POWER OF STORY: WHO CONTROLS OUR MONEY SYSTEM?

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

Your agreement with your bank when you make a deposit is that they will return your money to you whenever you demand it if it is in a checking account, or within a period of a few months if it is in some form of a savings account.

This is a promise that the banker only presumes he can keep. Your money is then taken, and the majority of it is loaned to someone who may not be required to repay the money for perhaps twenty or thirty years. Obviously, the bank cannot technically keep both agreements. History has proven, however, that if the element of confidence is present, new depositors will put more money into the bank, and out of that new deposit you can receive your money if you so demand.

In the late 1700s, the young government of the United States quickly realized the need for some type of control over banking. Independence and freedom, however, were the key items in the development of early America, and the fear of federal control and “money monopoly” frustrated any successful attempt by the government to bridle banking. “Wildcat banking” was prevalent, and since all banks were scrambling to make a profit, many banks failed due to undisciplined management. The bank panics of 1819, 1837, and 1857 brought about the National Banking Act of 1864.

In 1900, the United States went on the gold standard that was intended to stabilize the economy by making all forms of U.S. currency redeemable with gold. But following the panic of 1907, Congress was persuaded that the reason for all the country’s economic “ups and downs” was that there was no central banking system. They claimed that with such a system there

• Would be control over the nation’s total money supply.

• The central bank could step in and protect the depositors of any bank that had become overextended.

It was argued that this would guarantee once and for all the confidence in the banking system. Thus, two days before Christmas, 1913, (after most Congressmen had left Washington D.C. and returned to their homes for Christmas holidays), President Woodrow Wilson signed the Federal Reserve Act.

There was strong reluctance on the part of the individual banks to create a strong central system in Washington D.C. or New York, so the Federal Reserve Act became somewhat of a compromise. It divided the country into twelve districts with each district containing a Federal Reserve Bank and additional branch banks. All banks with “National Bank” designation were required to join, but the state banks only joined if they so desired.

The Federal Reserve Bank is a separate organization, not under the direct control of Congress or the President of the United States. The stated intent was to establish an impartial “referee” to oversee the banking system. The current President, however, does appoint any vacancy on the Board of Governors. The Board consists of seven members. Each member is appointed for a fourteen year term and they completely supervise the Federal Reserve System.

You could not walk into a Federal Reserve Bank and make a deposit or negotiate a loan. A Federal Reserve Bank is a “banker’s bank” that receives deposits, holds reserves, issues notes and currency, and clears checks . . . just for banks. You are affected, however, by an agency known as the Federal Depositors Insurance Corporation (FDIC) that serves to bolster your confidence in the Federal Reserve System by claiming that every bank account is guaranteed up to $250,000, and that since 1934 no depositor has lost any insured funds as a result of bank failure. That guarantee is supposed to alleviate your fears of making deposits in your local bank, even though you subconsciously know that the institution could ultimately only cover a fraction of a penny for every dollar on deposit.

The U.S. Treasury prints paper money and mints coins, but the Federal Reserve System alone is authorized to place them into circulation. The U.S. Treasury also maintains its deposits from taxation, fees, etc., in the “Fed,” as it is often called.

The Board of Governors is assisted by a Federal Advisory Council and the Federal Open Market Committee that is in charge of buying and selling government securities (we will see the importance of this committee later, in the role of inflation).

Of course, the old established banks had no desire to be controlled, but, they had lobbied Congress for government regulations to make it more difficult for additional banks to enter into the competition and to keep the other established banks from initiating competitive practices that would have affected their profits. Perhaps it was due to these ulterior motives that the Federal Reserve System failed so miserably in helping ward off the Great Depression and the bank crashes of 1929.

A most important fact to remember is that the Federal Reserve Board has ultimate control over the money supply of the United States of America. They have the power to either increase or decrease the total amount of money, including the ethereal numbers of computer money digits in the monetary system.

Next week: the three basic methods the Federal Reserve uses in its alteration of the money supply.

              (Research ideas from Dr. Jackson’s new writing project on Cultural Economics)
 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

SO, WHAT IS MONEY? PART 4

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

The first paper money in America came not from banks but from the governments of the new colonies.  In 1690, Massachusetts issued paper money, but it had no tangible asset to back it up, only a promise to redeem it later. That privilege was soon abused, and the market was flooded with the junk paper money trying to purchase any available goods. Prices soared.

The paper money drove the metal coins out of circulation simply because everyone began hoarding the metal coins.  By 1751, Britain demanded that no more paper money could be issued. The Mint Act of 1792, that has survived almost intact until the present, adopted the dollar as the standard unit of currency and the decimal system of counting. But what has backed up the U.S. dollar and given so many people the confidence in it as a secure store of wealth?

Some folks would tell you that the reason for the confidence is that there is one dollar worth of gold in Ft. Knox, KY for every dollar that is placed into our money system by the Federal Reserve Bank. Sorry, but that hasn’t been the case since the U.S. abandoned the gold standard in 1933. By August, 1971, we had sloughed off over $12 billion of the gold reserve in Fort Knox.

Saying that our currency was backed up by the equivalence of gold in Fort Knox was a sick joke. To make things even worse, it was agreed that if we owed a debt to any sovereign government, they could demand and receive our payment in gold from our reserve. In 1971, President Nixon realized that when the U.S. had trade imbalances with other countries, and we bought more from them than they bought from us in traded goods, they could and were demanding payment from us in gold out of our reserves in Fort Knox.  We possessed less than one penny at that time in reserves for every dollar issued.

On August 15, 1971, President Nixon closed the gold window. That severed the critical link between international currency and real gold. From that time on the U.S. would pay their balance of international payments in dollars. That was the first time that link had been broken in 1,500 years! Since that time the world has accepted the U.S dollar as the international standard of payment.

Other countries are now demanding to know how much real gold the U.S. has stored in Fort Knox to back up our standard of currency. That’s another sick joke. There isn’t enough there to even make a quantifiable difference. There is really only one thing that gives any form of money acceptance and usability: confidence! People will only accept U.S. dollars as long as they believe that someone else will have confidence enough in the currency to take it from them in true form of payment. That national and international confidence is very quickly melting away.

       (Research Ideas from Dr. Jackson's new writing project on Cultural Economics)

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

POSTPONED DEBT

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

As a cultural economist, I am very curious about the phenomenon of postponed debt that I observe as I travel around the world. Cultural economics tries to deal with both sides of one coin: How do the people affect the economics of a culture? And: How do the economics of a culture affect the people? The issue of postponed debt has everything to do with economics and everything to do with culture . . . and also, it has everything to do with character.

In many of the Lesser Developed Countries (LDC) where I travel, if more money is needed to meet the economic demands and pay the bills, a very simple method is used. The dictator simply prints more currency. That method has an immediate impact on the value of the existing currency. With the same amount of goods in the market, but additional money in the system that was printed and spent, the prices for those remaining goods in the system go up. No one has to vote or agree for the price to go up, they just do. For example, if there were ten cherry pies and there were ten dollars in the money system, each cherry pie would cost you one dollar. But, if another ten dollars were to be created and put into the system, you would have twenty dollars chasing the ten cherry pies, and you would end up paying $2 to purchase your desired pie. The pie wasn’t really worth more, but the value of the money was worth less. 

In the U.S., our method is a bit different. When the Congress overspends, the Treasury is overdrawn. The Treasury creates and issues treasury bills and bonds and sells them at auction (IOUs), on the assumption that someone, some institution, or some foreign entity would rather have an interest-paying bond than a cherry pie. For the government to pay off the T-bills and bonds, it is necessary to either raise taxes on the citizens, sell off national assets, e.g. oil reserves, coal reserves, harbor and port rights, national forests, military armament, air space, etc., or allow the Federal Open Market Committee of the Federal Reserve Bank to start calling in the IOUs and paying them off. What Method would they use to pay off those T-bills and bonds? You guessed it . . . more newly created money!

A bond dealer would receive the T-bills or bonds and make the appropriate payment to the holder. The Federal Reserve Bank would receive the T-bill or bond and issue a check to the bond dealer who, in turn, would deposit that check into his bank account. The check, when deposited, would be credited by the Federal Reserve Bank to that bank’s required fractional reserves and that bank would then be entitled to make loans against that new reserve, or exchange it for cash. Why did the Federal Reserve Bank have the right to issue the check? Because it was backed up by the U.S. Treasury IOU that it just purchased!

In essence, what happens in the transaction is that the federal debt, a liability, is transformed into an asset by the U.S. Treasury signing a note, and the note becoming an asset of the Federal Reserve Bank. In other words, the debt of the government has been miraculously turned into spendable money. That is called monetizing the federal deficit! It gives an illusion and a false assurance that the government has a never ending source of money and store of wealth.

Those T-bills and bonds have an intended and expected postponement in being paid back. Some may be designed to not be paid back for up to thirty years. That postponed repayment defers the immediate impact on the monetary system. And when the debt instruments are paid back, they are nearly always paid back with money from more postponed debt, generated by the selling of more T-bills and bonds. The ultimate effect, however, is exactly the same as if the government did not issue the T-bills and bonds in the first place, but simply satisfied its debt with newly printed currency fresh from the presses.

The combination of postponement of the debt, and inflation, is the ultimate, subtle taxation. No one escapes the effects of inflation. When employing the method of inflation to settle overspending, there is no cost to the government for collecting taxes, no votes have to be taken for approval, and the government is the sole beneficiary. Those decisions come from the people who affect the economics of our culture. The activity ends up being a form of the old Ponzi scheme, where the early investor is hopefully repaid by the investment of a later investor. But I have never heard of any country in history whose traditional economic system could tolerate the monetizing of $26 trillion dollars into its system. Historically, a more likely result would include bankruptcy and civil conflict.

So, what is the psychological problem with the postponement of debt? How do the economics of a culture affect the individual people? William Shakespeare instructed us, "Defer no time; delays have dangerous ends." And, we might add that postponement is perhaps the deadliest form of denial, because the longer we wait, the more the sharp edge of urgency wears off. Our minds actually start telling us that the responsibility to keep the promise is not that important anyway. Something that can be done at any time will probably be done at no time. Postponement and the ignoring of accountability can become cultural suicide on the installment plan. Many of the leaders of foreign countries I visit really believe that the loans the U.S. has made to them should now just be forgiven and forgotten. They figured that they would repay “someday,” and then discovered that “someday” is not a day of the week.

I am sensing that the people of our culture have carefully observed our attitudes of looseness toward the integrity and responsibility regarding debt. The assumption seems to be that it makes no difference if we purchase homes we can’t afford, or lease cars without concern of the residual balance at the end of the contract. When one credit card is maxed out, just go get two more, stack up student loans depending on the political leaders to simply forgive the ballooned amounts before the next election, and make personal commitments and relational promises we have no intention of keeping. I think we have some serious problems that have resulted from a breakdown of integrity and accountability.

Albert Einstein said, “We can’t solve problems by using the same kind of thinking we used when we created them.” And a culture can’t rationalize away what it has behaved itself into. The heart has reasons that reason does not always understand. We can be assured that where there is an intellectual disconnect from personal integrity, the reasoning and intellect will try to synthesize a substitute connection for justification. I think when it comes to integrity, in order to change the culture there has to be a change of heart. The economic practices of a culture will definitely affect the people. And the morals and integrity of the people involved will ultimately affect the economics of a culture.

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com