Fwd: from Mike Rowbotham

["William B. Ryan" <william_b_ryan@xxxxxxxxxxx>]

----Original Message Follows----
Date: Thu, 6 Aug 1998 19:09:22 -0700 (PDT)
From: Michael Rowbotham <mikerowbotham@xxxxxxxxx>


Dear Bill Ryan,

Thanks for your e-mail. Yes there is a growing awareness of the nature
of the debt-based money system in labour ranks. My book, 'The Grip of
Death', published by Jon Carpenter was reviewed last week in 'The
Tribune' - one of the leading magazines of the left, by Alan Simpson
MP - a highly respected economic critic within the labour party.
Apparently there is to be another longer review of my book next week.
Another left-wing journal is doing an entire issue on monetary reform
in September, in which my book and others are discussed

The issue is coming to life again - BUT, there is no acknowledgement
of this in the mass media or in labour policy - these are 'backbench'
MPs.

As regards your later comments - you're absolutely right - we do want to
get interest down, and I would be the first to favour this.
Abandoning the use of interest rates to control the run-away money
supply would be a good first move - interest would then fall
dramatically.

My only reason for criticising those who advocate zero interest is
that they assume this is a complete reform, whereas it is only half a
reform!

You put it very well in your letter.

I have attached a couple of articles on T W debt, in which I have
become heavily involved recently.

Kind regards, and hope to speak to you again, although I am out of the
country now for two weeks

Mike Rowbotham.

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Bankrolling the World into Chaos    (960 words)	

As the Asian financial crisis deepens, and more nations join the ranks
of the highly indebted poor countries, it is surely time to ask
searching questions about the near total reliance of modern economies
upon banking.

Getting the right answers can sometimes be difficult. But not asking
the right questions in the first place can be a disaster. The
industrialised economies are trying desperately to break the cycle of
boom and bust and the Asian Tigers are counting what is left after the
crash. But no-one is pointing out that modern economies are rendered
inherently unstable by a financial system based almost entirely upon
lending and credit.

The exposure of the industrialised nations to banking is no less great
than that of the poorer nations, and the risk of a fiscal collapse
just as possible. The debts registered against the wealthy nations and
their citizens speak for themselves. In the UK outstanding mortgage
debts total £420 billion, commercial debts £380 billion and the
National Debt stands at £400 billion. As for the United States,
mortgages currently in excess of $4.2 trillion and a national debt of
$5 trillion make one wonder why the wealthier a nation becomes, the
more its financial accounts seem to deteriorate.

The answer to this conundrum is easy. Under the current financial
system, debt is used to create money.  Bank of England statistics show
that a staggering 97% of the entire UK money stock consists of bank
credit, created by the action of lending to borrowers. Government
created currency, at 3% of the money stock, is now so trivial that the
entire economy functions on money created by bank lending. Globally,
over 90% of all money is now created by the process of fractional
reserve banking.

The problem with a bank-based money supply is an obvious one. When a
bank makes a loan, a debt is created as well as a credit. So with the
£680 billion of bank credit now lubricating the UK economy goes £680
billion of debt in the form of mortgages, overdrafts, commercial loans
and other debts. And the numbers of mortgaged homeowners and heavily
indebted businesses are increasing alarmingly.

According to Building Societies Association, the total of UK mortgaged
properties rose from 3 million to 11 million over the last 35 years,
whilst the amounts outstanding per house increased from 1.1 times the
average wage to twice the average annual wage. A clear political as
well as an economic question arises: is it proper to rely upon housing
debt to create the nation's medium of exchange?

Of course, the citizens of Malaysia, South Korea and Indonesia have
not just been having difficulties with the monthly mortgage. Forced to
accept massive dollar loans from the IMF and commercial banks, with
their currency degraded and now the plaything of international
dealers, their commercial assets are now being picked up for a song by
foreign investors. The other developing nations of the world, so often
encouraged to look to the Tiger economies of the East for their
economic inspiration and growth model, have seen their idols thrust
back down to join them.

Should we allow the world's economies to be so dominated by credit,
debt and banking policy, and the stock market inflation of leveraged
international capital flows? What are the money supply alternatives?

Monetary reform has an ancient pedigree, as applicable to the advanced
industrial nations as to the Third World. Bishop Berkley asked as long
ago as 1763 - "whether or not it be a mighty privilege for a man to
create a hundred pounds with the stroke of a pen?" Abraham Lincoln
claimed that the government had not only a right, but a duty to create
a nation's currency.

In the 1930s, during the Depression days of poverty amidst plenty, the
financial system brought the economies of the world to a virtual
standstill. Then, the public took to the streets in support of
monetary reformers such as Douglas, Orage, Soddy and Kitson. The
monetary reformers were ignored and Keynesian deficit financing was
adopted - ie the world chose debt.

In the 1980s, the Economic Research Council advocated that the UK
government should take on some of the responsibility for the issuance
of money, thereby obviating the need for a national debt and reducing
the burden of money creation placed upon commerce and the general
population. Bryan Gould, shortly before he left the UK for New
Zealand, displayed his monetary reform credentials when he declared,
in the New Statesman, "Why shouldn't a socially aware and economically
responsible government create credit where it is appropriate... in
order to ensure investment is made and at the same time strike a great
blow for the democratic control of the economy?"

The point about government created credit is, like the coins and notes
they provide, this would be created as a debt-free input into the
economy, contributing to a stable circulating money stock.

Government-issued money has always been dismissed as inflationary. But
this need not be the case. If sensible restrictions were placed on
banks and building societies, the government-issued money supply would
be compensated for by a reduced production of new bank credit. For
instance, there could be a limit, and gradual reduction, in the number
of times a person is allowed to mortgage their annual income. Since
house mortgages support over 60% of the money stock, this could make a
dramatic contribution to preventing monetary inflation as well as
putting a break on the relentless rise in house prices, which benefits
no-one. It would also mean that, over the years, house buying would
became a competition based on money people have got, rather than at
present, money they haven't got.

In the end, this has to be part of the answer. And as Bryan Gould
points out, the questions addressed are fundamental political issues,
not just a matter of economics. Why should a people drift ever deeper
into debt simply to create their medium of exchange? Why should a
government - the one institution with the positional and constitutional
authority to create money - delegate this responsibility entirely to
banks, and oblige the nation to run on debt?

All national economies are now so financially vulnerable that they are
constantly taken to the cleaners by powerful multinationals. More
liquidity and solvency would afford protection to the real, productive
economy, rather than making the source of true wealth subject to the
vagaries of finance.

These are the questions we ought to be asking as we watch the crisis
in Asia deepen and spread - perhaps along with a query as to the
sanity of the bulk of our economists, who seem to see no connection
between the spiralling debt problems of the world and the way money is
currently created.

Michael Rowbotham   18.6.98

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Debt Free  (650 words)

Understanding the nature of the global financial system allows us to
consider some creative accountancy to release the Third World from its
debts.

When Third World debt cancellation is discussed, it is automatically
assumed that someone, somewhere has to pay. Either banks must cover
the losses, taxes must be raised or there would have be higher
interest charges globally. In fact, Third World debt could be
cancelled without cost or penalty to anyone.

Third World debt is part of the infamous 'debt-based financial
system', based on fractional reserve banking, as a result of which the
wealthy nations are also drifting ever deeper into insolvency. There
is now almost total global reliance upon banking, and the process of
going into debt, to generate and supply money.

Less than 5% of modern money consists of currency created free from
debt. The remaining 95% of money in most countries, and throughout the
global economy, consists of nothing more than vast volumes of bank
credit, created by banks and other lending institutions in parallel
with debt. The global money stock is thus created and sustained by the
aggregate of outstanding commercial loans, private mortgages,
overdrafts and government debts - long term debts without which there
would virtually be no money.

As one of the many un-repayable debts associated with the creation and
supply of money, Third World debt clearly does not represent a true
'debt' between nations. Any realistic assessment would conclude that
in real terms - in terms of goods, services and assets exported to the
wealthy nations - the Third World has more than repaid its debts. In
fact, it has probably exported the worth of the products obtained via
the original loans many times over.

Cancelling Third World debt is clearly justified as releasing the
Third World from debts that they have already paid in real terms. It
would also amount to an acceptance that there has, in recent years,
been a gross over-reliance upon banking and debt to create and supply
money.

Under the rules of banking, if commercial banks cancel Third World
debt-bonds, they are obliged to write down their reserves. This
obligation could easily by temporarily dropped. Third World debts
could then be cancelled with no cost, financial or otherwise, to
anyone. As far as the banking system was concerned, it would be as if
the loans had never been made.

The monetary effect of such a write-off would be that the $2.2
trillion dollars, created over the years by the process of lending to
the Third World nations, would be released permanently into the world
economy, where it is currently now dispersed.

Such a cancellation would inject $2.2 trillion dollars of liquidity
into the global economy - but not by creating more money - simply by
allowing the £2.2 trillion of bank credit, currently countered by
equivalent debts, to circulate freely. If the global problems stemming
from the Asian crisis, world export aggression and impetus to growth
have any connection at all with the fact that modern money is created
in parallel with debt, then cancelling some debts in this way makes an
instant contribution to ameliorating such problems.

Developing nations would be able to direct their attentions to their
own domestic agriculture and industry. The commercial banks currently
holding these poorly rated debt-bonds would be released from their
liabilities. The removal of debt would cancel the fierce export
imperative, which leads to floods of cheap goods and foodstuffs
creating unemployment and distorting growth in the industrial nations.
A more stable global economy would result, with less debt and banking
exposure, and less opportunity for multinationals and speculators to
predate nations at the bottom of vicious economic cycles.

Naturally, there would have to be revision of the Bretton Woods
institutions, the accountancy of world trade and the basis of future
international lending. But isn't that the most glaring and obvious
need of all?

Michael Rowbotham  21.7.98
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    Forgive Them Our Sins    ( 1040 words)


Some of the debts of Third World nations are to be 'forgiven' with
conformity to 'sound economic policies'. But the deregulated free trade
conditions now being demanded by the World Bank are the very policies
responsible for bringing about acute debt and impoverishment in the
first place.

The public is currently being persuaded that the massive backlog of
Third World debt is due to economic incompetence on the part of the
debtor nations, or the corruption of their governments. But for the
last twenty years, the IMF and World Bank have acquired a track-record
of gross economic interference and failure in their dealings with the
developing world.

The backlog of debt clearly measures years of economic mismanagement
by the multilateral lending agencies, and their imposition and
dictatorship, every bit as much as that by debtor nations and their
rulers.

Central to the failure of the World Bank and IMF has been a
single-minded adherence to the dogma of free trade. The Bank and the
Fund have both imposed loan conditions that gradually outlawed
domestic subsidies, tariffs, quotas - any structure that tended to
protect domestic markets in the Third World. Result? As fast as the
debtor nations were earning export revenues to repay their debts, they
found revenues flowing out on imports, due to aggressive trade from
the wealthy nations.

Keynes warned the Bretton Woods Conference of this danger. But his
warnings were ignored and the Conference decided to leave the balance
of trade to free market commercial forces. From that moment, the fate
of the Third World was sealed.

Free trade theory, as originally advanced by David Ricardo, is founded
upon three premises; that there should be full employment, no capital
flows between nations and a comparable level of economic development.
Insisting on Free Trade conditions between underdeveloped nations
weakened by debt and highly advanced industrial nations with larger
capital base, in a world with highly aggressive exporting, where no
nation has full employment and where capital flows are completely
deregulated - how on earth can the theory of free trade possibly be
expected to produce mutual benefit? All the three Ricardian premises
are absent, plus a host of additional factors, at which Ricardo would
have thrown up his hands up in horror since they simply mean Free
Trade becomes a game in which the powerful nations win every time.

For example, the wealthy nations possessed advanced buying, transport,
wholesale and marketing networks, all dominated by large businesses
that formed cartels and monopolies. The developed nations were
economically weak, produced mostly primary commodities, and competed
with each other, under acute financial pressure, to supply these
commodities to wealthy nations. The result was completely predictable:
the monopolies persistently bid down the prices they pay, leading to a
steady fall in commodity prices. The consequence of this was a
remorseless decline in export revenues for the debtor nations, whilst
progressively greater quantities of their resources, goods and
services were transferred to the wealthy nations.

Precisely the same has happened in terms of debtor nation assets.
Giant multinationals with their powerful financial base in the wealthy
nations have been able to buy up land, mining rights, and entire
sectors of debtor nation economies at rock-bottom prices.

In both trading and investment there has been a clear disparity
between the poor fiscal returns for the Third World nations, which did
little to ameliorate their debt, and the massive transfer of real,
physical wealth - the valuable assets, and the goods, services and
profits they provide, which were acquired by foreign corporations.

Ricardo's warning rings out loud and clear. Deregulated free trade -
whether it be in primary commodities, manufactured goods or in capital
assets - between nations with such wildly differing degrees of
financial and economic development, simply is not an equitable game.

The decision by the West to institute a floating exchange rate
mechanism is another free market convention that has proved
catastrophic for debtor nations. Loans advanced to the Third World
were not in their own currencies, but in Dollars, Pounds or Yen. The
loans were thus fixed in strong foreign currencies. So instead of a
poor nation's debt being related to the goods and services produced by
that nation, they were related to the currency, goods and services of
the wealthy nations.

Under such circumstances, if the value of a currency falls, vastly
greater quantities of goods and services have to be exported to obtain
the dollars needed for debt settlement. In terms of goods and
services, therefore, Third World debt has been perpetually multiplied.

It has often pointed out that had commodity prices not constantly
fallen, currencies not collapsed and debts not been fixed in dollar
terms, the returns from development projects would have been such as
to lead the Third World out of debt. This completely dismisses the
repeated assertion that Third World debt represents economic
incompetence and the miss-spending of loans.

The bulk of loans were not miss-spent. There has simply been a gross
failure of the accountancy mechanism between debtor and creditor
nations, such that the Third World has seen their debts repaid many
times over in real terms, only to see those debts steadily mount in
money terms.

Proponents of free trade argue that it will lead to a progressive
levelling between nations. The history of Third World development
shows this notion to be completely false, as does the recent Asian
crisis. The free trade in international currencies, stocks and shares
has seen speculative capital based in America and Europe make a
killing in the former Tigers, thrusting these nations into the ranks
of heavily indebted nations. Their currency is now the plaything of
the international money markets, their commercial assets are being
picked up by Western investors for a pittance and a heavy programme of
state sell-offs is in progress. The result of decades of endeavour is
now passing abroad as capital gravitates to its Western home. Again
the IMF is deeply implicated.

At the time of Bretton Woods, the nations of the Southern hemisphere
were relatively stable - undeveloped, but rich in natural resources
and seen as having a prosperous future. There was no reason why their
wealth of resources and the technological expertise of the
industrialised nations could not have been the subject of balanced,
equitable exchange. All that was required were the economic
conventions to promote this.

Instead, the structures and trading conventions instituted by the
industrialised nations have resulted in the Third World being used as
an outlet for our surplus goods; a source of export revenues; a cheap
labour market, a source of cheap primary commodities and low cost
manufacturing zones for multinationals. Debt-induced poverty has
ushered in an era of cultural decline, instability, military conflict
and political corruption. Their land, resources, industrial and
commercial infrastructure have been bought for a song by aggressive
corporations, who move in when market is low and now own the most
productive assets and sectors in these countries.

After four decades of development, continually distorted by Western
economic institutions and flawed economic ideology, we have the gall
to tell them the Third World that they still owe us $2.2 trillion! In
truth, the debt we owe them is beyond monetary measure, and if
forgiveness is to be discussed, it is without doubt us who should be
seeking it of them.

Michael Rowbotham   18.6.98

The Grip of Death: A Study of Modern Money, Debt Slavery and
Destructive Economics by Michael Rowbotham. With endorsements from
Bryan Gould, Professor Herman Daly, David Korten, Right Reverend Peter
Selby, Ed Mayo, Richard Douthwaite. Published July 1998 by Jon
Carpenter Publishing,price £15.00.

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http://www.geocities.com/CapitolHill/Senate/7018/




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