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crisis has an exit By Ellen
For the bankers, however, it was a
good system. It put them in control.
Setting the global debt
trap Professor Carroll Quigley was an
insider groomed by the international bankers. He
wrote in Tragedy and Hope in 1966:
The powers of financial capitalism
had another far reaching aim, nothing less than
to create a world system of financial control in
private hands able to dominate the political
system of each country and the economy of the
world as a whole.
The apex of the system
was to be the Bank for International Settlements
[BIS] in Basle, Switzerland, a private bank
owned and controlled by the world's central
banks which were themselves private
corporations. Each central bank... sought to
dominate its government by its ability to
control Treasury loans…
The debt trap
was set in stages. In 1971, the dollar went off the
gold standard internationally.
Currencies were unpegged from gold and allowed to
"float" in currency markets, competing with other
currencies, making them vulnerable to speculation
In 1974, a secret
agreement was entered into with the members of the
Organization of Petroleum Exporting Countries to
sell oil only in dollars. The price of oil was
then suddenly quadrupled. Countries lacking oil
had to borrow dollars from US banks.
1980, interest rates were raised to 20%. At 20%
compound interest, debt doubles in under four
years. As a result, most of the world became
crippled by debt. By 2001, developing nations had
repaid the principal originally owed on their
debts six times over; but their total debt had
quadrupled because of interest payments.
When debtor nations could not pay the
banks, the International Monetary Fund stepped in
with loans - with strings attached. The debtors
had to agree to "austerity measures," including:
Cutting social services;
Privatizing banks and public utilities;
Opening markets to foreign investors;
Letting currencies "float".
austerity measures are being imposed not just in
developing countries but in the European Union and
on US States. The BIS: apex of the
private central banking pyramid What
Professor Quigley foretold about the Bank for
International Settlements (BIS) has also come to
pass. The BIS now has 55 member nations and heads
the global financial pyramid.
The power of
the BIS was seen in 1988, when it raised the
capital requirement of its member banks from 6% to
8% in an accord called Basel I. The result was to
cripple the Japanese banks, which until then were
the world's largest creditors. Japan entered a
recession from which it has not yet recovered.
US banks managed to escape by dodging the
capital requirement. They did this by moving loans
off their books, bundling them up as "securities",
and selling them to investors.
the investors to buy them, these mortgage-backed
securities were protected against default with
"derivatives", which were basically just bets. The
"protection seller" collected a premium for
agreeing to pay in the event of default. The
"protection buyer" bought the premium. Owning the
asset was not required. Like gamblers at a horse
race, derivative players could bet without owning
a horse. Derivatives became a very popular form of
gambling. The result was the mother of all
bubbles, exceeding US$500 trillion by the end of
Because of securitization and
derivatives, credit mushroomed. Virtually anyone
who walked in the door could get a loan.
The tipping point came in August 2007,
with the collapse of two hedge funds. When the
derivatives scheme was exposed, the market for
derivative-protected securities suddenly dried up.
But the US stock market did not collapse until
November 2007, when new accounting rules were
imposed. The rules grew out of the Basel II
Accords initiated by the BIS in 2004.
"Mark to market" accounting required banks
to value their assets according to market demand
that day. Many US banks, like those in Japan in
the 1990s, suddenly had insufficient capital to
make new loans. The result was a credit crisis
from which the US has not yet recovered.
The BIS has now become global regulator,
just as Quigley foresaw. In April 2009, the Group
of 20 nations agreed to be regulated by a
Financial Stability Board based in the BIS, and to
comply with "standards and codes" set by the
board. The codes are only guidelines, but
countries that fail to comply risk downgrades in
their credit ratings, something so costly that the
guidelines have effectively become laws.
An article on the BIS website states that
central banks in the Central Bank Governance
Network should have as their single or primary
objective "to preserve price stability". That
means governments should not devalue the national
currency by inflating the money supply; and that
means not "printing money" or borrowing credit
created by their own central banks.
the American colonies after King George took away
their power to issue their own money, governments
must fund their deficits by borrowing from private
banks. The bankers' global control over currency
issuance has become virtually complete.
The effects of this policy are
particularly evident in the European Union, where
EU rules allow deficits of only 3% of government
budgets and prevent member countries from either
issuing their own money or borrowing credit
advanced by their own central banks. Member
nations must borrow instead from the European
Central Bank, private international banks, or the
IMF. The result has been forced austerity
measures, as seen in Greece and Ireland. The
system is so unsustainable that commentators are
predicting that the EU may break up.
The way out: return the money power to
public control To escape the debt trap of
the global bankers, the power to create the
national money supply needs to be restored to
national governments. Alternatives include:
Legal tender issued directly by national
treasuries and spent on national budgets;
Publicly owned central banks empowered to
advance the nation's credit and lend it to the
Nationalization of bankrupt banks considered
"too big to fail". These banks could then issue
credit to the public and serve the public's
banking needs, with the profits recycling back to
the government, defraying the tax burden on the
Publicly owned local banks (state, provincial,
Publicly owned banks have
been successfully established and operated in many
countries, including Australia, New Zealand,
Canada, Germany, Switzerland, India, China, Japan,
Korea, and Malaysia. In the United States there is
currently only one state-owned bank, the Bank of
The model, however, has
proven to be highly successful. North Dakota is
the only US state to have escaped the credit
crisis unscathed. In 2009, while other states
floundered, North Dakota had its largest budget
surplus ever. In 2008, the Bank of North Dakota
(BND) had a return on equity of 25%. North Dakota
has the lowest unemployment rate in the country
and the lowest default rate on loans. It also has
the most local banks per capita.
Dakota has had its own bank since 1919, when
farmers were losing their farms to the Wall Street
bankers. They organized, won an election, and
passed legislation. The state is required by law
to deposit all its revenues in the BND. As with
the sustainable model of the bank of colonial
Pennsylvania, interest and profits are returned to
the government and to the local economy.
growing movement is afoot in the United States to
copy this public banking model in other states.
Fourteen US state legislatures have now initiated
bills for state-owned banks.
could also be replicated in other countries. In
Ireland, for example, where the major banks are
insolvent and are already nationalized or soon
will be, the government could deposit its revenues
in its own publicly owned banks, add sufficient
capital to meet capital requirements, and leverage
these funds to create interest-free credit for its
own local needs.
That is exactly what
Alexander Hamilton did when faced with government
debts that were impossible to repay: he put the
government's existing funds in a bank, then
borrowed the money back several times over,
employing the accepted "fractional reserve" model.
Japan's solution is also a variant of what
Alexander Hamilton proposed two centuries earlier.
Japan retains its status as the third-largest
economy in the world although it has a debt to
gross domestic product (GDP) ratio of 226%. Japan
has "monetized" the national debt, turning it into
the national money supply. The government-owned
Bank of Japan holds Japanese government debt equal
to 100% of the nation's GDP; and because the
government owns the bank, this loan is
interest-free and can be rolled over indefinitely.
An interest-free loan rolled over indefinitely is
the equivalent of issuing money.
Ellen Brown is an attorney and
president of the Public Banking Institute, http://PublicBankingInstitute.org.
InWeb of Debt, her latest of
eleven books, she shows how a private cartel has
usurped the power to create money from the people
themselves, and how we the people can get it back.
Her websites arehttp://webofdebt.com
(Copyright Ellen Brown 2011)