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sand; and when it collapses, the masses of debt-money it created will
vanish with it in the waves, massively deflating the money supply,
leaving plenty of room for the government to add money back in.

A Helping Hand to State and Local Governments

In the interest of preserving a single national currency, state and
local governments would not be able to issue new Greenbacks to fund
their programs (although they could issue other forms of credit, such
as tax credits for fuel efficiency; see Chapter 36). However, the federal
government could extend its largesse to state and local governments
by offering them interest-free loans for worthy projects. That is what
Jacob Coxey proposed when he took to the streets in the 1890s: “non-
interest-bearing bonds” to fund local public projects, to be issued by
the local government and pledged to the federal government in
exchange for federally-issued Greenback dollars.
In the 1990s, citizen activist Ken Bohnsack took to the streets again,
traveling the country for a decade recruiting scores of public bodies to
pass resolutions asking Congress for “sovereignty loan” legislation that
echoed Coxey™s plan. Under Bohnsack™s proposed bill, the govern-
ment would use its sovereign right to create money to make interest-
free loans to local governments for badly needed infrastructure projects.
The legislation was not passed, but Bohnsack, unlike Coxey, at least
got up the Capitol steps and in the door. In 1999, his proposal became
the State and Local Government Empowerment Act, introduced by
Representative Ray LaHood and co-sponsored by Dennis Kucinich
and Barbara Lee among others.13
Similar proposals for using interest-free national credit to fund
infrastructure and sustainable energy development are being urged
by a variety of money reform groups around the world, including the
New Zealand Democratic Party for Social Credit, the Canadian Action
Party, the Bromsgrove Group in Scotland, the Forum for Stable
Currencies in England, the London Global Table, and the American
Monetary Institute.14 Reform advocates note that more money is often
paid in interest for local projects than for labor and materials, making
public projects unprofitable that might otherwise have paid for
themselves. In The Modern Universal Paradigm, Rodney Shakespeare
gives the example of the Humber Bridge, which was built in the UK
at a cost of £98 million. Every year since the bridge opened in 1981, it

Web of Debt

has turned an operating profit; that is, its running costs (basically
repair, maintenance and staff salaries) have been exceeded by the
fees it receives from travelers crossing the River Humber. But by the
time the bridge opened in 1981, interest charges had driven its cost
up to £151 million; and by 1992, the debt had shot up to an alarming
£439 million. The UK government was forced to intervene with
sizeable grants and writeoffs to save the local residents from bearing
the brunt of these costs. If the bridge had been financed with interest-
free government-issued money, interest charges could have been
avoided, and the bridge could have funded itself.15
State and local governments are good credit risks and do not need
the prod of interest charges to encourage them to make timely payments
on their loans. To discourage local officials from borrowing “free”
money just to speculate with it, the “real bills” doctrine could be
applied: expenditures could only be for real goods and services -- no
speculative betting, no investing on margin, no shorting. (See Chapter
37.) A strict repayment schedule could also be imposed.
How would these loans be repaid? The money could come from
taxes; but again, a more satisfying solution is for local governments to
raise revenue through fee-generating enterprises of various types, turn-
ing local economies into the sort cooperative profit-generating endeavors
implied in the term “Common Wealth.”

A National Dividend from Government Investments?

The government may be a profit-generating enterprise already.
So says Walter Burien, an investment adviser and accountant who
has spent many years peering into government books. He notes that
the government is composed of 54,000 different state, county, and
local government entities, including school districts, public authorities,
and the like; and that all of them keep their financial assets in liquid
investment funds, bond financing accounts and corporate stock
portfolios. The only income that must be reported in government
budgets is that from taxes, fines and fees; but the stock holdings of
government entities can be found in official annual reports known as
CAFRs (Comprehensive Annual Financial Reports) which must be
filed with the federal government by local, county and state
governments. According to Burien, these annual reports show that
virtually every U.S. city, county, and state has vast amounts of money
stashed away in surplus funds, with domestic and international stock

Chapter 44 - The Quick Fix

holdings collectively totaling trillions of dollars.16
Some of these stock holdings are pure surplus held as “slush funds”
(funds raised for undesignated purposes). Others belong to city and
county employees as their pension funds. Unlike the federal Social
Security fund, which must be invested in U.S. government securities,
the funds in state and local government pension programs can be
invested in anything “ common stock, bonds, real estate, derivatives,
commodities. Where Social Security depends on taxing future
generations, state and local retirement systems can invest in assets
that are income-producing, making them self-sufficient. The slush
funds that represent “pure surplus,” says Burien, have been kept
concealed from taxpayers, even as taxes are being raised and citizens
are being told to expect fewer government services. He maintains
that with prudent government management, not only could taxes be
abolished but citizens could start receiving dividend checks. This is
already happening in Alaska, where oil investments have allowed the
state to give rebates to taxpayers (around $2,000 per person in 2000).17
Burien™s thesis is controversial and would take some serious
investigation to be substantiated, but combined with allegations by
Catherine Austin Fitts and others that trillions of dollars have simply
been “lost” to “black ops” programs, it raises tantalizing possibilities.
The government may be far richer than we know. An honest
government truly intent on providing for the general welfare might
find the funds for all sorts of programs that are sorely needed but
today are considered beyond the government™s budget, including
improved education, environmental preservation, universal health
coverage, restoration of infrastructure, independent medical research,
and alternative energy development. Roger Langrick concludes:
With computerization, robotics, advances in genetics and food
growing, we have the potential to turn the planet into a sustainable
ecosystem capable of supporting all. . . . This is not a time to be
saddled with an 18th century money system designed around the
endless rape of the planet, [one] based on the robber baron
mentality and flawed with Unrepayable Debt. . . . A new monetary
system with enough government control to ensure funding of vital issues
could unlock the creative potential of the entire nation.18

Web of Debt

Chapter 45

“Remember, my fine friend, a heart is not judged by how much you
love, but by how much you are loved by others.”
“ The Wizard of Oz to the Tin Woodman, MGM film

I n the nineteenth century, the corporation was given the
legal status of a “person” although it was a person without heart,
incapable of love and charity. Its sole legal motive was to make money
for its stockholders, ignoring such “external” costs as environmental
destruction and human oppression. The U.S. government, by con-
trast, was designed to be a social organism with heart. The Founding
Fathers stated as their guiding principles that all men are created equal;
that they are endowed with certain inalienable rights, including life,
liberty and the pursuit of happiness; and that the function of govern-
ment is to “provide for the general welfare.”
If the major corporate banking entities that are now in control of
the nation™s money supply were made agencies of the U.S. govern-
ment, they could incorporate some of these humanitarian standards
into their business models; and one important humanitarian step these
public banks would be empowered to take would be to forgive unfair
and extortionate Third World debt. Most Third World debt today is
held by U.S.-based international banks.1 If those banks were made
federal agencies (either by purchasing their stock or by acquiring them
in receivership), the U.S. government could declare a “Day of Jubilee”
-- a day when oppressive Third World debts were forgiven across the
board. The term comes from the Biblical Book of Leviticus, in which

Chapter 45- Government With Heart

Jehovah Himself, evidently recognizing the mathematical impossibil-
ity of continually collecting debts at interest compounded annually,
declared a day to be held every 49 years, when debts would be for-
given and the dispossessed could return to their homes.
Unlike when Jehovah did it, however, a Day of Jubilee declared by
the U.S. government would not be an entirely selfless act. If the United
States is going to pay off its international debts with new Greenbacks,
it is going to need the goodwill of the world. Forgiving the debts of
our neighbors could encourage them to forgive ours. Other countries
have no more interest in seeing the international economy collapse
than we do; but if they are “spooked” by the market, they could rush
to dump their dollars along with everyone else, bringing the whole
shaky debt edifice down. Forgiving Third World debt could show our
good intentions, quell market jitters, and get everyone on the same
page. Our shiny new monetary scheme, rather than appearing to be
more sleight of hand, could unveil itself as a millennial model for show-
ering abundance everywhere.
Forgiving Third World debt could have a number of other impor-
tant benefits, including a reduction in terrorism. In a 2004 book called
The Debt Threat: How Debt Is Destroying the Developing World and
Threatening Us All, Noreena Hertz notes that “career terrorists” are
signing up for that radical employment because it pays a salary when
no other jobs are available. Relieving Third World debt would also
help protect the global environment, which is being destroyed piece
by piece to pay off international lenders; and it could help prevent the
spread of diseases that are being bred in impoverished conditions
The United States has actually been looking for a way to cancel
Third World debt. It just hasn™t been able to reach agreement with its
fellow IMF members on how to do it. When the IMF talks of “forgiving”
debt, it isn™t talking about any acts of magnanimous generosity on the
part of the banks. It is talking about shifting the burden of payment
from the debtor countries to the wealthier donor countries, or drawing
on the IMF™s gold reserves to insure that the banks get their money. In
the fall of 2004, the United States decided that Iraq™s $120 billion debt
should be canceled; but if oil-rich Iraq merited debt cancellation, much
poorer countries would too. Under the Heavily Indebted Poor Country
(HIPC) Initiative of 1996, rich nations agreed to cancel $110 billion in
debt to poor nations; but by the fall of 2004, only about $31 billion had
actually been canceled. The thirty or so poorest nations, most of them
in Africa, still had a collective outstanding debt of about $200 billion.
Web of Debt

At a meeting of finance ministers, the United States took the position
that the debts of all the poorest nations should be canceled outright.
The sticking point was where to get the funds. One suggestion was to
revalue and sell the IMF™s gold; but objection was raised that this would
simply be another form of welfare to banks that had made risky loans,
encouraging them to continue in their profligate loan-sharking.2
The Wizard of Oz might have said this was another instance of
disorganized thinking. The problem could be solved in the same way
that it was created: by sleight of hand. The debts could be canceled
simply by voiding them out on the banks™ books. No depositors or
creditors would lose any money, because no depositors or creditors
advanced their own money in the original loans. According to British
economist Michael Rowbotham, writing in 1998:
[O]f the $2,200 billion currently outstanding as Third World,
or developing country debt, the vast majority represents money
created by commercial banks in parallel with debt. In no sense
do the loans advanced by the World Bank and IMF constitute
monies owed to the “creditor nations” of the World Bank and
IMF. The World Bank co-operates directly with commercial
banks in the creation and supply of money in parallel with debt.
The IMF also negotiates directly with commercial banks to
arrange combined IMF/commercial “loan packages.”
As for those sums loaned by the IMF from the total quotas
supplied by member nations, these sums also do not constitute
monies owed to “creditor” nations. The monies subscribed as
quotas were initially created by commercial banks. Both quotas
and loans are owed, ultimately, to commercial banks.
If the money is owed to commercial banks, it was money created
with accounting entries. Rowbotham observes that Third World debt
represents a liability on the banks™ books only because the rules of
banking say their books must be balanced. He suggests two ways the
rules of banking might be changed to liquidate unfair and oppressive
The first option is to remove the obligation on banks to
maintain parity between assets and liabilities, or, to be more
precise, to allow banks to hold reduced levels of assets equivalent
to the Third World debt bonds they cancel. Thus, if a commercial
bank held $10 billion worth of developing country debt bonds,
after cancellation it would be permitted in perpetuity to have a

Chapter 45- Government With Heart

$10 billion dollar deficit in its assets. This is a simple matter of
The second option, and in accountancy terms probably the
more satisfactory (although it amounts to the same policy), is to
cancel the debt bonds, yet permit banks to retain them for
purposes of accountancy. The debts would be cancelled so far
as the developing nations were concerned, but still valid for the
purposes of a bank™s accounts. The bonds would then be held
as permanent, non-negotiable assets, at face value.3
Third World debt could be eliminated with the click of a mouse!


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