Vermont Woman won its first national award for Rickey Gard Diamond’s investigative series.

The National Newspaper Association, the nation’s largest press association, established in 1885, conducts annual contests for U.S. newspapers’ best writing. Writing is judged by a panel of experienced newspaper editors and journalism professors. This year, for the first time, Vermont Woman was recognized out of a field of 2349 entries; only 135 newspapers in 36 states won awards, and Vermont Woman is honored to be among them. Here’s what judges said:

Vermont Woman, South Hero, VT

3rd place, Best Investigative or In‐Depth Story or Series, Non‐daily Division, circulation 10,000 or more.

Making the Economy Our Own—Measuring a Successful Economy by Well‐Being not Wealth, Rickey Gard Diamond. Judges’ Comments: “This series of articles, written for a specific community of readers, considers an alternative approach to our nation’s economic indicator reporting and to the overall structure of our economy. It is notable for its breadth and for its use of atypical sources.”

Contributing editor, Rickey Gard Diamond, wrote the series and began serving as the paper’s editor in Dec. 2011. She wishes to thank her sources, especially economist Stephanie Seguino, Ellen Brown of the Public Banking Institute, GNH-USA, author Gwen Hallsmith, and former-editor Margaret Michniewicz for her support, and also Suzanne Gillis, the paper’s publisher, and Jan Doerler, whose production team always takes such great care with its writers.

Diamond says, “Atypical sources, in this case, means women—who are often omitted from economic thinking, along with Mother Nature. To receive this kind of award for writing about this difficult subject—and to have made the economy a little more understandable for women and anyone who seeks new solutions—is very encouraging.” Here are links to her six award-winning articles:

(Nov/Dec 2010) Making the Economy Our Own (Part I):

The Most Important Thing Women Need to Know

http://www.vermontwoman.com/articles/1110/economy.shtml

(Feb/March 2011) Making the Economy Our Own (Part 2):

Measuring Well-Being, not Wealth

https://gaiaeros.com/2012/08/13/making-the-economy-our-own-part-2-counting-mother-nature-and-your-momma-in-the-economy/

(April/May 2011) Making the Economy Our Own (Part 3):

The Growing Care Crisis

http://www.vermontwoman.com/articles/0411/economy.shtml

(June, July, Aug 2011) Making the Economy Our Own (Part 4):

Dollars, Dollars, Everywhere and Not a Cent to Spare

http://www.vermontwoman.com/articles/0611/money.shtml

(Sept/Oct. 2011) Making the Economy Our Own (Part 5):

The Federal Reserve and Dollars on the Make

https://gaiaeros.com/2012/08/13/making-the-economy-our-own-the-federal-reserve-and-dollars-on-the-make/

(Nov/Dec. 2011) Making the Economy Our Own (Part 6)

Avoiding Another Jackass Monetary Crisis: http://www.vermontwoman.com/articles/1111/monetary.shtml

This article first appeared in Vermont Woman, Feb/March 2011.

Editor’s note: Last month we examined the growing inequality of income in our country and the world and some of the reasons for it. This month, we look more closely at new national and state measures that could make a difference in how we think about economic “progress.”

Linda Wheatley of Montpelier and Ginny Sassaman, from Maple Corner in Calais, live in comfortable middle-class homes in small, closely connected communities—and in a state less affected by the Great Recession than most of the rest of the country.  So why do these two Vermont women, both mothers and self-taught economic thinkers, want to help transform the heart of our current economy?

“We literally ‘bumped’ into each other, out running,” explains Ginny about their initial accidental meeting. Linda, who had directed leadership programs with Vermont’s Snelling Center for Government, and Ginny, a trained mediator, found they were reading similar books; they had similar “weird” interests. Both had learned of Bhutan, a tiny country in the Himalayas, whose young king had declared in 1972 that “Gross National Happiness is more important than Gross National Product.”  More used to the U.S. economy’s depressions and recessions, they were excited to wonder.  Was there another path?

What exactly was the Gross National Product? It seemed important they learn. The two women formed a small study group that met weekly in Ginny’s kitchen. Within a year, they and a small group of like-minded recruits had named themselves Gross National Happiness-USA and organized an international conference held at Burlington College in Sept. of 2010.

Attended by 120 people interested in similar questions, the conference was sponsored by diverse players, including Vermont’s Peace Academy, the Vermont Community Foundation, the Gund Institute for Environmental Economics , Winooski Hydro. National Life Insurance, the Peace and Justice Center and the Morrell Family Foundation. With help from Tom Barefoot of Universal Microsystems in Waitsfield, another kitchen-table economist, they created a new webpage to make connections with others interested in a happier economic system. http://www.gnhusa.org/

The organization’s name, Gross National Happiness (GNH-USA), both echoes and challenges our country’s main economic measurement. Not only Linda and Ginny, but a growing number of economists worldwide, have come to believe the national accounting system has badly misled us. While numbers grow exponentially without limit, the earth’s resources remain finite. “For me, it’s urgent,” said Ginny. The present economic system is chewing up the environment….our children and grandchildren will pay a big price if we don’t find something that can resonate with people. People intuitively respond to the idea of happiness.”

Yet the necessity of “growth” to work an economy is at the heart of the GNP’s economic assumptions. It is a heart one might rightfully call black, because GNP counts nothing but money. And it counts money not at all in the way you might in your own checkbook. Eric Zencey, of Montpelier, a history and politics professor with Empire State, also took part in that Calais kitchen group and now serves on the board of GNH. At the fall conference, he explained the Gross National Product (GNP) literally adds up every dollar spent in the U.S., even the ones most of us would count as a debit.

If it costs someone money, then it counts as a plus in GNP. By contrast, work done out of integrity or love, as a caring family member, or a community volunteer, doesn’t count. The GNP cares only about money and it never ever subtracts. For example, cleaning up Katrina’s disaster, rebuilding, expending emergency help, rescuing, all counted as a boon to the GNP. Likewise, the high U.S. prison-incarceration rate raises GNP, though most Americans would tend to believe the cost of the highest incarceration rate among advanced industrial nations indicates some sort of social dysfunction. Shouldn’t it be a debit?

“Imagine doing this with your checkbook,” said Zencey at the organization’s first conference in Burlington last fall:  “Your paycheck is a deposit; but so is your mortgage bill and your electric bill—just add it all up like they’re all a plus. That’s what GDP does. It measures the commotion of money.”

That in itself is crazy. But wait a minute. Did Zencey just say G-D-P? What happened to GNP?

They’re related. GDP stands for Gross Domestic Product, another term used in national accounting systems, and used much more commonly than GNP since the 1990s. Nobel-prize-winning economist Joseph Stiglitz explained the change from GNP to GDP to an audience in NYC in 2008. http://www.youtube.com/watch?v=QUaJMNtW6GA

I’ll paraphrase: While GNP measures the incomes of the people of any nation, GDP more neatly measures the nation’s aggregate product. It leaves out the details of income disparities between the rich and the poor. In the 1990s it became clear economic activity in a nation didn’t necessarily stay in a nation. GDP became the more favored number. In some cases, the GDP of a nation can go up, while the incomes of most people go down.

Here in the U.S. since 1980, the GDP per capita income has gone up 67%, but the median income has gone up only 15%.  Most of our aggregate gains have gone to the wealthiest 10% of Americans, and the same is true of China, now the second largest economy, with a median income ranking 62^nd . So there is a political edge to these national accounting issues. It doesn’t pay to remain ignorant of them.

IN THE RED

Linda and Ginny and their kitchen cabinet set out to discover how an economy in the black works. But more importantly, they also wanted to learn how economies can operate in the red—meaning not the red of accounting books’ debits, not the red of yours and my checkbooks—but the living red color of human hearts. What is an economy for, after all, if not for people’s well-being?

They learned they were not alone in asking this question. Economic thinkers all over the world are arguing a large change in our point of view is needed. They found themselves in alliance not only with the King of Bhutan, who has created a whole government department for measuring his country’s happiness, but with the conservative President of France, Nicholas Sarkozy. Sarkozy appointed two Nobel-prize-winning economists, Joseph Stiglitz and Amartya Sen, to devise new measurement methods this year, a report published in December of 2010. http://www.stiglitz-sen-fitoussi.fr/en/index.htm

Interestingly, the commission included recognition of the suspicion of “official statistics” for many of us:

[T]here often seems to be a marked distance between standard measures of important socio economic variables like economic growth, inflation, unemployment, etc. and widespread perceptions. The standard measures may suggest, for instance, that there is less inflation or more growth than individuals perceive to be the case, and the gap is so large and so universal that it cannot be explained by reference to money illusion or to human psychology. In some countries, this gap has undermined confidence in official statistics (for example, in France and in the United Kingdom. only one third of citizens trust official figures, and these countries are not exceptions), with a clear impact on the way in which public discourse about the conditions of the economy and necessary policies takes place.

GDP’s reports of “growth” in the face of continued job loss, dropping home values and shrinking retirement funds turns citizens into cynics.  Stiglitz commented on why expansion of national measurements and greater transparency would make a difference shortly before he headed up the French commission, saying: “The reason I’m interested in this subject is that accounting affects behavior. In the 1990s, we had bad accounting and as a result we had bad behavior. Information affects behavior. It affects what we strive for.”

Similarly Ginny and Linda talked about the ways we can’t see, until we start measuring. Linda said it neatly, “What you measure is what you get,” and Ginny illustrated what she meant in personal terms. “When gas prices went up, all of a sudden, we were all interested in seeing what cars got better gas mileage. We looked at the stickers on cars. When I go on a diet, I start looking at calories and the labels on food packages measure how well I am doing.  That can help guide my decisions.”

Different data gathering could help state and national decision-making.  GNH-USA has adopted “four pillars” of commitment, similar to Bhutan’s. These are: equitable and sustainable socio-economic development; the preservation and promotion of cultural values; the conservation of the natural environment; and good governance. Some data is already being gathered in these areas, but thinking more systematically about cooperation and a goal of happiness for Vermonters could expand that data base and give a fuller picture to apply to state and national policy-making. (See sidebar for how Vermont and others are already gathering data.)

For now, GNH is organizing working groups, aimed at sharing what they’ve learned. They also would welcome facilitating what they’re calling, “Happiness Circles,” aimed at simply getting people together to talk about what it means for them. “We’d love for people to get in touch with us, and be involved however they can,” said Linda. “We’re hoping that this path into economics will appeal to women, too.”

“One of the things I find personally rewarding,” admitted Ginny, “is just thinking more about happiness. I’m not so sure we know that much about it.”

Perhaps we haven’t been encouraged or reminded to think about it often. We take for granted Thomas Jefferson’s bold argument for our American right to “life, liberty and the pursuit of happiness.”  The last important American politician to bring GNP’s absurdity to Americans’ attention for change was Robert Kennedy in 1968.  Kennedy spoke at the University of Kansas, saying:

“[For too long] we seem to have surrendered community excellence and community values to the mere accumulation of material things. Our gross national product—if we should judge America by that—counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife*, and the television programs which glorify violence in order to sell toys to our children. (*note: Charles Whitman, a student at the University of Texas killed 16 people from a tower on campus in 1966; that same year Richard Speck murdered eight nurses.)

“Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country: it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”

Without much media attention, the state of Maryland recently adopted new accounting measures called the GPI, or Genuine Progress Index. They will gather wider data on the well-being of its citizens and natural resources and their measures will include women’s and men’s non-monetized work now impossible to see and value.

“Women have willingly gone the uneconomic path,” mused Ginny as our interview closed, “because taking care of people, children, the elderly, is emotionally such satisfying work.”

“Women traditionally live longer, too,” answered Linda. “I wonder what we might find about correlations between longevity and happiness?”

In other words, GNH-USA hopes to see Vermont join Maryland in asking some interesting questions, and lead our nation in a more inspired, creative and happy economic direction.

Contributing editor, Rickey Gard Diamond, lives and writes in Montpelier. In 2008, she presented on economic language at NOW’s Conference for Women’s Economic Empowerment in Atlanta. 

Want to find out more?

Bhutan has made happiness its economic goal since 1972. The Centre for Bhutan Studies has made the country’s statistical methodologies available at conferences and a website. This link discusses indicators, or how information can be gathered to reveal changes over time.  http://www.grossnationalhappiness.com/screeningTools/screeningTools.aspx

Our neighbor Canada has become a leader in the west for gathering a wider range of economic data. Not bold enough to hope for happiness, they have created a database they call the Canadian Index of Wellbeing; “Measuring What Matters.” Visit their web page to see the areas of data-gathering they’re examining; Britain begins a project this year.  http://www.ciw.ca/en/WellbeingAroundTheWorld.aspx

The Gund Institute at UVM, under the leadership of Robert Constanza, has already conducted a study of Burlington and Chittenden Country (from 1950-2000) and estimated its status using the Genuine Progress Indicator (GPI), the methodology which Maryland adopted in 2010. It was published in 2004 in Ecological Economics to demonstrate the feasibility of such analysis even at a local level.  http://www.uvm.edu/giee/

The state of Maryland is the first state to adopt the Genuine Progress Index (GPI) as an additional measure to augment GDP. Here’s how it works.  http://www.green.maryland.gov/mdgpi/whatisthegpi.asp

In December Britain’s conservative Prime Minister David Cameron charged the Office of National Statistics to begin collecting data on well-being. The New Economics Foundation, based in Britain, has long urged this, and twice compiled reports they call The Happy Planet Index, examining 143 countries and 99% of the world’s population.  As Time Magazine reported: “How does the U.S. fare in HPI terms? Not so good. It sits pretty far down the list at 114. The U.K. is 74, behind Germany, Italy and France. Topping the chart is Costa Rica, which has long life expectancy, high life satisfaction, and a per capita ecological footprint one-fourth the size of the U.S.”

Read more: http://www.time.com/time/business/article/0,8599,1957746,00.html#ixzz19nv11RVo

Or go directly to the source:  http://www.happyplanetindex.org/

The U. S. has funded new statistics as well, though its politics raise questions. On page 562 of Obama’s Healthcare bill is a provision for Congress to oversee development of 300 “key national indicators.”  On Dec. 16, Congress appointed an 8-member commission with backgrounds ranging from conservative politics to preventative medicine. The commission will collaborate with the Academy of Sciences in a “public-private partnership,” using $70 million of our tax-dollars, yet only one woman, Marta Tienda, a sociology professor from Princeton, will serve and they’ll use private funds as well. Called The State of the USA, this not-exactly grass roots or woman-populated effort is expected to post indicators this summer.  http://www.stateoftheusa.org/  Will they include Mother Nature and Your Momma?

(This article first appeared in Vermont Woman, Sept/Oct 2011)

My education about money began with my high school trip to Washington, D.C., where I learned that the U.S. Mint stamps our coins and the Bureau of Engraving prints big sheets of our government’s money. But who places the order for printing those dollars? Who tells them how many to print?

If you look more closely at George Washington in your own wallet, you’ll find the explanation. You’ll also learn why there’s never enough. Your dollar bill is labeled a Federal Reserve Note. Who, or what, is the Federal Reserve?

The Fed is the U.S. central bank in charge of our monetary policy. Created by the Federal Reserve Act of 1913, the Fed is actually our third central bank; our currency was the subject of much debate until the 20^th century. The Federal Reserve System now works hand in glove with the U.S. Treasury. Think of the Federal Reserve as our nation’s banker. It’s where we, the people, represented by our Treasury, deposit our tax payments to the government, and where the Treasury writes out checks to pay for government business. Simple enough.

NOT.

The Board of the Federal Reserve, five Governors in all, is appointed by the President for terms of 14 years. Its current chairman is Ben Bernanke. But the Federal Reserve is far more than one bank, or one board. It is a system of 12 regional banks, all privately owned, overseeing other private banks. This system serves as your bank’s banker, too.

The most powerful regional bank is the New York Federal Reserve. When the 2008 bailout was proposed late in George W. Bush’s term of office, Tim Geithner at the New York Fed sat next to then-Treasury Secretary Hank Paulson when those deals were cut to save Wall Street banks. Now Geithner has moved over one seat and taken Paulson’s place, while the man at his side, William Dudley, took Geithner’s place. All three men worked first with Goldman Sachs, the Wall Street investment bank often nicknamed “Government Sachs.” They call this “continuity.”

 (Editor’s note: In 2008, Stephen Friedman, former chairman of Goldman Sachs, was given a waiver to chair the board of the New York Fed without giving up his job at another investment company. He was forced to resign when he made $3 million on his Goldman shares with a single insider phone call.)

 The Federal Reserve describes itself as “an independent entity within the government, having both public purposes and private aspects.” It is supposed to keep bank meltdowns from happening, setting the interest rate for all the nation’s banks. It also makes money available to banks at a discount when needed. Despite its official-sounding name, the Fed’s purpose is to create a profit for its banks’ shareholders. They are in business, not government, interested in profit, not public service.

In 1997, the largest shareholders of the Federal Reserve Bank of New York were Chase Manhattan Bank, Citibank and Morgan Guaranty Trust Company. Citibank belongs to the Rockefellers, and the Morgan fortune has run Wall Street since the turn of the 20^th century. J.P. Morgan is the gentleman caricatured in your Monopoly game with a mustache and monocle. Monopoly gaming continues on Wall Street. In 2000 Morgan and Chase merged into mega-big Morgan Chase. In 2008, Citibank was bought by Bank of America, growing even larger, and in 2009, another Morgan arm, Morgan Stanley, bought up Smith Barney. These are all global investment brokerage banks.

That word global matters. The New York Fed’s board works to deliver profits – most often in developing countries, not here. Yet the New York Fed enjoys a particularly close relationship with the U.S. Treasury. By contrast, the government is not a shareholder in the Federal Reserve System. The system’s complexities mask an insider setup for enhancing private fortunes. At the end of 2010, the Fed’s 12 reserve banks held $2.4 trillion in government debt, mortgage-backed securities and other investments, according to a combined financial statement it published in March 2011.

 A BANK BY ANY OTHER NAME REMAINS A BANK

The Federal Reserve and the U.S. Treasury print money only after the Fed first conducts “open market operations.” This means it auctions government “securities,” a broad name for Treasury bills, notes and bonds. These are all names for “loans” of varying lengths of time, but unlike loans, bonds can be traded worldwide, a global commodity.

The Fed’s own website acknowledges the New York Fed plays “a unique role.” All the “open market operations” – the buying and selling of U.S. government securities to influence money and credit conditions in the global economy – are carried out by the New York Fed. When the U.S. Treasury decides to “intervene in the foreign exchange market, it is the New York Fed that carries out the intervention.” (Foreign exchange markets and the dollar’s devaluation was the subject of the previous article in this Vermont Woman series.)

The New York Fed conducts daily conference calls with “primary dealers” (think Goldman Sachs), after which they call in the Treasury in Washington. Then, depending on who wins the daily 10-minute auction, the Fed credits the accounts of its commercial member banks, and our Treasury agrees to pay them interest on the bonds, or money they have lent us.

Your dollar bills are literally “bills,” created as “credit.” The back side of credit is debt. Our dollars come into circulation through a global credit card minus the plastic.

“Purchasing bonds” is a fancy way of saying those “primary dealers” just arranged to broker our debt, sold to the highest bidder; in the old days, Goldman Sachs might have received a certificate of the “bond,” or an agreement that “binds” the debtor. (The word “bondage,” a form of indentured slavery, grows from the same root.) So our Treasury is held by its bonds, purchased by the highest bidder and then traded around the world. Only then can dollars be printed as “notes.” A note is another word for debt.

Am I sure about this? When I first learned about this currency sleight of hand, I didn’t believe it could be true. I would fact-check and discover in what way it was wrong. But all the economists I read, and the Federal Reserve itself, confirmed that we live with this indebted system of money creation. Money created out of debt can only be paid by expanding the economy in future, further exploiting Mother Nature on a global scale, and laboring ever more to pay back the principal, plus interest added on.

No wonder there is never “enough.”

MAYBE MONEY DOES GROW ON TREES

My initial disbelief found credibility in a similar reaction from a Texas Representative elected in 1929, the year of the Great Crash. For 40 years, Wright Patman chaired the U.S. House of Representatives Committee on Banking and Currency, and for 20 of those years, he sought to repeal the Federal Reserve System. The Congressional Record of the House of Representatives (pages 7582-7583) records his September 29, 1941 speech. Compare his plain-spoken words to the mysterious mumblings of Allan Greenspan and Ben Bernanke at the Fed.

When our Federal Government, that has the exclusive power to create money, creates that money and then goes into the open market and borrows it and pays interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money… I am saying to you in all sincerity, and with all the earnestness that I possess, it is absolutely wrong for the Government to issue interest-bearing obligations. It is not only wrong: it is extravagant. It is not only extravagant, it is wasteful. It is absolutely unnecessary… I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue. I make that statement after years of study.

All of this feels shocking, but here’s something even more amazing. The money, which our banks loan out, doesn’t actually exist in a vault somewhere, as you might have assumed from the name Federal Reserve. Instead it is created on the accounting books, as a “fiat” currency. Fiat means something like Captain Picard’s command on Star Trek: “Make it so” – although banks possess no holodeck, only the power Congress has given them.

A booklet published by the Chicago Federal Reserve in the1960s, “Modern Money Mechanics,” puts it simply: “The actual process of money creation takes place primarily in banks… Banks do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created.”

Ellen Brown explains, in her wonderfully readable book Web of Debt, that contrary to popular belief, loans become deposits, rather than the reverse. You might feel like Alice in Wonderland reading this, going through the looking glass where everything is backwards. But the Fed’s own booklet says it too: “Banks can build up deposits by increasing loans… so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago. It started with goldsmiths…”

Europeans traded in gold and silver coins, Brown reveals. These were hard to transport and could be stolen unless locked up. So goldsmiths offered safes and provided paper receipts for the stored gold. These eventually came to be traded, easier to handle than cartloads of bullion. Over time, goldsmiths noticed only a few people at any one time came back to get their gold. So they began loaning it out many times over, though it wasn’t theirs, by keeping only a fraction on reserve for those who might come for it. Naturally, they got rich pretty quickly. They also got used to loaning out what wasn’t really there.

Wealthy goldsmiths soon gained legal sanction for their “fractional reserves,” becoming bankers. Bankers gained not only the right to charge interest for their issues of paper receipts for more gold than they had, but eventually a monopoly on issuing national currencies, as first happened in England in 1694.

If you’re wondering why a nation needs to “borrow” its currency, why it can’t just issue the money it needs, you’re not the first. You have, in fact, hit on a long-standing historical argument in the U.S., beginning with the Revolution, Shay’s Rebellion and the abolishment of two central banks. In the shadow of the Great Depression, just 16 years after the Federal Reserve System was installed to prevent banking crashes—unsuccessfully—Wright Patman called out a Governor of the Federal Reserve Board, Marinner Eccles. He asked him to explain how the Federal Reserve got its money.

“We created it,” Eccles answered.

“Out of what?”

“Out of the right to issue credit money…That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”

This helps throw light on that debt ceiling argument in Congress. Private fortunes and other central banks lend us “their” money and charge us interest for using our own dollars. Web of Debt author Brown explains that the federal debt hasn’t been paid off since the presidency of Andrew Jackson nearly two centuries ago. Since the Treasury no longer issues certificates backed by silver or gold or even interest-free greenbacks, our debt is really just another name for our country’s money supply. I hate saying it, but Dick Cheney may have been right when he said the federal debt doesn’t really matter – though surely it matters what we choose to go into hock for, and to whom we are bonded and owe added interest.

SIDEBAR: Vermont Senator Bernie Sanders has been at the forefront of demanding more accountability from the Federal Reserve. He helped win the recent move to audit the Fed, and thanks to an amendment he added to the recent Dodd-Frank Wall Street Reform and Protection Act, the Fed is now required to be less secretive in its “interventions,” which are handled exclusively by the New York Fed. In April, under the new rule, Sanders discovered they had bailed out the Bank of Libya: a troubling revelation in the face of our military conflict there. He said, “It is incomprehensible to me that while creditworthy small businesses in Vermont and throughout the country could not receive affordable loans, the Federal Reserve was providing tens of billions of dollars in credit to a bank that is substantially owned by the Central Bank of Libya.”

NEW IDEAS WITH OLD VALUES

Despite what my high school visit to Washington taught me, most of our currency is never printed; it’s electronically entered in banks’ accounting books. Even post-2008, few Americans understand that the Federal Reserve System is only backed by private accounting numbers and our indebtedness. Vermont’s Senator, Bernie Sanders, has begun to unveil the secrecy of this system, by demanding an audit by the Government Accountability Office; in late July, the GAO found not only the $700 billion bailout we heard about on the news, but behind the scenes what Sanders called “a jaw-breaking $16 trillion in financial assistance to some of the biggest financial institutions and corporations in the world.”

A growing number of reformists on the left and the right hold this present monetary system at least partly responsible for the upward sweep of money to a very privileged clique at the top of that economic pyramid on your dollar bill. With a currency created out of debt to the richest global fortunes, consider that eyeball looking at you as “truth in lending.” Only a pyramid scheme could create a national currency out of everlasting debt and a misnamed façade to give the public false impressions. It’s still hard to believe, I know, so go ahead and do your own fact-checking.

We’ll never know what would have happened if Wall Street had been left to fend for itself in 2008. In history, the wealthiest banks and its patrons have generally been protected by nations. A fascinating recent book, The Lords of Finance by Liaquat Ahamed, brings to life those global central bankers behind events we generally think of as political. It shows how the Great Depression grew out of World War I reparations, negotiated by financial elites in Britain, France, Germany and the U.S. These men knew each other well and often worked together, though more often they each sought to come out as the nation on top.

This biographical account of macroeconomics shows a privileged and exclusive male world where private fortunes finance nations, and where “meltdowns” and failures can bring nations to their knees with resulting violence. Its history is littered with frauds, scandals, and suicides over fortunes lost, and it becomes clear Hitler’s rhetoric could only enter the mainstream of Germany when its middle class had been decimated by punishing payments of debts too high to pay. The cost of the urge to come out “on top” did not accrue to nations’ central bankers, but to their nations’ people, who suffered hardships and the viciousness of hatred and war.

Tim Geithner and Ben Bernanke’s tight relationship with Wall Street must help in those daily market operations with “primary dealers,” now grown bigger than ever with taxpayer help. We can’t know, of course, because minutes of meetings at the Fed are still not public. Until recently, Americans paid little attention, put to sleep by the mumbling drone of the Fed’s evasions. There are signs of more Americans waking up – including women with new dollar dreams to tell us about.

NEXT TIME: TAKING BACK OUR DOLLARS HERE IN VERMONT

For further reading on:

Sanders and the Fed

http://www.huffingtonpost.com/rep-bernie-sanders/a-real-jaw-dropper-at-the_b_791091.html

The Fed’s Profits

http://www.nytimes.com/2011/03/23/business/economy/23fed.html?_r=2&ref=business

The New York Federal Reserve Bank and Open Market Operations

http://www.newyorkfed.org/aboutthefed/fedpoint/fed32.html

Ellen Brown’s Web of Debt

http://www.webofdebt.com/

Wright Patman

http://en.wikipedia.org/wiki/Wright_Patman

The Great Seal on Your Dollar

Liaquat Ahamed’s Lords of Finance

http://www.economist.com/node/12884939?story_id=12884939

Photos of the Fed http://www.federalreserve.gov/generalinfo/virtualtour/photos.cfm?WhichSlide=1

My education about money began with my high school trip to Washington, D.C., where I learned that the U.S. Mint stamps our coins and the Bureau of Engraving prints big sheets of our government’s money. But who places the order for printing those dollars? Who tells them how many to print?

If you look more closely at George Washington in your own wallet, you’ll find the explanation. You’ll also learn why there’s never enough. Your dollar bill is labeled a Federal Reserve Note. Who, or what, is the Federal Reserve?

The Fed is the U.S. central bank in charge of our monetary policy. Created by the Federal Reserve Act of 1913, the Fed is actually our third central bank; our currency was the subject of much debate until the 20^th century. The Federal Reserve System now works hand in glove with the U.S. Treasury. Think of the Federal Reserve as our nation’s banker. It’s where we, the people, represented by our Treasury, deposit our tax payments to the government, and where the Treasury writes out checks to pay for government business. Simple enough.

NOT.

The Board of the Federal Reserve, five Governors in all, is appointed by the President for terms of 14 years. Its current chairman is Ben Bernanke. But the Federal Reserve is far more than one bank, or one board. It is a system of 12 regional banks, all privately owned, overseeing other private banks. This system serves as your bank’s banker, too.

The most powerful regional bank is the New York Federal Reserve. When the 2008 bailout was proposed late in George W. Bush’s term of office, Tim Geithner at the New York Fed sat next to then-Treasury Secretary Hank Paulson when those deals were cut to save Wall Street banks. Now Geithner has moved over one seat and taken Paulson’s place, while the man at his side, William Dudley, took Geithner’s place. All three men worked first with Goldman Sachs, the Wall Street investment bank often nicknamed “Government Sachs.” They call this “continuity.”

(Editor’s note: In 2008, Stephen Friedman, former chairman of Goldman Sachs, was given a waiver to chair the board of the New York Fed without giving up his job at another investment company. He was forced to resign when he made $3 million on his Goldman shares with a single insider phone call.)

The Federal Reserve describes itself as “an independent entity within the government, having both public purposes and private aspects.” It is supposed to keep bank meltdowns from happening, setting the interest rate for all the nation’s banks. It also makes money available to banks at a discount when needed. Despite its official-sounding name, the Fed’s purpose is to create a profit for its banks’ shareholders. They are in business, not government, interested in profit, not public service.

In 1997, the largest shareholders of the Federal Reserve Bank of New York were Chase Manhattan Bank, Citibank and Morgan Guaranty Trust Company. Citibank belongs to the Rockefellers, and the Morgan fortune has run Wall Street since the turn of the 20^th century. J.P. Morgan is the gentleman caricatured in your Monopoly game with a mustache and monocle. Monopoly gaming continues on Wall Street. In 2000 Morgan and Chase merged into mega-big Morgan Chase. In 2008, Citibank was bought by Bank of America, growing even larger, and in 2009, another Morgan arm, Morgan Stanley, bought up Smith Barney. These are all global investment brokerage banks.

That word global matters. The New York Fed’s board works to deliver profits – most often in developing countries, not here. Yet the New York Fed enjoys a particularly close relationship with the U.S. Treasury. By contrast, the government is not a shareholder in the Federal Reserve System. The system’s complexities mask an insider setup for enhancing private fortunes. At the end of 2010, the Fed’s 12 reserve banks held $2.4 trillion in government debt, mortgage-backed securities and other investments, according to a combined financial statement it published in March 2011.

A BANK BY ANY OTHER NAME REMAINS A BANK

The Federal Reserve and the U.S. Treasury print money only after the Fed first conducts “open market operations.” This means it auctions government “securities,” a broad name for Treasury bills, notes and bonds. These are all names for “loans” of varying lengths of time, but unlike loans, bonds can be traded worldwide, a global commodity.

The Fed’s own website acknowledges the New York Fed plays “a unique role.” All the “open market operations” – the buying and selling of U.S. government securities to influence money and credit conditions in the global economy – are carried out by the New York Fed. When the U.S. Treasury decides to “intervene in the foreign exchange market, it is the New York Fed that carries out the intervention.” (Foreign exchange markets and the dollar’s devaluation was the subject of the previous article in this Vermont Woman series.)

The New York Fed conducts daily conference calls with “primary dealers” (think Goldman Sachs), after which they call in the Treasury in Washington. Then, depending on who wins the daily 10-minute auction, the Fed credits the accounts of its commercial member banks, and our Treasury agrees to pay them interest on the bonds, or money they have lent us.

Your dollar bills are literally “bills,” created as “credit.” The back side of credit is debt. Our dollars come into circulation through a global credit card minus the plastic.

“Purchasing bonds” is a fancy way of saying those “primary dealers” just arranged to broker our debt, sold to the highest bidder; in the old days, Goldman Sachs might have received a certificate of the “bond,” or an agreement that “binds” the debtor. (The word “bondage,” a form of indentured slavery, grows from the same root.) So our Treasury is held by its bonds, purchased by the highest bidder and then traded around the world. Only then can dollars be printed as “notes.” A note is another word for debt.

Am I sure about this? When I first learned about this currency sleight of hand, I didn’t believe it could be true. I would fact-check and discover in what way it was wrong. But all the economists I read, and the Federal Reserve itself, confirmed that we live with this indebted system of money creation. Money created out of debt can only be paid by expanding the economy in future, further exploiting Mother Nature on a global scale, and laboring ever more to pay back the principal, plus interest added on.

No wonder there is never “enough.”

MAYBE MONEY DOES GROW ON TREES

My initial disbelief found credibility in a similar reaction from a Texas Representative elected in 1929, the year of the Great Crash. For 40 years, Wright Patman chaired the U.S. House of Representatives Committee on Banking and Currency, and for 20 of those years, he sought to repeal the Federal Reserve System. The Congressional Record of the House of Representatives (pages 7582-7583) records his September 29, 1941 speech. Compare his plain-spoken words to the mysterious mumblings of Allan Greenspan and Ben Bernanke at the Fed.

When our Federal Government, that has the exclusive power to create money, creates that money and then goes into the open market and borrows it and pays interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money… I am saying to you in all sincerity, and with all the earnestness that I possess, it is absolutely wrong for the Government to issue interest-bearing obligations. It is not only wrong: it is extravagant. It is not only extravagant, it is wasteful. It is absolutely unnecessary… I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue. I make that statement after years of study.

All of this feels shocking, but here’s something even more amazing. The money, which our banks loan out, doesn’t actually exist in a vault somewhere, as you might have assumed from the name Federal Reserve. Instead it is created on the accounting books, as a “fiat” currency. Fiat means something like Captain Picard’s command on Star Trek: “Make it so” – although banks possess no holodeck, only the power Congress has given them.

A booklet published by the Chicago Federal Reserve in the1960s, “Modern Money Mechanics,” puts it simply: “The actual process of money creation takes place primarily in banks… Banks do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created.”

Ellen Brown explains, in her wonderfully readable book Web of Debt, that contrary to popular belief, loans become deposits, rather than the reverse. You might feel like Alice in Wonderland reading this, going through the looking glass where everything is backwards. But the Fed’s own booklet says it too: “Banks can build up deposits by increasing loans… so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago. It started with goldsmiths…”

Europeans traded in gold and silver coins, Brown reveals. These were hard to transport and could be stolen unless locked up. So goldsmiths offered safes and provided paper receipts for the stored gold. These eventually came to be traded, easier to handle than cartloads of bullion. Over time, goldsmiths noticed only a few people at any one time came back to get their gold. So they began loaning it out many times over, though it wasn’t theirs, by keeping only a fraction on reserve for those who might come for it. Naturally, they got rich pretty quickly. They also got used to loaning out what wasn’t really there.

Wealthy goldsmiths soon gained legal sanction for their “fractional reserves,” becoming bankers. Bankers gained not only the right to charge interest for their issues of paper receipts for more gold than they had, but eventually a monopoly on issuing national currencies, as first happened in England in 1694.

If you’re wondering why a nation needs to “borrow” its currency, why it can’t just issue the money it needs, you’re not the first. You have, in fact, hit on a long-standing historical argument in the U.S., beginning with the Revolution, Shay’s Rebellion and the abolishment of two central banks. In the shadow of the Great Depression, just 16 years after the Federal Reserve System was installed to prevent banking crashes—unsuccessfully—Wright Patman called out a Governor of the Federal Reserve Board, Marinner Eccles. He asked him to explain how the Federal Reserve got its money.

“We created it,” Eccles answered.

“Out of what?”

“Out of the right to issue credit money…That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”

This helps throw light on that debt ceiling argument in Congress. Private fortunes and other central banks lend us “their” money and charge us interest for using our own dollars. Web of Debt author Brownexplains that the federal debt hasn’t been paid off since the presidency of Andrew Jackson nearly two centuries ago. Since the Treasury no longer issues certificates backed by silver or gold or even interest-free greenbacks, our debt is really just another name for our country’s money supply. I hate saying it, but Dick Cheney may have been right when he said the federal debt doesn’t really matter – though surely it matters what we choose to go into hock for, and to whom we are bonded and owe added interest.

NEW IDEAS WITH OLD VALUES

Despite what my high school visit to Washington taught me, most of our currency is never printed; it’s electronically entered in banks’ accounting books. Even post-2008, few Americans understand that the Federal Reserve System is only backed by private accounting numbers and our indebtedness. Vermont’s Senator, Bernie Sanders, has begun to unveil the secrecy of this system, by demanding an audit by the Government Accountability Office; in late July, the GAO found not only the $700 billion bailout we heard about on the news, but behind the scenes what Sanders called “a jaw-breaking $16 trillion in financial assistance to some of the biggest financial institutions and corporations in the world.”

A growing number of reformists on the left and the right hold this present monetary system at least partly responsible for the upward sweep of money to a very privileged clique at the top of that economic pyramid on your dollar bill. With a currency created out of debt to the richest global fortunes, consider that eyeball looking at you as “truth in lending.” Only a pyramid scheme could create a national currency out of everlasting debt and a misnamed façade to give the public false impressions. It’s still hard to believe, I know, so go ahead and do your own fact-checking.

We’ll never know what would have happened if Wall Street had been left to fend for itself in 2008. In history, the wealthiest banks and its patrons have generally been protected by nations. A fascinating recent book, The Lords of Finance by Liaquat Ahamed, brings to life those global central bankers behind events we generally think of as political. It shows how the Great Depression grew out of World War I reparations, negotiated by financial elites in Britain, France, Germany and the U.S. These men knew each other well and often worked together, though more often they each sought to come out as the nation on top.

This biographical account of macroeconomics shows a privileged and exclusive male world where private fortunes finance nations, and where “meltdowns” and failures can bring nations to their knees with resulting violence. Its history is littered with frauds, scandals, and suicides over fortunes lost, and it becomes clear Hitler’s rhetoric could only enter the mainstream of Germany when its middle class had been decimated by punishing payments of debts too high to pay. The cost of the urge to come out “on top” did not accrue to nations’ central bankers, but to their nations’ people, who suffered hardships and the viciousness of hatred and war.

Tim Geithner and Ben Bernanke’s tight relationship with Wall Street must help in those daily market operations with “primary dealers,” now grown bigger than ever with taxpayer help. We can’t know, of course, because minutes of meetings at the Fed are still not public. Until recently, Americans paid little attention, put to sleep by the mumbling drone of the Fed’s evasions. There are signs of more Americans waking up – including women with new dollar dreams to tell us about.

THIS ARTICLE FIRST APPEARED IN VERMONT WOMAN SEPT/OCTOBER 2011. 

For further reading on:

Sanders and the Fed

http://www.huffingtonpost.com/rep-bernie-sanders/a-real-jaw-dropper-at-the_b_791091.html

The Fed’s Profits

http://www.nytimes.com/2011/03/23/business/economy/23fed.html?_r=2&ref=business

The New York Federal Reserve Bank and Open Market Operations

http://www.newyorkfed.org/aboutthefed/fedpoint/fed32.html

Ellen Brown’s Web of Debt

http://www.webofdebt.com/

Wright Patman

http://en.wikipedia.org/wiki/Wright_Patman

Liaquat Ahamed’s Lords of Finance

http://www.economist.com/node/12884939?story_id=12884939

Photos of the Fed http://www.federalreserve.gov/generalinfo/virtualtour/photos.cfm?WhichSlide=1

Thanks to one of my readers who sent me these great links, in response to my groaning about our “Crisis of Credit & Stuff.” How many more bailouts and cars, American or otherwise, I asked, can our nation and Gaia withstand?

But here’s some good news on that front, an exciting new French design being tested in India, an air-powered auto, reported by BBC. Have you seen this on U.S. news?

http://video.google.com/videoplay?docid=2228669770213573581

Another Japanese prototype runs on water-even leftover tea.

http://www.youtube.com/watch?v=CrxfMz2eDME

When did we last see an ingenious idea come out of Detroit? Let’s see. The SUV, which propped up the American working man’s self-image over the past 20 years, while manufacturing jobs got shipped overseas. It was a brilliant compensation. He didn’t notice the irony of making his trucks and cars bigger, while his paycheck was shrinking, not for decades.

Oh, but these two new ecological designs would only make cars and fuel less harmful, more affordable-and where is the profit in that? How would THAT help our present GDP, a national system of accounting where disasters add up for the economy, and health doesn’t count.

So, naturally (or unnaturally, actually) both of these companies are having trouble finding financing. Duhhhhhh, as my friend put it.