Public Credit or Bust

 

For those that time is an issue. 41 pages reduced to 7 pages of excerpts by my most respected global economic commentator. Concise cause and solution in plain speak.

David C Korten thirty five years in preeminent business institutions, Harvard lecturer and international development agencies turned banking insider whistleblower and monetary reformer in non profit organisation working in the public interest.
A magnificent writer of economic reality;

“The most powerful master is the one who rules unseen and unmentioned. In modern societies, the money system is that master. Those who control the creation and allocation of money control the na­tion’s values and priorities.

When the system gives to an elite group of private bankers the power to determine who has access to money and who does not, it renders democracy impotent and virtually assures an extreme and growing gap between the profligate few and the desperate many. When the citizenry is uneducated in the nature of money and the implications of money system design, it is pow­erless to resist.

Our common future depends on educating ourselves regarding the true nature of money and the implications of the structure of the insti­tutional system by which it is created and allo­cated. Only then will we create a democratically accountable money system that operates as our servant, not our master.”

Full document here;
http://neweconomyworkinggroup.org/sites/default/files/LiberateAmericaPRINTABLE.pdf

However, these once-sensible government programs now guarantee and subsidize loosely regulated too-big-to-fail private banks that fi­nance speculation, financial bubbles, predatory lending, asset stripping, and investment fraud activities that government should be regulating and taxing out of existence. The result is the fi­nancial doomsday machine that drives toward ever more risky and unproductive financial ex­cess—and will continue to do so until either it is restructured, or government’s financial capac­ity is exhausted and the entire financial system goes into terminal, unrecoverable collapse.

Pg 19 – Bad Science – Wall Street’s guiding market fundamentalist ideology rests on the empirically, logically, and ethically flawed premise that society does best when each individual and enterprise seeks to maximize financial return without regard to the consequences for other people, the health of society, or the biosphere. This elevates greed, long considered a deadly sin, to the status of a moral imperative and legitimates a system that attracts and promotes to top management po­sitions sociopathic personalities who feel com-fortable with the system’s perverse moral code. The system in turn affirms their psychological disability and rewards it as an asset.

The financial instability, environmental de­struction, extreme inequality, and political cor­ruption created by Wall Street’s experiment in market fundamentalism should have put this logical and moral perversion to rest long ago. The healthy function of society depends on individu­als acting with integrity and accepting responsi­bility for the consequences of their actions. This is a foundational moral teaching of every major faith tradition and is within the means of every morally and psychologically mature adult to up­hold. It is the standard to which we should all be held, including corporations and their managers.

Pg 20 – Flawed Legal Doctrine – In The Failure of Corporate Law, (pp. 73-74) Pro­fessor Kent Greenfield of Boston College observes that the law normalizes, and even defends, cor­porate law breaking. He summarizes the recom­mendation of widely quoted legal scholars Fran Easterbrook and Daniel Fischel that “corpora­tions should, with some exceptions, seek to maximize profits even when they must break the law to do so… . As long as the expected penalties from illegality are less than the expected profits, the corporation should act illegally.” According to Professor Greenfield “there is not a single con­temporary example of a court finding that man­agers breached their fiduciary duty by causing a firm to break the law when it was profitable to do so.”

Such perverse legal interpretations affirm the inclinations of the unscrupulous and give them moral and legal cover as they subvert justice and democracy by avoiding prosecution for a negoti­ated fee and buy legislation to make their crimes legal. It works well for the ethically challenged for whom personal profit is the operant ethical standard. It is obviously a disaster for society.

A perverse legal doctrine may absolve indi­vidual corporate managers of legal responsibility for their actions; it does not absolve them from their personal moral responsibility.

Pg 21- Purpose of Business – From a societal perspective the primary reason for any business to exist is to serve its commu­nity by providing useful goods and services and fulfilling, living-wage employment. A fair profit is a means to financial viability and a reward for saving and risk taking.

There is, however, an important difference between a fair profit and maximum profit. To make profit the defining purpose of the enter­prises is to convert a means to an end.

This distinction is particularly important for banks and other financial services institutions. Their power to determine who gets access to credit and who does not is easily abused. Finan­cial services are as essential to the health and well-being of a modern community as is the pro­vision of water and electricity. It is essential that they all be managed responsibly in the public interest.

The ownership structure of financial insti­tutions plays a critical role in creating internal incentive structures that can support either de­structive or responsible behavior.

Pg 22 – Wall Street presents itself as the champion of democracy and market capitalism. It in fact rep­resents a concentration of economic and politi­cal power that is both anti-democratic and anti-market……..When ownership is rooted in the community of place in which a local financial institution is lo­cated, owners have a natural stake in assuring that management decisions reflect the financial, social, and environmental interests of the com­munity rather than the financial interests of anonymous absentee owners.

Pg 23/24 – Money Creation in the Current System – Under our current money system, the Federal Reserve is responsible for managing the money supply and has a variety of tools for expand­ing and contracting it. The tool of immediate relevance to this discussion is the Fed’s ability to create new money with a simple accounting entry and then put that money into circulation by extending credit to member banks or buying treasury bonds or other public or private securi­ties. This money then becomes available to the banking system to lend to borrowers………most financial reform proposals fo­cus on regulatory measures in­tended to limit the damage caused by the current system. Such mea­sures are necessary, but inadequate.

To create economic health, the banking sys­tem must be restructured to direct the focus away from extractive finance—the predatory ex­propriation of real wealth—to generative finance that expands the pie of real wealth to the ben­efit of all within the limits of healthy biosystem function.

The desired transition will require a sus­tained and orderly process of rebuilding the money/banking system from the bottom up as a well-regulated community-accountable pub­lic utility.

This arrangement can work to the benefit of the society; if the banking system directs the money it creates into the real-wealth economy to fund productive investment and exchange.

When, however, this power is monopolized by a financial oligarchy solely for self-enrichment, it becomes a form of theft, the ultimate instru­ment of tyranny, and an intolerable and unsus­tainable burden on society.

Money Without Growth

Critics of the bank-credit money system commonly observe that the demand to repay newly created bank-credit money with interest creates an artificial imperative for the economy to grow simply to generate demand for new debt to create the money required to pay the interest due on prior debt and prevent systemic default. This is an accurate criticism of a Wall Street money system controlled by a privileged class of financiers who in effect rent the money supply to the rest of the society.

Pg 31 – Investing new money in productive infra­structure in a down economy with large-scale unemployment and unutilized productive capac­ity is not inflationary and need not add a penny to the federal deficit or to the burden on taxpay­ers. If only $3 to $4 trillion of the $12 trillion in keystroke money created by the Federal Reserve following the 2008 crisis had been directed to building an energy efficient green physical in­frastructure, we would now have a booming na­tional economy and be on our way to securing the future of America’s children.

Pg 32/33 – Rewrite International Trade and Investment Rules to Secure National Ownership, Self-Reliance, and Self-Determination – The current rules of the global economy give pri­ority to the interests, rights, and power of global corporations over the interests, rights, and pow­er of people and the governments responsible for their well-being. Money is free to go wherever it finds an opportunity for return, no matter what the costs to the countries and peoples involved. People and nations are pitted against one anoth­er in a global competition for the favor of those who control access to money.

The gap between the profligate and the des­perate grows ever wider. Countries, corpora­tions, and individuals with the largest numbers in their bank accounts span the world to buy up the world’s increasingly scarce land, water, energy, and mineral resources. Global corpora­tions avoid paying taxes in the countries from which they extract their largest profits through creative accounting that transfers their profits to offshore tax havens.

The poor are left with decreasing options as the price of basic subsistence rises ever further out of reach. By the rules currently in place, na­tional governments are prohibited from interfer­ing, even though the security and well-being of their own people are placed at extreme risk.

Our common future depends on global co­operation among the world’s people and govern­ments to create economies that assure every child of every nation the chance for a prosper­ous, secure, and meaningful future irrespective of nationality, race, or religion. This requires new rules that put the rights and interests of people ahead of the power and profits of corporations, favor a democratic distribution of power, sup­port positive life-values of cooperation and shar­ing, and limit the ability of the richest among us to roam the globe expropriating what remains of the world’s diminishing resource base for their exclusive private benefit…………….

In defiance of logic and experience, market fundamentalists argue that the unrestricted free flow of goods and money across national bor­ders produces maximum economic benefit for all players. Their claim is based on the theory of comparative advantage, which says that trade is mutually beneficial when certain essential criti- …….

cal conditions are met.

Market fundamentalists conveniently ig­nore the conditions: Each of the trading partner countries must be largely self-reliant in meet­ing its own needs, trade only its surplus with its neighbors, keep exports and imports in balance, and keep capital [ownership] national. This means that trade is mutually beneficial when each country is living within its own means and its productive assets are owned its own citizens. When the necessary conditions are met, there is no international debt and there are no interna­tional capital markets or flows.

The borderless global economy favored by market fundamentalists fulfills none of these conditions and, far from being beneficial to all, primarily benefits the economy’s most powerful players who, by the removal of the restrictions of rules and borders, are free to consolidate their control over the world’s real wealth as they wish for exclusive private benefit.

Pg 36 – Citizen Action – Most of the recommendations put forth above require political action by the federal government. The necessary leadership is unlikely, however, to come from within the Washington political establishment so long as it operates as a wholly owned subsidiary of Wall Street. In mat­ters of financial reform, as in all matters related to establishing and maintaining the democrat­ic accountability of society’s governing institu­tions, strong and independent citizen organiza­tions are essential.

Implementation of the agenda outlined here will depend on effective broad-based citizen ac­tion from outside the establishment to build public consciousness of the institutional and cultural sources of their economic distress and engage public participation in:

• Building new institutions grounded in community,

• Creating a moral culture of cooperation and sharing, and

• Demanding that elected officials change the rules to support the new institutions and culture.

Pg 37 – Members of an ambitious ruling class who seek unlimited power without responsibility for, or accountability to, the rest of the society. Members of this alliance secure their own power by skillfully playing both ends of the political spectrum against one another.

The division, however, is not inevitable. The issues transcend established political labels. It is well within the means of responsible, mature adults from across the political spectrum to rec­ognize our common interest in creating institu­tions that are democratically accountable to the will and interests of the sovereign people.

Creating a money and banking system that roots power and accountability in people and communities of place is essential to secure for ev­eryone the opportunity to assume responsibility for their own well-being, as well as for the well-be­ing of their families, and communities. It requires citizen action from individuals and organizations working at all levels from the local to the national.

Pg 38 – The most powerful master is the one who rules unseen and unmentioned. In modern societies, the money system is that master. Those who control the creation and allocation of money control the na­tion’s values and priorities.

When the system gives to an elite group of private bankers the power to determine who has access to money and who does not, it renders democracy impotent and virtually assures an extreme and growing gap between the profligate few and the desperate many. When the citizenry is uneducated in the nature of money and the implications of money system design, it is pow­erless to resist.

Our common future depends on educating ourselves regarding the true nature of money and the implications of the structure of the insti­tutional system by which it is created and allo­cated. Only then will we create a democratically accountable money system that operates as our servant, not our master.

Pg 39 – NAVIGATING THE TRANSITION TO A NEW ECONOMY

The New Economy Working Group

The clearer our vision of the economic system we seek and of the ways it differs in its values and structures from the system we have, the greater our ability to prioritize policy changes that support the vision.

Wall Street corporate interests designed and manage the exist­ing economic system to maximize financial returns to themselves. This system treats the conversion of the real living wealth of the many to the phantom financial wealth of the few as a net gain for society. The system’s internal dynamics increase financial insta­bility, wealth concentration, environmental stress, and political corruption—thus creating a growing risk of environmental social, environmental, political, and economic collapse.