Majorityrights News > Category: Economics & Finance

TruthDig.Org., “The Venezuela Myth Keeping Us From Transforming Our Economy”, 7 Feb 2019:

Modern Monetary Theory (MMT) is getting significant media attention these days, after Rep. Alexandria Ocasio-Cortez said in an interview that it should “be a larger part of our conversation” when it comes to funding the “Green New Deal.” According to MMT, the government can spend what it needs without worrying about deficits. MMT expert and Bernie Sanders adviser professor Stephanie Kelton says the government actually creates money when it spends. The real limit on spending is not an artificially imposed debt ceiling but a lack of labor and materials to do the work, leading to generalized price inflation. Only when that real ceiling is hit does the money need to be taxed back, but even then it’s not to fund government spending. Instead, it’s needed to shrink the money supply in an economy that has run out of resources to put the extra money to work.

Predictably, critics have been quick to rebut, calling the trend to endorse MMT “disturbing” and “a joke that’s not funny.” In a Feb. 1 post on the Daily Reckoning, Brian Maher darkly envisioned Bernie Sanders getting elected in 2020 and implementing “Quantitative Easing for the People” based on MMT theories. To debunk the notion that governments can just “print the money” to solve their economic problems, he raised the specter of Venezuela, where “money” is everywhere but bare essentials are out of reach for many, the storefronts are empty, unemployment is at 33 percent and inflation is predicted to hit 1 million percent by the end of the year.

Blogger Arnold Kling also pointed to the Venezuelan hyperinflation. He described MMT as “the doctrine that because the government prints money, it can spend whatever it wants . . . until it can’t.” He said:

To me, the hyperinflation in Venezuela exemplifies what happens when a country reaches the “it can’t” point. The country is not at full employment. But the government can’t seem to spend its way out of difficulty. Somebody should ask these MMT rock stars about the Venezuela example.

I’m not an MMT rock star and won’t try to expound on its subtleties. (I would submit that under existing regulations, the government cannot actually create money when it spends, but that it should be able to. In fact, MMTers have acknowledged that problem; but it’s a subject for another article.) What I want to address here is the hyperinflation issue, and why Venezuelan hyperinflation and “QE for the People” are completely different animals.

What Is Different About Venezuela

Venezuela’s problems are not the result of the government issuing money and using it to hire people to build infrastructure, provide essential services and expand economic development. If it were, unemployment would not be at 33 percent and climbing. Venezuela has a problem the U.S. does not, and will never have: It owes massive debts in a currency it cannot print itself, namely, U.S. dollars. When oil (its principal resource) was booming, Venezuela was able to meet its repayment schedule. But when the price of oil plummeted, the government was reduced to printing Venezuelan bolivars and selling them for U.S. dollars on international currency exchanges. As speculators drove up the price of dollars, more and more printing was required by the government, massively deflating the national currency.

It was the same problem suffered by Weimar Germany and Zimbabwe, the two classic examples of hyperinflation typically raised to silence proponents of government expansion of the money supply before Venezuela suffered the same fate. Professor Michael Hudson, an actual economic rock star who supports MMT principles, has studied the hyperinflation question extensively. He confirms that those disasters were not due to governments issuing money to stimulate the economy. Rather, he writes, “Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.”

Venezuela and other countries that are carrying massive debts in currencies that are not their own are not sovereign. Governments that are sovereign can and have engaged in issuing their own currencies for infrastructure and development quite successfully. I have discussed a number of contemporary and historical examples in my earlier articles, including in Japan, China, Australia and Canada.

Although Venezuela is not technically at war, it is suffering from foreign currency strains triggered by aggressive attacks by a foreign power. U.S. economic sanctions have been going on for years, causing the country at least $20 billion in losses. About $7 billion of its assets are now being held hostage by the U.S., which has waged an undeclared war against Venezuela ever since George W. Bush’s failed military coup against President Hugo Chávez in 2002. Chávez boldly announced the “Bolivarian Revolution,” a series of economic and social reforms that dramatically reduced poverty and illiteracy as well as improved health and living conditions for millions of Venezuelans. The reforms, which included nationalizing key components of the nation’s economy, made Chávez a hero to millions of people and the enemy of Venezuela’s oligarchs.

Nicolás Maduro was elected president following Chávez’s death in 2013 and vowed to continue the Bolivarian Revolution. Recently, as Saddam Hussein and Moammar Gadhafi had done before him, he defiantly announced that Venezuela would not be trading oil in U.S. dollars following sanctions imposed by President Trump.

The notorious Elliott Abrams has now been appointed as special envoy to Venezuela. Considered a war criminal by many for covering up massacres committed by U.S.-backed death squads in Central America, Abrams was among the prominent neocons closely linked to Bush’s failed Venezuelan coup in 2002. National security adviser John Bolton is another key neocon architect advocating regime change in Venezuela. At press conference on Jan. 28, he held a yellow legal pad prominently displaying the words “5,000 troops to Colombia,” a country that shares a border with Venezuela. Clearly, the neocon contingent feels it has unfinished business there.

Bolton does not even pretend that it’s all about restoring “democracy.” He blatantly said on Fox News, “It will make a big difference to the United States economically if we could have American oil companies invest in and produce the oil capabilities in Venezuela.” As President Nixon said of U.S. tactics against Salvador Allende’s government in Chile, the point of sanctions and military threats is to squeeze the country economically.

Killing the Public Banking Revolution in Venezuela

It may be about more than oil, which recently hit record lows in the market. The U.S. hardly needs to invade a country to replenish its supplies. As with Libya and Iraq, another motive may be to suppress the banking revolution initiated by Venezuela’s upstart leaders.

The banking crisis of 2009–10 exposed the corruption and systemic weakness of Venezuelan banks. Some banks were engaged in questionable business practices. Others were seriously undercapitalized. Others still were apparently lending top executives large sums of money. At least one financier could not prove where he got the money to buy the banks he owned.

Rather than bailing out the culprits, as was done in the U.S., in 2009 the government nationalized seven Venezuelan banks, accounting for around 12 percent of the nation’s bank deposits. In 2010, more were taken over. Chávez’s government arrested at least 16 bankers and issued more than 40 corruption-related arrest warrants for others who had fled the country. By the end of March 2011, only 37 banks were left, down from 59 at the end of November 2009. State-owned institutions took a larger role, holding 35 percent of assets as of March 2011, while foreign institutions held just 13.2 percent of assets.

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Wind turbines in Nordhorn, Germany. (M. Meissner/AP)

The Financial Secret Behind Germany’s Green Energy Revolution

TruthDig.Org, 24 Jan 2019:

The “Green New Deal” endorsed by Rep. Alexandria Ocasio-Cortez, D.-N.Y., and more than 40 other House members has been criticized as imposing a too-heavy burden on the rich and upper-middle-class taxpayers who will have to pay for it. However, taxing the rich is not what the Green New Deal resolution proposes. It says funding would come primarily from certain public agencies, including the U.S. Federal Reserve and “a new public bank or system of regional and specialized public banks.”

Funding through the Federal Reserve may be controversial, but establishing a national public infrastructure and development bank should be a no-brainer. The real question is why we don’t already have one, as do China, Germany and other countries that are running circles around us in infrastructure development. Many European, Asian and Latin American countries have their own national development banks, as well as belong to bilateral or multinational development institutions that are jointly owned by multiple governments. Unlike the U.S. Federal Reserve, which considers itself “independent” of government, national development banks are wholly owned by their governments and carry out public development policies.

China not only has its own China Infrastructure Bank but has established the Asian Infrastructure Investment Bank, which counts many Asian and Middle Eastern countries in its membership, including Australia, New Zealand and Saudi Arabia. Both banks are helping to fund China’s trillion-dollar “One Belt One Road” infrastructure initiative. China is so far ahead of the United States in building infrastructure that Dan Slane, a former adviser on President Donald Trump’s transition team, has warned, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

The leader in renewable energy, however, is Germany, called “the world’s first major renewable energy economy.” Germany has a public sector development bank called KfW (Kreditanstalt für Wiederaufbau or “Reconstruction Credit Institute”), which is even larger than the World Bank. Along with Germany’s nonprofit Sparkassen banks, KfW has largely funded the country’s green energy revolution.

Unlike private commercial banks, KfW does not have to focus on maximizing short-term profits for its shareholders while turning a blind eye to external costs, including those imposed on the environment. The bank has been free to support the energy revolution by funding major investments in renewable energy and energy efficiency. Its fossil fuel investments are close to zero. One of the key features of KfW, as with other development banks, is that much of its lending is driven in a strategic direction determined by the national government. Its key role in the green energy revolution has been played within a public policy framework under Germany’s renewable energy legislation, including policy measures that have made investment in renewables commercially attractive.

KfW is one of the world’s largest development banks, with assets totaling $566.5 billion as of December 2017. Ironically, the initial funding for its capitalization came from the United States, through the Marshall Plan in 1948. Why didn’t we fund a similar bank for ourselves? Simply because powerful Wall Street interests did not want the competition from a government-owned bank that could make below-market loans for infrastructure and development. Major U.S. investors today prefer funding infrastructure through public-private partnerships, in which private partners can reap the profits while losses are imposed on local governments.

KfW and Germany’s Energy Revolution

Renewable energy in Germany is mainly based on wind, solar and biomass. Renewables generated 41 percent of the country’s electricity in 2017, up from just 6 percent in 2000; and public banks provided over 72 percent of the financing for this transition. In 2007-09, KfW funded all of Germany’s investment in Solar Photovoltaic. After that, Solar PV was introduced nationwide on a major scale. This is the sort of catalytic role that development banks can play—kickstarting a major structural transformation by funding and showcasing new technologies and sectors.

KfW is not only one of the biggest financial institutions but has been ranked one of the two safest banks in the world. (The other, Switzerland’s Zurich Cantonal Bank, is also publicly owned.) KfW sports triple-A ratings from all three major rating agencies—Fitch, Standard and Poor’s, and Moody’s. The bank benefits from these top ratings and the statutory guarantee of the German government, which allow it to issue bonds on very favorable terms and therefore to lend on favorable terms, backing its loans with the bonds.

KfW does not work through public-private partnerships, and it does not trade in derivatives and other complex financial products. It relies on traditional lending and grants. The borrower is responsible for loan repayment. Private investors can participate, but not as shareholders or public-private partners. Rather, they can invest in “Green Bonds,” which are as safe and liquid as other government bonds and are prized for their green earmarking. The first “Green Bond—Made by KfW” was issued in 2014 with a volume of $1.7 billion and a maturity of five years. It was the largest Green Bond ever at the time of issuance and generated so much interest that the order book rapidly grew to $3.02 billion, although the bonds paid an annual coupon of only 0.375 percent. By 2017, the issue volume of KfW Green Bonds reached $4.21 billion.

Investors benefit from the high credit and sustainability ratings of KfW, the liquidity of its bonds, and the opportunity to support climate and environmental protection. For large institutional investors with funds that exceed the government deposit insurance limit, Green Bonds are the equivalent of savings accounts—a safe place to park their money that provides a modest interest. Green Bonds also appeal to “socially responsible” investors, who have the assurance with these simple and transparent bonds that their money is going where they want it to. The bonds are financed by KfW from the proceeds of its loans, which are also in high demand due to their low interest rates, which the bank can offer because its high ratings allow it to cheaply mobilize funds from capital markets and its public policy-oriented loans qualify it for targeted subsidies.

Roosevelt’s Development Bank: The Reconstruction Finance Corporation

KfW’s role in implementing government policy parallels that of the Reconstruction Finance Corporation (RFC) in funding the New Deal in the 1930s. At that time, U.S. banks were bankrupt and incapable of financing the country’s recovery. President Franklin D. Roosevelt attempted to set up a system of 12 public “industrial banks” through the Federal Reserve, but the measure failed. Roosevelt then made an end run around his opponents by using the RFC that had been set up earlier by President Herbert Hoover, expanding it to address the nation’s financing needs.

The RFC Act of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). With those resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. As with KfW’s loans, its funding source was the sale of bonds, mostly to the Treasury itself. Proceeds from the loans repaid the bonds, leaving the RFC with a net profit. The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms and much more; it funded all of this while generating income for the government.

The RFC was so successful that it became America’s largest corporation and the world’s largest banking organization. Its success, however, may have been its nemesis. Without the emergencies of depression and war, it was a too-powerful competitor of the private banking establishment; and in 1957, it was disbanded under President Dwight D. Eisenhower. That’s how the United States was left without a development bank at the same time Germany and other countries were hitting the ground running with theirs.

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including “Web of Debt” and “The Public Bank Solution.”

Today some U.S. states have infrastructure and development banks, including California, but their reach is very small. One way they could be expanded to meet state infrastructure needs would be to turn them into depositories for state and municipal revenue. Rather than lending their capital directly in a revolving fund, this would allow them to leverage their capital into 10 times that sum in loans, as all depository banks are able to do, as I’ve previously explained.

The most profitable and efficient way for national and local governments to finance public infrastructure and development is with their own banks, as the impressive track records of KfW and other national development banks have shown. The RFC showed what could be done even by a country that was technically bankrupt, simply by mobilizing its own resources through a publicly owned financial institution. We need to resurrect that public funding engine today, not only to address the national and global crises we are facing now but for the ongoing development the country needs in order to manifest its true potential.

BBC, “May’s government survives no confidence vote”, 17 Jan 2019.

BBC, “Brexit: Theresa May says MPs must ‘work together’ to deliver Brexit”, 17 Jan 2019.

May loses Brexit vote - what happens next?

TruthDig.org, 27 Dec 2018:

Universal Basic Income Is Easier Than It Looks

Calls for a Universal Basic Income (UBI) have been increasing, most recently as part of the “Green New Deal” introduced by Rep. Alexandria Ocasio-Cortez, D-N.Y., and supported in the last month by at least 40 members of Congress. A UBI is a monthly payment to all adults with no strings attached, similar to Social Security. Critics say the Green New Deal asks too much of the rich and upper-middle-class taxpayers who will have to pay for it, but taxing the rich is not what the resolution proposes. It says funding would primarily come from the federal government, “using a combination of the Federal Reserve, a new public bank or system of regional and specialized public banks,” among other vehicles.

The Federal Reserve alone could do the job. It could buy “Green” federal bonds with money created on its balance sheet, just as the Fed funded the purchase of $3.7 trillion in bonds in its “quantitative easing” program to save the banks. The Treasury could also do it. The Treasury has the constitutional power to issue coins in any denomination, even trillion dollar coins. What prevents legislators from pursuing those options is the fear of hyperinflation from excess “demand” (spendable income) driving prices up. But in fact the consumer economy is chronically short of spendable income, due to the way money enters the consumer economy. We actually need regular injections of money to avoid a “balance sheet recession” and allow for growth, and a UBI is one way to do it.

The pros and cons of a UBI are hotly debated and have been discussed elsewhere. The point here is to show that it could actually be funded year after year without driving up taxes or prices. New money is continually being added to the money supply, but it is added as debt created privately by banks. (How banks, rather than the government, create most of the money supply today is explained on the Bank of England website here.) A UBI would replace money-created-as-debt with debt-free money—a “debt jubilee” for consumers—while leaving the money supply for the most part unchanged; and to the extent that new money is added, it could create demand needed to fill the gap between actual and potential productivity.

The Debt Overhang Crippling Economies

The “bank money” composing most of the money in circulation is created only when someone borrows, and today businesses and consumers are burdened with debts that are higher than ever before. In 2018, credit card debt alone exceeded $1 trillion, student debt exceeded $1.5 trillion, auto loan debt exceeded $1.1 trillion, and non-financial corporate debt hit $5.7 trillion. When businesses and individuals pay down old loans rather than taking out new loans, the money supply shrinks, causing a “balance sheet recession.” In that situation, the central bank, rather than removing money from the economy (as the Fed is doing now), needs to add money to fill the gap between debt and the spendable income available to repay it.

Debt always grows faster than the money available to repay it. One problem is the interest, which is not created along with the principal, so more money is always owed back than was created in the original loan. Beyond that, some of the money created as debt is held off the consumer market by “savers” and investors who place it elsewhere, making it unavailable to companies selling their wares and the wage-earners they employ. The result is a debt bubble that continues to grow until it is not sustainable and the system collapses, in the familiar death spiral euphemistically called the “business cycle.” As economist Michael Hudson shows in his 2018 book, “… and Forgive Them Their Debts,” this inevitable debt overhang was corrected historically with periodic “debt jubilees”—debt forgiveness—something he argues we need to do again today.

For governments, a debt jubilee could be effected by allowing the central bank to buy government securities and hold them on its books. For individuals, one way to do it fairly across the board would be with a UBI.

Why a UBI Need Not Be Inflationary

In a 2018 book called “The Road to Debt Bondage: How Banks Create Unpayable Debt,” political economist Derryl Hermanutz proposes a central-bank-issued UBI of $1,000 per month, credited directly to people’s bank accounts. Assuming this payment went to all U.S. residents over 18, or about 250 million people, the outlay would be about $2.5 trillion annually. For people with overdue debt, Hermanutz proposes that it automatically go to pay down those debts. Since money is created as loans and extinguished when they are repaid, that portion of a UBI disbursement would be extinguished along with the debt.

People who were current on their debts could choose whether or not to pay them down, but many would also no doubt go for that option. Hermanutz estimates that roughly half of a UBI payout could be extinguished in this way through mandatory and voluntary loan repayments. That money would not increase the money supply or demand. It would just allow debtors to spend on necessities with debt-free money rather than hocking their futures with unrepayable debt.

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Democrat Alexandria Ocasio-Cortez is part of a group of Congress members pushing for a Green New Deal. (Charles Krupa / AP Photo)

TruthDig.Com, “This Radical Plan to Fund the ‘Green New Deal’ Just Might Work”, 16 Nov 2018:

With what author and activist Naomi Klein calls “galloping momentum,” the “Green New Deal” promoted by Representative-elect Alexandria Ocasio-Cortez, D-N.Y., appears to be forging a political pathway for solving all of the ills of society and the planet in one fell swoop. Her plan would give a House select committee “a mandate that connects the dots” between energy, transportation, housing, health care, living wages, a jobs guarantee and more. But even to critics on the left, it is merely political theater, because “everyone knows” a program of that scope cannot be funded without a massive redistribution of wealth and slashing of other programs (notably the military), which is not politically feasible.

That may be the case, but Ocasio-Cortez and the 22 representatives joining her in calling for a select committee also are proposing a novel way to fund the program, one that could actually work. The resolution says funding will come primarily from the federal government, “using a combination of the Federal Reserve, a new public bank or system of regional and specialized public banks, public venture funds and such other vehicles or structures that the select committee deems appropriate, in order to ensure that interest and other investment returns generated from public investments made in connection with the Plan will be returned to the treasury, reduce taxpayer burden and allow for more investment.”

A network of public banks could fund the Green New Deal in the same way President Franklin Roosevelt funded the original New Deal. At a time when the banks were bankrupt, he used the publicly owned Reconstruction Finance Corporation as a public infrastructure bank. The Federal Reserve could also fund any program Congress wanted, if mandated to do so. Congress wrote the Federal Reserve Act and can amend it. Or the Treasury itself could do it, without the need to even change any laws. The Constitution authorizes Congress to “coin money” and “regulate the value thereof,” and that power has been delegated to the Treasury. It could mint a few trillion-dollar platinum coins, put them in its bank account and start writing checks against them. What stops legislators from exercising those constitutional powers is simply that “everyone knows” Zimbabwe-style hyperinflation will result. But will it? Compelling historical precedent shows that this need not be the case.

Michael Hudson, professor of economics at the University of Missouri-Kansas City, has studied the hyperinflation question extensively. He writes that disasters such as Zimbabwe’s fiscal troubles were not due to the government printing money to stimulate the economy. Rather, “Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.”

As long as workers and materials are available and the money is added in a way that reaches consumers, adding money will create the demand necessary to prompt producers to create more supply. Supply and demand will rise together and prices will remain stable. The reverse is also true. If demand (money) is not increased, supply and gross domestic product (GDP) will not go up. New demand needs to precede new supply.

The Public Bank Option: The Precedent of Roosevelt’s New Deal

Infrastructure projects of the sort proposed in the Green New Deal are “self-funding,” generating resources and fees that can repay the loans. For these loans, advancing funds through a network of publicly owned banks would not require taxpayer money and could actually generate a profit for the government. That was how the original New Deal rebuilt the country in the 1930s at a time when the economy was desperately short of money.

The publicly owned Reconstruction Finance Corporation (RFC) was a remarkable publicly owned credit machine that allowed the government to finance the New Deal and World War II without turning to Congress or the taxpayers for appropriations. First instituted in 1932 by President Herbert Hoover, the RFC was not called an infrastructure bank and was not even a bank, but it served the same basic functions. It was continually enlarged and modified by Roosevelt to meet the crisis of the times, until it became America’s largest corporation and the world’s largest financial organization. Its semi-independent status let it work quickly, allowing New Deal agencies to be financed as the need arose.

The Reconstruction Finance Corporation Act of 1932 provided the financial organization with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). The initial capital came from a stock sale to the U.S. Treasury. With those resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. A small part of this came from its initial capitalization. The rest was borrowed, chiefly from the government itself. Bonds were sold to the Treasury, some of which were then sold to the public, although most were held by the Treasury. All in all, the RFC ended up borrowing a total of $51.3 billion from the Treasury and $3.1 billion from the public.

In this arrangement, the Treasury was therefore the lender, not the borrower. As the self-funding loans were repaid, so were the bonds that were sold to the Treasury, leaving the RFC with a net profit. The financial organization was the lender for thousands of infrastructure and small-business projects that revitalized the economy, and these loans produced a total net income of $690,017,232 on the RFC’s “normal” lending functions (omitting such things as extraordinary grants for wartime). The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms and much more, and it funded all this while generating income for the government.

The Central Bank Option: How Japan Is Funding Abenomics with Quantitative Easing

The Federal Reserve is another Green New Deal funding option. The Fed showed what it can do with “quantitative easing” when it created the funds to buy $2.46 trillion in federal debt and $1.77 trillion in mortgage-backed securities, all without inflating consumer prices. The Fed could use the same tool to buy bonds earmarked for a Green New Deal, and because it returns its profits to the Treasury after deducting its costs, the bonds would be nearly interest-free. If they were rolled over from year to year, the government, in effect, would be issuing new money.

This is not just theory. Japan is actually doing it, without creating even the modest 2 percent inflation the government is aiming for. “Abenomics,” the economic agenda of Japan’s Prime Minister Shinzo Abe, combines central bank quantitative easing with fiscal stimulus (large-scale increases in government spending). Since Abe came into power in 2012, Japan has seen steady economic growth, and its unemployment rate has fallen by nearly half, yet inflation remains very low, at 0.7 percent. Social Security-related expenses accounted for 55 percent of general expenditure in Japan’s 2018 federal budget, and a universal health care insurance system is maintained for all citizens. Nominal GDP is up 11 percent since the end of the first quarter of 2013, a much better record than during the prior two decades of Japanese stagnation, and the Nikkei stock market is at levels not seen since the early 1990s, driven by improved company earnings. Growth remains below targeted levels, but according to Financial Times, this is because fiscal stimulus has actually been too small. While spending with the left hand, the government has been taking the money back with the right, increasing the sales tax from 5 to 8 percent.

Abenomics has been declared a success even by the once-critical International Monetary Fund. After Abe crushed his opponents in 2017, Noah Smith wrote in Bloomberg, “Japan’s long-ruling Liberal Democratic Party has figured out a novel and interesting way to stay in power—govern pragmatically, focus on the economy and give people what they want.” Smith said everyone who wanted a job had one, small and midsize businesses were doing well; and the Bank of Japan’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation. Abe had also vowed to make both preschool and college free.

Not that all is idyllic in Japan. Forty percent of Japanese workers lack secure full-time employment and adequate pensions. But the point underscored here is that large-scale digital money-printing by the central bank to buy back the government’s debt, combined with fiscal stimulus by the government (spending on “what the people want”), has not inflated Japanese prices, the alleged concern preventing other countries from doing the same.

Abe’s novel economic program has done more than just stimulate growth. By selling its debt to its own central bank, which returns the interest to the government, the Japanese government has, in effect, been canceling its debt. Until recently, it was doing this at a whopping rate of $720 billion per year. According to fund manager Eric Lonergan in a February 2017 article:

The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BOJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.

If the Federal Reserve followed suit and bought 40 percent of the U.S. national debt, it would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs. Yet liquidating a full 40 percent of Japan’s government debt has not triggered price inflation.

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Building Eurasia

By Gábor Tóth, President of the Gateway to Europe V4-China Association.

Article originally published in English on GLOBS.

Central Europe, Hungary, China – Shanghai became the center of attention for a week in November where the first China International Import Expo took place with the participation of over 2800 companies from 130 countries and regions of the world. Hungary was a guest of honor among many other great nations such as the United-Kingdom, Russia and Germany. Hungarian companies promoted their products as politicians paved the way for smooth cooperation.

This is an enormous achievement for Hungarian diplomacy as we were the only country from the CEE region to be invited as main guests. For several days the Hungarian press analyzed all the benefits of this landmark expo, praising Hungarian-Chinese relations which have never been so strong in our 70 years of official cooperation. However, an event of even greater significance was held right after Mr Viktor Orbán, Prime Minister of Hungary, traveled back from Shanghai; an event that the press did not deal with so much, perhaps because it wasn’t as spectacular as the one in China.

Leaders of the 16+1 central banks met in Budapest to strengthen their ties in the field of finance, opening a new chapter in CEE-China relations. Mr Orbán gave a speech that contained certain thoughts that must be noted because they are visionary.

This was the first time that the central bankers of the sixteen countries and China have held a joint conference.

“The past ten years have proved that the rise of the Chinese economy is not a temporary phenomenon. China will be a fixed star in the period ahead, and will be a major player in the world economy for a very long time,” the PM said. He further noted that in addition to historical and geographical relations, economic relations will also come into being between the two rising power centres: China and Central Europe. The two regions will be increasingly connected to each other.

“This involves no less than China and Central Europe forming part of a single contiguous geographical region,” continued Mr Orbán, adding that by rail it may be possible to travel and transport any goods between China and CEE in two weeks. If we are able to build a rapid rail link from the Greek ports to Europe, this journey will be even faster.

There’s one big issue, though, that makes building Eurasia harder than it should be. The emotional and ideological trap that some western European countries are in. However, eventually everyone will realise that we must adopt an approach to China that is free from ideology. We must accept that we are different, we organise our lives differently and we lead our countries in different ways.

When it comes to Hungary the trade volume between us and China is close to 70 billion dollars, and its rate of growth is staggering, standing at an average of 10 per cent; and it grew by 18 per cent in the first three quarters of 2018.

Another very important point was made by the Prime Minister, stating that it seemed increasingly likely that we would need to prepare ourselves for the dollar losing its monopoly in world trade. This is a statement not to be taken lightly.

Well, Hungarians take it seriously, which is reflected in our monetary policy as well. Orbán told his audience: “When we issue bonds abroad, we will do so in the direction of the East, and we shall work on creating the possibility for the yuan to be the currency in which bilateral trade is settled”. Can you see why I believe that this event, with this speech, is more important than the expo in Shanghai?

The shocking remarks kept coming: According to analyses – partly Hungarian and partly international – that land on the Premier’s desk, there is a 70 per cent probability of another approaching crisis. They claim that we should expect an economic decline of unspecified nature: smaller than 2008, but almost certain to take place. This makes it all the more essential for Hungary to stand on two feet and stick to her policy of opening to the East.

If we are serious about building Eurasia, we must implement major developments, primarily infrastructure developments, because we must link China, Central Europe and the Balkans to a single network: a network on a global scale.

Hungary is in the front-line of history, yet again. We are on the cusp of a new era, and our Central European friends can trust us and look to us when it comes to building cooperation with China, after all we must be doing something right, being the only ones in the heart of Europe to enjoy the most special attention and strategic political partnership with the Asian giant. Building a truly unitary Eurasia will depend on how CEE countries finally find a common ground and work together to make the journey on the New Silk Road a future success.

The Emperor Hitler wears no mustache

Hitler’s Finances and the Myth of Nazi Anti-Usury Activism

- by Anthony Migchels, Realcurrencies

There is the widespread notion that Hitler was fighting the Money Power and that he was a problem for the Bankers because he created a Usury free economy. But there was no Usury free Third Reich economy. The German taxpayer continued to pay interest over the substantial national debt and commercial banking received interest for its fractional reserve banking based loans, which to a large extent financed the war.

“Our greatest social task is the abolition of interest slavery. This responsibility to abolish interest slavery towers above all other issues of the day. It is the only solution to the greatest problem of our time. The breaking of interest slavery is the most important moral imperative in social terms, it rises in its general significance far beyond all questions of the day, it is the solution of social questions, it is the only way out of the terrible confusion of the time. The abolition of interest slavery will deliver us from ultra-capitalist domination while avoiding both Communist destruction of the human spirit and Capitalist degradation of labour. The abolition of interest slavery opens the way to a truly social economy, by liberating us from the overwhelming domination of money. It opens the way to a state based on creative work and genuine accomplishment.”

              – Gottfried Feder 1919

Where does Hitler’s reputation for anti-Usury activism come from? It was more Nazi propaganda to get him to power than his actual policies after he did. It was not Hitler, but Gottfried Feder who was the anti-Usury man of the Nazi.

Hitler in Mein Kampf:

” For the first time in my life I heard (through Feder, AM) a discussion which dealt with the principles of stock exchange capital and capital which was used for loan activities. After hearing the first lecture delivered by Feder, the idea immediately came into my head that I had found a way to one of the most essential prerequisites for the founding of a new party.

To my mind, Feder’s merit consisted in the ruthless and trenchant way in which he described the double character of the capital engaged in stock exchange and loan transactions, laying bare the fact that this capital is ever and always dependent on the payment of interest.”

And:

“The struggle against international finance capital and loan capital has become one of the most important points in the program on which the German nation has based its fight for economic freedom and independence.”

Point 11 of the NSDAP 25 point program, a manifesto that officially (but not in practice) expressed Nazi policy:

“Abolition of unearned (work and labour) incomes. Breaking of debt (interest)-slavery.”

Hitler put it this way:

“Our financial principle: Finance shall exist for the benefit of the state; the financial magnates shall not form a state within the state. Hence our aim to break the thralldom of interest.

Relief of the state, and hence of the nation, from its indebtedness to the great financial houses, which lend on interest. Nationalization of the Reichsbank and the issuing houses, which lend on interest.”

But as we shall see, Hitler did not implement any serious monetary reform after he came to power. He did make finance completely subservient to the State and, more specifically, rearmament. But he did not nationalize any banks and the Reichsbank was already nationalized by the Weimar Republic by the time he came to power. He did not end interest payments to ‘the issuing houses’, who must have made an uncanny fortune throughout the war. He did nothing to decouple the Stock Exchange from the economy.

Feder was made Secretary of State for Economic Affairs, but was from day one sabotaged by Reichsbank President Hjalmar Schacht and replaced by him in August 1934. It was Schacht who was to manage the Nazi economy, not Feder.

Schacht’s and Hitler’s policies allowed full control of the economy, which was used to maximize production for the sake of war. But it did absolutely nothing to limit in any way massive war profiteering by the financial and industrial classes that brought him to power.

The Reichsmark

The Reichsmark was created 1924 after its predecessor, the Papiermark, had been inflated into oblivion. 1 Reichsmark was 1 Trillion Papiermark. The Reichsmark lasted until 1948, when it was replaced by the Deutsche Mark. So Hitler simply used the monetary system that he inherited from the Weimar Republic. The Reichsmark, like any other banking unit, was lent into circulation. It was a Gold backed unit until 1931, when the depression forced the Reichsbank (the Central Bank) to implement exchange controls, which effectively took Germany off the Gold Standard. A Gold peg remained in place. There were 1, 2 and 5 Reichsmark silver coins.

Hitler inherited the official Weimar 4,5% maximum interest rate. He ruled by decree, but never changed this. In fact, after the Nazi economy began to boom due to heavy spending on rearmament, it seems interest rates were raised to combat inflation. I’ve been unable to find any data on real interest rates during the Nazi era.

Who was Hjalmar Schacht?

Schacht was born in 1877 as the son of an aristocratic family. He joined Dresdner Bank in 1903 and already in 1905 was meeting people like JP Morgan and Theodore Roosevelt. He studied Hebrew to advance his career. In 1908 he joined Freemasonry. He oversaw the financing of Belgian/German trade during WW1 and used his former employer Dresdner Bank for this. This blatant conflict of interest led to his dismissal, but the revolving door was not invented recently and he was taken back by Dresdner Bank after this.

In 1923 he joined the Reichsbank and played a key role in ending the hyperinflation of the day. A little later he was made President of the Reichsbank and remained in this post until 1930. Since at least 1923 he was actively resisting the war reparations that were destroying the German economy and called for resurrection of German power. In 1926 he became involved with the NSDAP and supported their rise to power, although he never became a member.

He oversaw the formation of I.G. Farben in the twenties.

Schacht was a member of the Keppler Circle, a small group of businessmen that were at the heart of the Nazi movement and which financed Hitler’s rise to power. Wall Street was very influential in this group and contrary to what many Hitler apologists claim, played a heavy role in both financing him and war profiteering.

Shortly after Hitler came to power he was reinstated as President of the Reichsbank and when he replaced Feder as Reichscommissar for the Economy, he basically gained full control over the economy. This lasted until he was fired in 1939, when the German economy was overheating and Schacht wanted to limit spending on rearmament and was accused of ‘mutiny’ by Hitler.

Banking in Nazi Germany before the war

After becoming President of the Reichsbank, Schacht immediately started implementing policies aiming at giving the State full control of financial markets. This was known as ‘the New Plan’:

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