function of the BUS would be to issue credit to the government and private interests for internal improvements and other economic development. Hamilton said a bank’s function was to generate active capital for agriculture and manufactures, increasing the quantity and quality of labor and industry. The BUS would establish a sovereign currency, a banking system, and a source of credit to build the nation, 

creating productive wealth, not just financial profit. 

The BUS was chartered for only 20 years, after which it lapsed. When economic hardships and monetary pressures followed, the Second Bank of the United States was founded in 1816 under President John Quincy Adams, basically on the Hamiltonian model. It funded one of the most intense periods of economic progress in history, investing directly in canals, railroads, roads, and coal and iron enterprises; lending money to states and cities engaged in such projects; and managing credit so that it continually flowed into needed productive activities. 

After the Second BUS was shut down, Abraham Lincoln’s government issued Greenbacks (U.S. Notes) directly, funding both the Civil War and extensive infrastructure and development. The National Banking System was also established, under which national banks would be partially capitalized with federal securities.

An International Movement Is Born

The American System and its leaders not only allowed the American colonists to break free of British control but inspired an international movement. Other British colonies revolted, including Australia, New Zealand and Canada; and other countries rebelled against the British imperial free-trade doctrines and developed their own infrastructure and manufacturing, including Germany, Ireland, Russia, Japan, India, Mexico, and South America.

The Commonwealth Bank of Australia (CBA), founded in 1911, followed the Hamiltonian model. It was masterminded by an American named King O’Malley, who called Hamilton “the greatest financial man who ever walked the earth.” The CBA funded major national development and Australia’s participation in World War I, simply with national credit issued by the bank. 

In Canada from 1939-74, the government borrowed from its own Bank of Canada, effectively interest-free. Major government projects were funded without increasing the national debt, including aircraft production during and after World War II, education benefits for returning soldiers, family allowances, old age pensions, the Trans-Canada Highway, the St. Lawrence Seaway project, and universal health care for all Canadians.

Meanwhile in the U.S., we got the Federal Reserve – and the worst banking crisis and economic depression ever in 1929-33. Pres. Franklin D. Roosevelt then rebuilt the U.S. economy financed through the Reconstruction Finance Corporation, again funded on the Hamiltonian model. Initially capitalized with $500 million, from 1932 to 1957 it lent or invested over $40 billion for infrastructure and development of all kinds; funded the New Deal and World War II; and turned a net profit to the government of $690 million.

Solving Today’s Price Inflation

That could be done again, assuming there is political will. Some pundits predict that the Fed will back off its aggressive interest rate hikes when the carnage from that approach becomes painfully evident, but it seems to be a phase we have to go through to convince policymakers that the Fed’s current tools are not able to curb the price inflation we have today. We need to stimulate local development with a national infrastructure and development bank like China’s; and for that, Congress needs to pass an infrastructure bank bill. 

Four such bills are currently before Congress. Only one, however, is capable of generating the nearly $6 trillion that the American Society of Civil Engineers says is needed over the next decade for U.S. infrastructure investment. This is HR 3339: The National Infrastructure Bank Act of 2021, which would  effectively be self-funded on the American System model – a critical feature given that the federal debt is at record levels. The bank would be capitalized with federal debt acquired in debt-for-equity swaps – federal securities for non-voting bank shares paying a 2% dividend. This capital would then be leveraged at 10 to 1 into low-interest loans, essentially at cost. The bank would be anti-inflationary, by bringing supply up to meet demand; would not require new taxes but would rather increase the tax base, by increasing GDP; and would require only a small Congressional outlay for startup costs, which would quickly be repaid. For more information on HR 3339, see the National Infrastructure Bank Coalition website

Ellen Brown
Ellen Brown

Ellen Brown is a regular contributor to ScheerPost. She is an attorney, founder of the Public Banking Institute, and author of thirteen books including the best-selling Web of Debt. Her latest book is Banking on the People: Democratizing Money in the Digital Age and her 400+ blog articles are at EllenBrown.com.

65 comments

  1. Ellen … the one and only way that the crucial combination of lowering inflation and also lowering the debt-to-GDP ratio is going come about is by way of real economic growth. The only way that real economic growth is now going to gain traction is by way of debt-free stimulus entering into circulation to grease the wheels of the real economy.

    Interest rates can then rise on the back of real economic growth and they can rise safely.
    We simply need some “monetary Yang” with our “monetary Yin”. The model is incomplete.

    The free market consumer now has the monetary stage to make this come about.

    1. That could work — in fact I would agree that the ideal would be for the Fed to just issue the money interest-free to an infrastructure bank — but you’re not going to get Congress to agree to that today. They’re already freaked out about inflation; everyone is. So it has to be done in a self-limiting way — the invention of the PA colonists, who solved the inflation problem resulting from the colonists’ paper scrip by lending the money through a public bank. It went out and came back, generated from the goods and services the money produced.

      1. I think you read my post wrong, Ellen. My reference was to debt-free stimulus, not debt based stimulus at zero percent. Huge difference !

        Zero percent debt-currency can take care of a debt servicing challenge but there would still be the threat of inflation. The currency would still be supply driven from the classical apex of power, by fiat. I think what you were perceiving was a form of MMT.

        Debt-free money issued by the marketplace, priced by the marketplace and distributed by the marketplace solves both monetary issues of debt servicing and supportive price stability.

        When real economic growth is stimulated by the ADDITION of debt-free bullion backed medium (like LODE) then real economic growth can gain traction and inflationary debt can later be safely purged from circulation. Interest rates can rise with full peace of mind because the free market stood up with the solution for SUSTAINABLE real economic growth.

        The economy wins. The value of the bullion based currency wins. The value of legal tender wins. 3 amigos in symbiosis.

        —>>> you’re not going to get Congress to agree to that today

        No need. You’re thinking top-down. Think bottom-up to discover all the legal requirements are already in place. This goes back to the whole point of Executive Order 11825. The door for monetizing market gold with market prices has been open for decades. Before that order could be written, however, the whole price model had to be re-engineered, which took place in 1971. Gold-as-money with a fixed price peg is an abomination of free market principles and the law of supply and demand. The measurable trade value has to be scalable —->>>> USD/oz

        What could be more economically natural than you spending your own personal sovereign debt-free asset by agreement with others ???

      1. That will only take place on the back of debt-free transactions being added. Debt, left to itself, will only continue to cannibalize the real economy and send the debt-to-GDP ratio higher.

        I would also suggest that besides the very desirable benefits of sustainability, some growth is required because the alternative is rather grim. Exactly what kind of genocide were you suggesting ?

      2. I would suggest shifting taxes from labor and manmade capital to taxes on natural capital which is a gift from nature. Tax what we take from the earth and not what we make.

      3. I agree, Ellen, but that’s a fiscal issue that is easily dealt with once we take care of the causal monetary issue that leads to inflation, higher costs and a cannibalization of economic efficiency.

        There is no greater generator of real wealth than the whole economy so lets focus there. Real economic growth that is made sustainable on the back of a hybrid “Yin-Yang” when debt-free medium is added into circulation is our focal point now.

        Government revenue skyrockets, as does the buying power of the aggregate legal tender….. and bullion.

        Now consider your tax rate cuts and improved social safely nets. 🙂 It’s a matter of order.

    2. Claims already exist on that gold and silver. How the hell is minting digital coins based on a hard asset that already has claims on it in third party vaults anything more than a Ponzi security? Did the organization behind this scam conduct an initial coin offering where the founders make the coins for nothing and start to sell it to the public using pernicious marketing. Stay away from marketed centralized alt coins. Buy a truly decentralized proof of work coin of which there is only one, Bitcoin.

    3. yet another fantastic article from Ms. Ellen Brown. please read this article to become better informed about the US economy and its billionaire dominators!!!!

  2. The Fed and the rest of the Bankers are rather clear about exactly how Rate Hikes will fight inflation. To the Bankers, the big threat is workers trying to get a raise. The answer to this is to force a recession and thus throw millions of workers out of work.

    From the official statements of the Fed, this is quite clear. The danger is worker wage demands. They refer to this as ‘inflation becoming entrenched’. The cure to this is a recession, millions of people out of work and struggling to survive, and thus ‘incentivized’ to come work a crappy job for a horrible Boss for bleep pay.

    Since the Democrats represent Wall Street, and haven’t given a bleep about workers for decades, this of course is the official Democrat policy, to back up Biden’s constant fight against workers anywhere getting a pay raise that keeps up with Biden-flation.

    Nothing like some planned starvation and even more extra deaths to make workers more compliant with the demands of the Bosses. The President from MasterCard supports this message.

    1. —>>> The Fed and the rest of the Bankers are rather clear about exactly how Rate Hikes will fight inflation.

      What they are not clear on because they cannot voice this, is that what has to be lowered is inflation in tandem with a lowering of the debt-to-GDP ratio. The only way that can take place is with real economic growth that then creates the rationale for a safe and sane rise in interest rates.

      The path to the all-important real economic growth as the end-in-mind is with the addition of debt-free market driven currency from the hand of the market consumer. This is something the government and the Fed are powerless to do. The introduction process has to be organic from the bottom-up.

  3. Who are these pieces for??? What are their purpose?

    After all, we the people have no say in the matter at all. Those who rule will never do any of what is suggested. At best it is wishful thinking and at worst it’s living in a fantasy reality. The system is utterly and irrevocably corrupted. Those who control it are clearly evil with no concern at all about the fate of the average person. No change at all is possible from within the system. None.

    These truths should be self evident, yet even now, for most they are not. Our entire society reminds me of a child hugging his bed sheets tight, gripped with fear, and wishing the boogyman under the bed would just go away.

    But our boogymen are real and will not go away no matter how much you wish it to be so. These boogymen will destroy your hopes and dreams and fill your future with misery, pain and suffering, yet most do not see what is right in front of their eyes. Because they have been programmed not to see. The abnormal has gone on so long that to most, it appears normal. They simply can’t see it, let alone confront it.

    We are going down…..hard.

    1. The people have a say but they don’t exercise it. Residents of the USA have been free to own and use their own gold for trade since Executive Order 11825 written on Dec , 1974.

      You all didn’t care, didn’t get it or simply fell asleep while the USA exported inflation all over the globe.
      You’re not legally bound to the use of legal tender. You simply can’t call whatever asset you wish to use legal tender. The trades have to be by agreement with the other party. Is that so hard , really ? Agreements are the bedrock to a market based economy. Make them !

      The consumer has had the monetary stage for decades. The stage door is still open.

      https://www.usgoldbureau.com/gold-confiscation

      1. The consumer has now been given the digital means to monetize his/her own personal market gold … silver too. Tokens are 100% fully backed and acts as the proxy for the gold ownership. No debt.

      2. You can use a gold-backed digital coin as a medium of exchange if you can get people to accept it, but you still need a credit and debt system. Most people don’t have enough money to buy a house outright. They have to buy it on credit, which means borrowing from somewhere. Governments don’t have the tax base to build all the infrastructure they need with money in the vault. They need to issue long-term bonds or borrow from banks. I’m suggesting borrowing from the government’s own infrastructure bank, which issues the money as credit (deposits), as all banks do. The credits are then repaid with the proceeds of what the debt-money was used to build or create. Thus spake Alexander Hamilton. Thus doth the Chinese.

  4. End the Fed and fiat money. Then there should be no inflation of the money supply.

      1. Whatever commodity the market decides on to use for money. Gold has been traditional.

      2. That’s already available and being used everyday. The marketplace simply has to wake up and realize that it’s all market driven and not a top-down process by fiat. People have to monetize their own personal bullion now. The government and the central bank cannot do this. There are strict lines between currency by fiat and currency by the free market. They do complement each other however.
        Powerful stuff !

        We’re in the process of “adding the Yang to the Yin” for a full monetary completion. Symbiosis is the result ! They empower each other.

        A Yin without a Yang is doomed. It cannot survive because symbiosis is part of its nature.

        The historical holdback has simply been the inability to be congruent with economic reality by transacting in real-time with real-time market prices. The economy is a real-time event so until very recently, congruence with this economic reality was impossible. We now have the ability to sustain real economic growth and provide market balancing and organic price discovery.

  5. A well sourced and argued explanation for our current economic crisis.

    I would like to aadd an aside. I cringe every time I see Larry Summers on the talk shows who now exalt him as having predicted the long term high inflation.

    This was, after all, a coin toss issue. Paul Krugman short term/Larry Summers long term. Krugman, by the way has issued a column admitting he was wrong and why.

    Summers was at the head of the pack of all those Wall Street experts advising Bush and then Obama who muzzled Brooksley Born, head of the Commodities Futures Trading Commission who was screaming at the top of her lungs about the housing bubble.

    1. Until the free market comes to its own economic rescue by migrating to debt-free transactions, something has to grease the wheels of the economy even if it is debt (legal tender).

      There are necessary evils written into the script for a reason.

      1. It’s perfectly legal for you to trade your own sovereign gold for goods and services on the basis of agreement with the other party.

  6. Hello, Helen. I am trying to subscribe to your blog. I keep getting this message;

    Your subscription did not succeed, please try again with a valid email address.

    I have used that e-mail address raccoon@burble.ca for 15 years. You may want to sub me in manually or knock some sense into your web hoster.

  7. Thanks Ellen Brown, for making this financial mess much clearer……and how brave you are to say something nice about China! Just the facts, Maam. Thanks for all your good work over the years…….

  8. Thanks for another great article Ellen! Now, if the powers that be can only see the practical simplicity of this ideal model. We can hope and pray that this is the case.

    1. It’s consumers who have the power now because IMF member governments and their central banks cannot monetize gold from the classical apex of power from the top-down. The process has to be organic and market driven, bottom-up.

      Just ask Gaddafi…. 😉

      If you look to the classical apex for a monetary answer, you may as well chase windmills. It’s not their prescribed role. Their role, since Bretton Woods in 1945, was to get rid of the fixed price peg so the market could conduct its own debt-free transactions with its own debt-free sovereign assets. Since late 1974, central banks have been waiting for the free market and kicking the debt can down the road to buy time.

  9. At present, we now have the USA with its own problems, plus it is helping to ruin the “European Union” which is now a disaster; to destroy Russia (perhaps without success because of the US∕EU∕UK incompetence and the blowback) from the illegal sanctions it imposes; and it confronts China instead of emulating it or working together for development, not war.

  10. Why anyone listens to a word Milton Friedman says about anything anymore after all the tragic damage he has done all over the world for decades is beyond me.

    1. That reference could have been in reference to consumers.
      Consumers can add their own debt-free liquidity into circulation on the basis of mutual agreement with the other trading principle within an economic trade. That’s been legal and lawful for decades.

    2. Friedman was quite wrong to argue that a steady increase in the money supply would lead to sustained growth. What he never understood was the power of rent-seeking at it related to the nation’s markets for land, natural resources and assets such as frequencies on the broadcast spectrum. I have elaborated on some of this in a long comment a few minutes ago.

      1. When Freidman made reference to the addition of that money, was he specific to the kind of money or are we to assume that he meant debt based fiat in the form of legal tender ?

        There may be an assumption here as to what he meant.

      2. Friedman argued that a controlled growth of the money supply was a responsibility of the Federal Reserve System. So, he was dealing with Federal Reserve Notes or their digital equivalent.

      3. Exactly, which is a measure of liquidity from a debt based system. The reality is that liquidity can be debt based and/or debt-free and if we’re going to bring back the economy and prosper as a society, we better get in touch with this reality.

      4. I join with those who have concluded that getting to a point of sustainable, non-inflationary economic performance requires fundamental changes in our systems of money creation and banking. The arguments are strong for the creation of public banks and the direct spending of debt-free money created by the U.S. Treasury. I do not see these reforms as “silver bullets”; rather, as steps in the right direction.

        The challenges presented by our existing socio-political arrangements and institutions are many. I have elaborated on some of the changes I believe are essential if the objective is to create a truly just society governed by just law justly enforced.

        As it turns out, beginning next Wednesday I will begin a series of lectures examining the history of economic cycles, the causes of these cycles and what measures hold the promise of taming them. These lectures will be offered on Zoom, hosted by the Henry George School of Social Science in New York. They are free but you must register online in advance. I invite you to join us for what I hope will be vigorous discussion.

      5. —>> I join with those who have concluded that getting to a point of sustainable, non-inflationary economic performance requires fundamental changes in our systems of money creation and banking

        I think you’re assuming that monetary issues have to be top-down and driven by fiat ? Is that correct ?
        That’s an assumption based on not examining the market driven responsibilities of bringing debt-free transactions in the mix for what really is an incomplete monetary model that we can compare it to the building of a bicycle where we , right now, only have one of two wheels assembled onto the frame.

        Don’t change the model. Complete it. We need some monetary “Yang with our Yin” in order for balance and symbiosis to blossom in the name of real economic growth and greater wealth creation.

        The consumer can now monetize his/her own personal bullion and use the value in eCommerce by using fully backed digital tokens that act as the proxy for the underlying bullion. No debt required and best of all, the process if fully market driven. This process has already begun where the consumer now takes the monetary stage, from the bottom-up.

        Free market capitalism’s emergence is truly a full team event ….. necessary evils and all.

  11. Great Article Ellen

    Greed at Top = Fears Change & Think they are GOD LIKE ( Like Ceasar / Stalin )

    We need Thinkers that Created in 30 s’ = Free Trade Laws where Jones TV could buy T.Vs for same Price

    Walmart does & Then follow-up with Bust the Monopolies & All the Bogus Foundation

    Start a Tennessee Valley Project & And make SBA = 10 times Larger and

  12. I am sorry to say but this seems to be another good willed but misguided piece of Author’s SP series entitled. “How to save capitalism and let capitalists get away with murder”.

    Situation unfortunately is truly tragic as Author seems to concur and call for real solutions.

    However, the first thing to correct tragic political and socioeconomic injustices we experience today and in the past centuries and truly fix economy to work for 99% of society is to make oligarchic elites return loot they stole over generations back to their legitimate owners, 99% of working population.

    A class based reparations. For example all properties not used as primary residences or unoccupied residences to be settled by crowded, or homeless on and off the streets population. The same with closed down offices and factories used by jobless workers and professionals working to improve neighborhood on local community request and support to name few real reparations. Money, controlled by elites is no reparations as they won’t repair stolen dignity and work ethos being needed and appreciated by local community will.

    Egalitarianism in self governed and self sustained (no outside capital) communities is the required condition for real long lasting fix to people’s economy.

    The only capital benefiting society that ever existed is human labor capital that must not be alienated. Even natural resources constitute social capital that must not be commodified or it’s social purpose will be destroyed as they are barely reproducible by careful conservation and renewal efforts for benefit of community as embraced for material foundation by American Indian spirituality.

    Everything else is a band aid helping few percent by more exploiting the rest. That is what Capitalism is all about. No public banking will help what need is to abolish debt and usury.

    Since beginning of 500+ year old history of modern market capitalism not one cent was returned by capitalists to exploited workers and by that diminishing profits.

    So let’s drop the nonsense that capitalism is capable or even able to supports equality and socioeconomic justice which is the reason for horrific consequences of rampant inflation of food and shelter upon society of people who work for living and don’t live off capital investments.

    Any historical improvements in workers pay and non cash benefits ever made were paid by deeper exploitation of other workers in other cities, other countries or on other continents and that includes Scandinavia and Western Europe or Japan or US post war feeding on blood, sweat and tears of humanity at large. They all, staunch Cold War market capitalists, dropped market capitalism like hot potato for state capitalism and instituted command and control highly regulated Economy in their own countries to dramatically raise standard of living while unleashed brutal winner takes all capital rules elsewhere. The vicious animal of Capitalism never acquired any human face. Anything else but abolition of capitalism is simply preserving horrific status quo.

    We cannot even address any economic issues here because inflation author refers to is not real inflation which is flip side of much more important people’s purchasing power of basic necessities of healthy food, safe and secure shelter, VV to enable creativity and secure companionship that includes travel and social interactions and cultivating human bonds. Capitalism failed to provide for all those basic needs as it is inherently unstable with built in inherent to crises of economic cycle and when financialized leading to depressions and socioeconomic de cohesion and collapse because of excesses of credit cycle of debt based monetary system.

    Everything else of social outcomes produced is capital generated waste of resources including human labor turned against people’s vital interests.

    Good working people of Fleischmann Yeast brand had no clue for decades that they were working for a CIA front attacking working people’s rights abroad. I won’t mention well paid workers of MIC whose work bring nothing to society in fact act to destroy it.

    Much of economic activity under capitalism is self-serving and self-perpetuating to assure domination of capital over people and to control them.

    Today circa 30% of all people in US go to work every day for nothing good for society but to directly or indirectly defend legitimacy of capitalism that enslaved them and its political umbrella called bourgeois liberal government and to make sure that the rest is subdued. Workers’ labor is being alienated and prostituted by capital to pauperize them.

    In such context praising first bank or second Bank of US and Hamilton is nothing short of bizarre.

    The First bank of US did not finance public investments it produced nothing good for public but fed oligarchic pigs and British crown landlord and trade tax dodgers who got rich of slavery, thievery and genocide with a bonus of buying themselves government officials including Senators who got paid by lobbyists for a vote right on US senate floor not so long ago and under the table since.

    Government in debt is government that rules solely for benefit of those who own the debt. Period.

    But don’t take my word for it, consult Princeton report declaring that about 95% of all policies ever enacted in last decades were those supported by wealthiest top 5% or even 1% of population. It is because they literally own US government which does what is being told by its owners.

    Any idea of monetary system based on debt held by private entities is absurd and means literally handing over so called elected government to oligarchic thieves.

    Lincoln realized that truth and created greenback backed by no commodity like gold but by “faith and credit” value of US when Bankers stupidly refused to finance his war with south waged for good of northern industrialists who wanted south to sign in for industrial Revolution in agriculture and agrochemicals and by that freeing southern slaves to be enslaved in the industrial north and by that South was to lose a grip on US House of Representatives and power.

    The Confederate south instead of selling slaves to north chose losing horrific war and via Lincoln’s declaration of emancipation of slaves were not paid for them at all.

    It is more than coincidence that Lincoln was assassinated as he was the first who introduced in US monetary system based on value not debt and hence allowed full government control of budget. It pissed off US oligarchs who were about to lose control.

    Ironically this US monetary value system was not system of value investment in commons as author apparently wishes to be but investment in a tool of coercion.

    As good faith and credit of US greenback meant faith that US army will come with guns to take what they want, credited in greenbacks they print.

    The same way as inflation is not real inflation, the unemployment is not real unemployment and meaningless anyway GDP (as RFK pointed out) is not even real GDP and private public and aggregate debt is not real debt upon extreme radical financialization that produced not just 100 trillion dollar debt instruments but a pyramid of structured derivatives leveraged with this debt with nominal liability of more than $1400 trillions worldwide.

    And hence neoclassical models of economy can be thrown into garbage the same as Marx and Luxemburg did with classical models. Marx showed among others fallacy of classical economic foundation of “last hour profit” rule cruelly forcing 12-16 hour work day.

    Nobel rejected idea of Nobel price in (classical) economics as it is not science but a mumbo jumbo cult playing with meaningless numbers reading from tea leaves. Nobel was right. Last decade we heard nothing but laments of FED economy modelers over dead Taylor Rule and Philips curve. Garbage in garbage out.

    The neoclassical notion of rejecting debt as economic factor on ridiculous premise that someone liability is someone else’s assets in era of hyper concentrated global capital and extreme inequality which makes 99.99999% borrowers and 0.00001% of world population of independent lenders while classical economy says it is about 50-50 split.

    No. The reality is that debt stays in community while assets are shipped out and invested somewhere else also where profits are better. Debt kills economies regardless of their ingenuity and hard work.

    What to do now? Sharpen pitchforks and get ready but meanwhile refuse using dollar as much as possible or any money, barter, give credit on labor and ask for credit in your labor, tools or time, share what you can, know your neighbors share meals work and company.

    Screw bankers. If it works for you. Don’t take on more debt tighten the belt if you can, no useless gadgets, no useless brainwashing media no cheap entertainment, reduce wants focus on needs, in crisis use welfare or what’s left of it but most of all ask in neighborhood for help if you’re out of job. I lived in neighborhood where in time in sickness of mother with children thirty neighbors got together and paid for mortgage for six months so children our children friends kept their house. You probably have better idea in your neighborhood but do something to created local community and economy as much as possible by whatever means you see fit.

    It is possible but extremely difficult to create money free local economy serving local communities for short run but real solutions require systemic changes to the capitalist system that will be fiercely and brutally defended.

    1. You’re defining the many symptoms of a massive debt problem. Let’s not get fragmented and be sure to keep our goal of real economic growth in plain sight as a focal point. For that to take place, we have to step out of the darkness that exists within a debt based monetary paradigm and think as to what it is that is missing.

    2. Kalen: Well explained comment. You are right the .00001%, the billionaire class, own the 99.9999% though some flourish as mercenaries and minions. Money is created digitally by private banksters so is unlimited. True wealth lies in land, labor and resources, and as you mentioned, community. The billionaire class know this; they employ the smartest. They all have secret havens in the southern hemisphere. The Bush family purchased 300,000 acres in Paraguay in 2006, two years after Pinochet was detained in Spain charged with crimes against humanity. That land, larger than all of NYC, is on top of the Guarani Aquifer, the largest fresh water reservoir on the planet. The only reason we know about it is that a 25 year old Jenna was sent to seal the deal. She and her Secret Service escort went bar hopping in Asuncion. Her purse was stolen so it made news. A taxi driver from Asuncion said they were laughing and dancing about it in the streets.
      Even if the US & EU convert to money lent into the real economy interest free like China, it is likely that there will be a collapse of civilization because of sea level rise. There are 400 nuclear power plants in the North, many on the coasts. Capitalism will not solve that problem before there are many more Fukushimas. The North will become highly radioactive. The air and water masses do not mix much N./S. due to the Coriolis effect. That is why the Bush family and most of the other .00001% have hidden havens in the Southern hemisphere.
      My solution is, on a much smaller scale, to build an intentional community in Ecuador. There all the children will be educated in the dangers of private corporations and banking so that when civilization is rebuilt, perhaps future generations can avoid the same pitfall.

    3. Many good observations in this post. But maybe author could expand a step.

      How do you identify the elites who will be subject to reparation payments?

      Who does the identifying?

      Who does the repairing?

      I know questions like this always arise when discussing reparations for slavery, for which there is a good case.

      However, the practical hurdles that would have to be surmounted and the resistance that would have to be overcome seem to be insurmountable

      And even more so now that we can’t get the Supreme Court to approve a hugely supported renewal of the voting rights act.

      1. If the federal government and the rule of law are brought into the process, matters can only get worse as the legal construct to solve the debt issue (and therefore the corruption) is already in place. There is a massive blind spot here for anyone who thinks these issues can be solved from the top-down. The elite have facilitated an answer but cannot implement. It’s not their place in this script.

        Free market capitalism’s emergence is a full team event.

        The marketplace can solve the whole problem and its symptoms by simply shifting toward debt-free transactions and the SAFE purging of inflationary debt that follows. Real economic growth is the great balancer of economics …. and justice.

        The market holds a solution that cannot be duplicated from the top-down by any government, any central bank or any court. That elitist process of assistance is already out of the way and was implemented decades ago.

        Americans simply fell asleep when the elephant walked into the room. Few have spotted it to date.

  13. Ellen will not be surprised by the following additional analysis of our problem with inflation. I have shared these perspectives on other occasions.

    A key component in the range of systemic reforms promising non-inflationary (and sustainable) economic performance is the use of tax policy to eliminate the potential to gain by speculating in land, in natural resources and in assets that have a real or government-created inelastic supply. The under-taxation of rents is what triggers asset price increases. And, the under-taxation of rents has existed in our economic system since the first Europeans established settlements in this hemisphere.

    Taming the beast directly may be impossible. The reason is simple. One of the segments of our economy that experiences almost ever-rising prices is our property markets. Even when a property market crash occurs that results in millions of mortgage loan defaults, foreclosures and bankruptcies, given enough time (even when government was inclined to allow deflation to run its course) property prices eventually recover and resume a new cyclical climb.

    The taxation of the capital (i.e., sales) value of property is the responsibility of local government. Almost universally across the United States, the method of valuation and taxing of real property drives up the price of property until this inflationary uplift so stresses the ability of households to service debt and businesses to maintain profit margins that a new correction or collapse occurs. Only rarely are property assessments adjusted regularly based on changes in market prices. And, when assessments are revised, rarely are they revised so that all properties are assessed at the same percentage of current market value. Moreover, the value of land — and vacant land in particular — is almost universally under-assessed, while the value of buildings (which are depreciating assets) are almost universally over-assessed.

    As many economists (including even Milton Friedman) tried to explain to policymakers, the optimum rate of taxation on depreciating assets (such as housing units) is ZERO. Shelter is a basic human necessity; yet, housing is taxed heavily, in part because it is an asset not easily moved to escape taxation. If it makes sense to tax housing, then all depreciating assets we own ought to be similarly taxed — on the surface a ridiculous proposition. What, then about the land parcel (or other form of location, such as the dock that secures a house boat) on which our buildings are constructed?

    Every location, or parcel or tract of land has some potential annual rental value. This value is created not by what the individual owner does or does not do to improve the location but by the aggregate societal investment in public goods and services brought to the location. Thus, this rental value rightfully belongs to the community. If fully collected, there would be no imputed (or actual) rental income stream to be capitalized by market forces into a selling price for the location. The result would be permanently affordable locations on which to construct housing, to conduct commerce, to construct needed and desired societal infrastructure and other amenities.

    So, the theory tells us what to do. The problem is that the changes must be made by every local government, by every municipality, by every county, by every borough, by every township and by every school district. Absent the widespread change in how public revenue is raised, there is no hope of taming inflation. For many years I monitored the nation’s housing markets working at Fannie Mae. If you want to see a clear indication of ever-rising inflation, look at the median price of a residential property since the end of the Second World War. Then, look at the land-to-total value ratios for residential properties. When I started work at Fannie Mae in 1984 the maximum loan amount permitted to purchase a residential property was still well under $100,000. At the time of the 2007 market crash, this loan amount had climbed to over $400,000 — higher in the nation’s most speculation-driven metropolitan markets). Now, in 2022 the median price of an existing property across much of the United States is well above the price point on the eve of the 2007 crash.

    And, I have touched on only one aspect of the inflation-generating character of our laws that reward rent-seeking or the production of goods and delivery of services. There are many sources of rent that is privatized because of under-taxation. If you want to read more about all this, I recommend doing a search on Mason Gaffney, a long-time professor of economics at the University of California, who better than most understood how rent flows through the economy cutting a destructive path.

    1. –>>> Taming the beast directly may be impossible.

      Not at all. Real economic growth supported by an addition of debt-free medium will drive real economic growth and allow for inflationary debt to be safely purged.

      1. A measure that would help bring down credit-fueled and speculation-driven inflation of land prices is regulation that prohibits any financial institution that accepts government-insured deposits from extending credit for the purchase of land or acceptance of land value as collateral for borrowing. This would help protect taxpayers from imprudent bankers and the bankers from themselves.

      2. When you say “measure”, I automatically think of measures of value which are prices.
        Debt-free consumer driven transactions now take place daily with the use of real-time prices and real-time price comparisons within eCommerce.

        On the basis of price agreement between two trading parties, a debt-free widget priced at $7.77 can trade without the need for debt (legal tender) for any other debt-free widget also priced at $7.77.
        The transaction is efficient , fair and supports real economic growth along with the essential need for market balancing. Call it “balanced barter” if you like. 🙂

        Guess what ? Gold and silver are debt-free widgets with fully scalable prices to measure their trade value. (usd/oz) The historical challenge on doing this efficiently, accurately and in such a way that it might be user friendly has been based on the past’s inability to offer us the capability to price and transact in real-time. It turns out that the monetary law of weights and measure could only come to fruition in real-time ! Who knew ? The economy, in reality, is a real-time event !!! Congruence with this reality is indispensable. The law is unyielding.

        We cannot pour new wine into old wineskins, some might say.

    2. Agreed we need a land value tax. But there is no bill pending on that, and as you say it has to be done locally. We need major infrastructure now, before our crops dry up, bridges collapse, etc. And it’s an issue currently before Congress. I was just explaining here how it can be funded.

      1. Ellen, you wrote:
        Agreed we need a land value tax. But there is no bill pending on that, and as you say it has to be done locally. We need major infrastructure now, before our crops dry up, bridges collapse, etc. And it’s an issue currently before Congress. I was just explaining here how it can be funded.

        Ed here:
        What I tried to offer to others is some insight into the role of our systems of land tenure and taxation as an inflation driver. What we know is that almost all spending on infrastructure leads to increases in land value, a value that ought to be publicly captured but is not.

      2. The land tax is the ideal state and local tax.
        The federal government can fund its war machine with bake sales.

  14. Nobody is in touch with reality. When inflation hits, we want to read an explanation that start with why there were so many years without inflation. Then the eplanation proceeds with what changed in the scenario to create inflation. But we notice not Ellen Brown, or anybody else, has laid out this explanation.

    1. It’s academic over a long period of time.

      When debt based medium like legal tender is the one and only form of liquidity being used to drive ALL the affairs of trade, debt accumulates over time and eventually, a debt bubble will form. We’re there now.

      Once the debt gets so large that debt begins to “push on a string” in its energy transfer, the impotence of debt can no longer drive real economic growth. Real economic growth is the only avenue that allows us to raise the standard of living while also allowing for the right conditions for interest rates to rise and rise safely. Inflationary debt can then be safely purged.

      To achieve the ideal condition of sustainable real economic growth, debt-free medium has to be ADDED into circulation much like a completion process where the marketplace “adds the Yang to the existing Yin” ….. a fait accompli

    2. Price inflation today was created by shortages — from the lockdowns, sanctions, regulations blocking nitrogen fertilizers (e.g. in Holland and Sri Lanka), etc. Public policy mistakes.

      1. Inflation is caused mostly by creating money by debt or as Baum showed the man behind the curtain. All the reasons given are BS. There was similar food price inflation in 2008 without supply chain, Ukraine war, pandemic, or any of the plethora of causes spread by the “experts” on MSM. If money is digitally created with debt, that interest is built into the cost of goods and services so more money has to be created to pay the interest and on and on. Now, since The Commodity Futures Modernization Act of 1999 signed by Clinton, Wall Street is on the commodities game and like the housing bubble of 2007 they are turning it into a disaster for the 99% and a bonanza for the .00001%, the billionaire class. Here is a look back at those times of $140/bbl oil and food riots caused by food price doubling. https://leahmcgrathgoodman.com/asylum/
        https://www.democracynow.org/2010/7/16/the_food_bubble_how_wall_street
        Before 1999, to trade in commodities one had to own a seat on an exchange like COMEX or NYMEX & you had to have the facilities to accept delivery which eliminated many banksters. Now there is high speed trading and everything is a commodity to be traded and inflated electronically. Supply and Demand Econ 101 is an old fairy tale. But the “experts” keep telling like it is true and many believe them.

  15. “private property makes people stupid….only the stupid bourgeoise believe everything is reduced to the purse”. Karl Marx
    “if americans understood the US money and banking system there would be a revolution”. Henry Ford

    1. Sorry but those two guys had no concept of real-time pricing and how they make debt-free transactions and real economic growth fully sustainable.

      Neither one of them had their computers plugged in…. 😉

  16. Hi Ellen,

    It’s easy to diagnose and critique our society and politics and everybody certainly does it, but I appreciate how your writing is proactive and solutions based. Nothing gets better without an aggressively proactive action plan and overall vision and narrative that people can grasp. My sense is that in a nutshell, your solutions are based on the idea of local controlled and small: food, capital, etc.

    I invite you to check out http://www.ReclaimParty.org and would greatly welcome any feedback on the newsletter and activities taken and promoted. Our entire focus should be about creating locally generated, food, jobs, and shelter within a hyper-local independent political movement that looks to reclaim our physical and mental well-being and ultimately our lives.

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