Stephen Zarlenga's American Monetary Act
[Reprinted from GroundSwell,
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
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
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
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:
, 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.