Above image: Mr. Fish.
Economist Ellen Brown sheds light on the intricacies of an economic system that is being unmasked by the government’s pandemic response.
As the coronavirus pandemic continues to cause mass death and upheaval around the world, there has been an unexpected side effect: it has unmasked capitalism. In the U.S., this unmasking can be seen in both the Federal Reserve’s actions as well as Congress’ coronavirus aid legislation, the CARES Act, both of which reveal critical truths about an economic system that has been sold to working people as one thing and as quite another to banks and corporations. To shed some much needed light on the intricacies of our financial situation during the latest crisis, “Scheer Intelligence” host Robert Scheer spoke with acclaimed economist and attorney Ellen Brown.
There are plenty of parallels to be drawn between the last financial crisis and the coronavirus pandemic, with the clear exception being that now we’re not just dealing with a broken economy but with a deadly virus. Brown, who has written over a dozen books on economics and is the founder of the Public Banking Institute, explains how, unfortunately, the Covid-19 bailouts will once again betray Americans just as the 2008 stimulus did.
“In 2008 the bailout was basically of the banks, or we had quantitative easing that went to the banks,” the author tells Scheer. “And then the idea was that the banks were supposed to lend that into the real economy, but of course, they didn’t do it. … But now we have even more credit facilities [and] the problem is, they’re all going to help the big corporations, and the hedge funds, and virtually every sort of shady business. Things the Federal Reserve couldn’t lend to before, [but] now they have new ways of doing it.”
The nefarious uses of the CARES Act have been blasted all over the press, and now news has emerged that the Federal Reserve is planning on handing big corporations a whopping half a trillion dollars with “no strings attached” and zero interest. As Scheer points out, however, this seemingly miraculous economic response at times of crisis, when money is suddenly conjured out of thin air, is nothing new.
“The fact is, this is like what happens in wartime. You know, you had the Great Depression, [and when ] we went to war, suddenly [Franklin Delano] Roosevelt was able to really spend money,” says the “Scheer Intelligence” host, “And as a result, we got out of the Great Depression. In wartime, the government just prints money, finds it somewhere, and no questions asked.
“And that’s what happened now,” Scheer goes on. “Because of this pandemic, Congress just said, OK, we’re going to find–what, you said $4 trillion; I’m sure it’ll grow to $8 trillion. They don’t do that ever about, say, dealing with poverty or education, or any of these things; they always are very tight with the dollar. But now, because we have this warlike situation, they can suddenly find this money, and they can spend it in a totally unaccountable way.”
But just as the deadly pandemic is becoming yet another opportunity for Wall Street and corporations to swindle the public with the help of the government, it’s also finally made one thing very clear: Universal Basic Income is absolutely possible.
“As you say, if they could find the money for all that,” Brown tells Scheer in response to his summary regarding how money has always been funneled to the top, “they could clearly find the money for the people. My preferred option [is what] they call ‘helicopter money.’ Money that’s just created by the Federal Reserve and flown–theoretically, the original term came from flying helicopters over the people and just dropping the money equally on everybody. And we could still do that, and that’s called a Universal Basic Income.”
Brown goes on to explain in detail why it’s not only affordable, but won’t cause the massive inflation that critics so often write about whenever the measure is suggested.
“It’s not going to be inflationary,” she explains, “and that’s because of the way money comes into existence. We don’t really have a money system; we have a credit system. All of our money is credit; it’s created as credit on the books of banks, and it’s extinguished when the loans are paid off.”
Perhaps her most shocking calculation is that were the current stimulus money to be divvied up and sent directly to families, it would end up being $13,000 per person, not the measly $1,200 the government is sending out as a one-off. Where, you may ask, did all the rest of that money go? As Brown and Scheer continually remind us, it’s been sent to the companies that pull all the strings in our rigged system.
In the media player above, listen to the full conversation between Brown and Scheer as they discuss everything from public banking options to the hidden economic meaning of “The Wizard of Oz.” You can also read the full transcript below the credits.
RS: Hi, this is Robert Scheer with another edition of Scheer Intelligence, where as I always say, the intelligence comes from my guests–no question, Ellen Brown, an attorney by training, an economist by her 13 really important books on global finance, the Federal Reserve, how money is created. Probably, I would argue, certainly one of the very best informed and most interesting writers about the whole question of the role of government in finance and what have you.
And the reason I wanted to talk to Ellen is that we are at a very odd moment where a right-wing president, who is committed to keeping government out of our business, has actually extended the intrusion of government into the economy. And hopefully for good reasons–to save us, and save our health, save us from a depression. And suddenly it’s no longer a question of government intervention. It’s the question, really: who does government serve with these trillions of dollars?
And we have two models in the world during the election campaign. The socialist model–democratic socialist, embraced by Sanders–was ridiculed, thought to be ridiculous, and so forth. But a democratic socialist model of the sort that has been the norm in much of Western Europe, and elsewhere in the world, actually looks very attractive if we thought the public was really having a say in how this money is spent. An alternative, extreme notion of government intrusion would be fascism. And everybody forgets that in France–ah, in Germany and Italy, and then France in the occupation–but in Germany and Italy, government intrusion worked hand-in-hand with cartel capitalism, and companies like Mercedes Benz did quite well.
So I’m going to turn it over to you, Ellen Brown, to explain about this unique factor, that suddenly a great deal, trillions of dollars of money was created. But it was created, what, to help–is this like the Great Recession creation of money, where it basically helped the banks and did nothing for ordinary people, or very little? What is going on?
EB: OK. Well, we have new vehicles under this new bailout that–you’re right, in 2008 the bailout was basically of the banks, or we had quantitative easing that went to the banks. And then the idea was that the banks were supposed to lend that into the real economy, but of course, they didn’t do it. That’s not the way it worked. But now we have even more credit facilities that–the problem is, they’re all going to help the big corporations, and the hedge funds, and virtually every sort of–every sort of business, shady business or whatever. Things the Federal Reserve couldn’t lend to before; now they have new ways of doing it.
So number one was quantitative easing, which is what we’ve had for a while, and that’s where they’re allowed to buy things that are backed by the government, so they’re very secure. So what they did for quantitative easing was they bought federal securities and mortgage-backed securities, which were issued by Fannie Mae or Freddie Mac–which are government agencies, or government-backed agencies, anyway. But the problem was, of course–for the Federal Reserve or whoever is behind all this, it’s hard to say–was that they couldn’t reach the dodgier businesses whose credit isn’t so good. And of course, you can make an argument that this is exceptional circumstances, that the reason they’re all broke and [their] lenders are backing out is because of this unanticipated, major coronavirus crisis. But anyway–but they’re making a lot of loans that really are not necessary to save us from this virus crisis. And you can be sure that those facilities are probably going to stick around a while even after the crisis is over.
So the second way that they are now making loans of money created on the books of the Fed–you know, money just created out of nothing–is through these special purpose vehicles, which are a partnership between the Treasury and the Federal Reserve. Because the Federal Reserve is not allowed to buy these things directly. So the Treasury is putting up $454 billion from the Exchange Stabilization Fund, which was supposed to be about stabilizing the exchange rate [against] foreign currencies–and a little bit of that could arguably be being used for that.
But anyway, so they’re putting up $454 billion to capitalize this whole alphabet soup of special purpose vehicles which are a form of shadow bank; I could go into what that is, but–so they’re not real banks. But basically, what they get to do is borrow directly from the Federal Reserve. And between the two of them, the Treasury and the Fed, they have denominated certain things that they will buy. So you’ve got commercial paper, and actually there is one for municipal debt, which is good. Because, you know, the state and local governments don’t seem to be able to even sell their bonds right now, because everybody’s dumping the bonds; they don’t–they don’t want them. But for the most part, these vehicles are to lend to all sorts of businesses and hedge funds and financial entities of all sorts. And what happens is that the Fed then can make 10 times as many loans. So that’s where the $4 trillion comes from; you’ve got $4 trillion in credit advanced against this $454 billion in capitalization that’s coming from the Treasury.
But because many of these loans are going to be quite dodgy–for example, one thing they can buy is asset-backed securities, which would be like auto loans and student loans, and things that are already defaulting. If all those loans default, then it’s the Treasury’s pool, their capital that they’re putting up, that will be hit. So then the Treasury will have to refill that pool. So that’s us, the taxpayers, that are backing all these loans.
RS: Yeah, I should point out there’s controversy about the small, so-called small business loans, in which some big chains–it was supposed to be restricted to companies that had less than 500 employees, which is a pretty big small business. But we now have scandals emerging where major companies that have franchises and so forth took advantage of it. And the expectation is that many of those, if not all of the small business loans, will be forfeited or forgiven. So it’s kind of a gift.
And the point I want to get at here with you–because the ordinary person listening to this gets bored with these kind of discussions. The fact is, this is like what happens in wartime. You know, you had the Great Depression–that really did not solve the economic problems. We went to war, and suddenly Roosevelt was able to really spend money. And as a result, we got out of the Great Depression. And in wartime, the government just prints money, finds it somewhere, and no questions asked.
And that’s what happened now. Because of this pandemic, Congress just said, OK, we’re going to find–what, you said $4 trillion; I’m sure it’ll grow to $8 trillion. They don’t do that ever about, say, dealing with poverty or education, or any of these things; they always are very tight with the dollar. But now, because we have this warlike situation, they can suddenly find this money, and they can spend it in a totally unaccountable way. Isn’t that really what’s going on?
EB: Yes. And then you have BlackRock, which is going to be choosing which bonds they’re going to buy for these SPVs. So you’ve got, totally, like you say, a public-private partnership basically, where big private interests are calling the shots, and we the public are paying the bills.
RS: Not to mince words–we used to call that a fascist model of the economy, right?
EB: [Laughs] Right, right.
RS: I mean, isn’t that really, technically, what is meant by a fascist model? It’s where the big cartels in Germany made an alliance with the fascists, with the Nazis, with Hitler. And it was done with Mussolini in Italy, who ran the trains on time in Germany; they built up Volkswagen and did all sorts of things. But basically, that’s the label. As long as they were driving Bernie Sanders crazy over democratic socialism, and trying to give him the handle of totalitarian socialists–nobody ever points out that this alliance between the big banks, big cartels, and government has a name also, a label. It’s called fascism.
EB: Yeah, agreed. And as you say, if they could find the money for all that, they could clearly find the money for the people. My preferred option–so they call this “helicopter money,” you know. Money that’s just created by the Federal Reserve and flown–theoretically, the original term came from flying helicopters over the people and just dropping the money equally on everybody. And we could still do that, and that’s called a universal basic income. And my argument is that we can afford that, and it’s not going to be inflationary, and that’s because of the way money comes into existence. We don’t really have a money system; we have a credit system. All of our money is credit; it’s created as credit on the books of banks, and it’s extinguished when the loans are paid off. The problem is that banks create the principal, but they don’t create the interest. So more debt is always owed back than was created in the original loan. So you always have a shortage of money in the circulating money supply, the money available to pay back these loans.
Plus, you have the problem that there are two economies. There’s what you might call the Wall Street economy, and the Main Street economy. And money keeps trickling out of the Main Street economy into the Wall Street economy. So it’s not available in the Main Street economy to pay loans back. So what happens routinely–and this is called the business cycle–is that debts grow and grow and grow until people can’t pay them anymore. So then they’re paying down old debts without taking out new debts. And so the money supply collapses, because that’s where our money comes from, is credit. And if nobody’s taking out loans, then we don’t have any new credit coming in and the old credits getting paid off.
So that’s called deflation. And that was the original–the origination of the term. When Milton Friedman, economist in the–I think he said this in the sixties or seventies, maybe–that it was easy to cure a deflation, that you just flew over the people with helicopters and dropped money on them, which would put money back into the economy, in other words.
So that’s what we need to do, is get it back into the real economy. Handing it over to these big corporations is going to have the same effect that we saw after 2008, where the rich get richer, and the poor are starving and being turned out of their homes, and then their homes are being rented back to them at outrageous–
RS: Can I just make a point about that? Because I did write a book called The Great American Stickup documenting that. [Laughter] No, and I do want to refer to the Federal Reserve [Bank] of St. Louis as the source for this research. But the Great Recession–which is celebrated even by mainstream democrats, you know, under Obama with the bailout and so forth. The result was that black and brown people–the people hardest hit, college graduates who were black and brown, the people who were pursuing the American dream, taking all the classes, working hard–black people lost between 60 and 70% of their wealth. College graduates, black college graduates–between 60 and 70%. Brown college graduates lost about 60%, because they were subject to these phony loans. In the bailout, nothing was done to help those people stay in their homes. There was no foreclosure moratorium, nothing, OK.
And my fear is now–yes, the pandemic is real, just as the recession was real. But the question is, who’s going to come out winning here? And the way the money is being allocated–and you say, you know, BlackRock being a company that’s doing the allocating, you can bet your life that ordinary people–black, brown, and white–are going to suffer at the end of this, and that the economy is going to be transformed in a way that the rich get richer, and the income gap that has been growing for 40 years increases.
EB: Yeah, I totally agree.
RS: You can amplify it. You can amplify it, because you actually know a lot more than I do about this. You know, as I say, I think you’re one of the leading economists and experts on this in the country. So it’s not–I’m not looking for agreement here. I’m alarmed that we’re doing the same thing now, but on a grander scale. By the way, can you just explain, in your articles you mentioned helicopter money would have given $13,000 to each American family if we had done that instead of what we’re doing. Could you spell that out?
EB: Right, and–well, that was actually dividing up the real money. You know, it was a hundred and–$1.77 trillion was allocated by Congress as real money, not as loans, you know, not as Fed loans. And that’s actually taxpayer money. And if you had divided that up among the taxpayers, I think it was $13,600 each person would get. And instead what we’re getting is $1,200 and some unemployment relief, but clearly nowhere near what we would have gotten if you’d just divided up the pie. The argument against using the Fed’s deep pocket, and just issuing the money directly for something like a universal basic income, is that that money goes out and it won’t come back. And so that’s considered inflationary, whereas these loans that go to businesses supposedly would get paid back. And that’s supposed to be–it’s like quantitative easing, that they were supposed to do quantitative tightening, which meant that it was all reversible. You could raise the interest rates again, and you could sell all those bonds back into the market. And you’d be back where you started, and things would balance out. But they tried it–they tried to do quantitative tightening, and it didn’t work. It plunged the stock market, and everybody freaked out. And so the Fed went back to quantitative easing. And as Max Keiser says, you can’t reverse a Ponzi scheme. Once you’ve done it, it’s out there.
It’s just like the federal debt. We’ve got a $24 trillion federal debt–that will never get repaid, and everybody knows it will never get repaid. It just keeps getting rolled over and over. What gets paid is the interest, and if you had–if you sold all the bonds, if you had the Fed buy up the whole Treasury debt, you could eliminate, I think it’s $565 billion is what we pay right now on interest. And I’ve read that it could, you know, it could get quite a bit higher than that. That’s just something we pay on interest every year, and we don’t need to be paying that. We could be borrowing from our own central bank interest-free, because they return their profits after they deduct their costs. So anyway, the argument against helicopter money for the people is that it’ll go out and it won’t come back. But my argument is that it will go out, and paying off all that debt that has grown–because debt always grows faster than the money supply. And in my–
RS: Yeah, and let me–I remember when I was in graduate school studying economics, there was something called the multiplier effect. And if you dropped that money from a helicopter into every American home–however you did it, by doing it on the internet, or what have you–you can be assured that money would come back, and increase sales and job hiring and everything. Because the people who are now, you know, desperate for some income need to spend it on food. They need to spend it on, you know, everything, including getting gas for their car. And that has this high multiplier effect; other people get money, and they spend it and so forth.
So the idea of a guaranteed annual income–and I would like you to discuss that, because you’ve been really the most important voice, in many ways, on picking up on an idea that actually Richard Nixon, thanks to Daniel Patrick Moynihan, instituted, or advocated: a guaranteed annual income. This was not some lefty socialist, but Richard Nixon. The idea of a guaranteed annual income, whether you have a job or you don’t, is that it provides some minimal existence. And that’s good for everybody, because then people can shop, and they can put money back into the economy. So what’s really at stake is a model of putting money into the economy by giving it to ordinary people, or giving it to the big banks, giving it to the big corporations, and hoping enough of it filters down, trickles down. Isn’t that really the basic issue here? Everything else is just a bunch of camouflage?
EB: Yes. And the argument I was making in my last article was that you’re not going to be inflating the money supply, that the money supply is shrinking; it’s always shrinking. It’s chronically in a state of deflation because of the way our money comes into existence, where less money is created than is owed back in these loans, so you’ve got to take out more loans to pay off the interest. Over, you know, spread over the whole, collectively over the whole economy. An argument’s been made that the velocity of money makes up for that. That, say for example, if you take out a $1,000 loan at $100 a month and 20% interest, and you pay $100 every month, that if the bank hires you to scrub its floors, then they’ll pay you back the hundred, and you can pay the same hundred over and over. But the flaw in that system, or that theory, is that when you pay back your $100, because it was created as a loan, it’s going to go onto the bank balance sheet and zero out that loan, and it’s going to disappear. So money disappears when these loans are repaid. And because you’re always paying back more than was created to pay the loans, you’re always going to have a shrinking money supply.
RS: So let me–I’m sorry. Well, I just want to give a specific example. And this happened during the Great Recession, but it’s happening right now. Right now if you have an American Express card, and you try to get cash from American Express, they will give you a loan that–believe it or not, I just checked on this yesterday–carries a 25% interest. A little bit over 25%. Now, biblical consideration of that, we consider it usury. In every religion in the world that we know about, every major religion, that would be considered usury. If the mafia did that, that would be called loan sharking. But American Express, today, and they’re not alone in this, has no shame, no public ridicule, no condemnation for lending you money–and you’re desperate, you need cash, you need to buy groceries–they’re going to charge you 25%. Even on their regular credit card, they’ll charge you over 15%, they’ll charge you 18%, whatever. At the same time, American Express is basically one of those banks that gets bailed out. They get virtually free government money. They’re not alone. The other banks are doing the same thing, OK? All these companies, you know–GMAC, they’ve changed their name, but they’re doing the same thing. And so why is that not made clearer to the public, that in fact there’s a really double standard here? Can you imagine somebody hunkering down in their home now, trying to pay to put food on the table, and they go borrow money from American Express, and they’re going to be charged 25%? How do they get away with this?
EB: Yeah. Well, that’s the thing. I think people don’t understand the money system, and they don’t therefore see what a huge fraud it is. People think that the bank is lending its own money, or it’s lending its depositors’ money and paying them interest on it. But in fact, it’s drawing from–the banks can now borrow at 0.25%. So essentially they’re borrowing for nothing. So they’re getting the credit for free and lending at these outrageous rates. The model I would–it seems to me that this whole credit system is not a bad thing; what’s wrong with it is it’s privately owned. If it were a public utility, nonprofit, nobody makes–no bonuses, fees, commissions, no shareholders, it’s just run by civil servants who get their salaries and they–you know, their loan officer is making prudent loans. This is the way they do it in Germany, where they have a network of Sparkassen banks, which are all nonprofits, and they just hire people–they train their own. They say they don’t hire bankers, because bankers expect too much money. They train them up from students themselves.
So if we had a public system, that was just for the purpose of keeping credit flowing, we don’t need to have banks borrow the money first. Let’s just acknowledge that what our money system is, is a credit system. That what you’re doing when you take out a loan is monetizing your own promise to repay. And that’s what money is; it’s future promise to repay, turned into money. That’s what all these businesses that are going bankrupt now, they had borrowed expecting to pay their workers and materials and make a profit and pay the loan off. That’s what our money is.
So anyway, we need to revamp the whole system. And there is a, you know, a system that could work, and work very well. But we’ve got to get the private, financialized part of it, out of it. And this is our opportunity, it seems to me, to redo the whole system. Because it’s evident that the old system is not working, and everything’s being torn down, so there’s room to build something new up.
RS: But if we build a new up–let’s, you know what, they always scare us with–when they went after Bernie Sanders in this last–and it was shameful. It was the New York Times, not just the Wall Street Journal. It was so-called moderate democrats, you know. Bernie Sanders was this wild radical for daring to embrace a notion of democratic socialism. Well, actually, democratic socialism–you mentioned Germany. The democratic socialists are the people who brought Germany to prosperity after the war, OK. The very people that Hitler killed, you know, or tried to destroy, socialists of one kind or another, during the war and before.
OK, come out of the Second World War and there’s Germany, free Germany–I’m not talking about communist Germany, West Germany. And I happen to have a lot of relatives there, and like Donald Trump, I’m part German-American extraction. And so I’ve visited Germany all during the last 40 years or so, 50 years, even. And it’s been amazing to me that whatever, even when the so-called CDU or the conservatives get in power, they’re basically following some variant of a democratic socialist model. And you just gave a very good example of regulation, of government control. And it’s even happened now with the controlling the virus. Germany has actually been the most successful European country, or West European country, in controlling it.
So when we always are trapped–if you say something, you know, if Ellen Brown says, oh, we should have public banking, or a more vigorous public role, that will be red-baited. It will be destroyed, ridiculous. But that, in fact, that is an important distinction between, say, Western Germany–well, now all of Germany–and the United States. We don’t have to go to some kind of totalitarian model.
EB: Right, and actually, 50% of all economies are publicly owned, and 50% are privately owned. I read that in [unclear]. [Laughs] But it’s a question of which portion is publicly owned. I mean, the portion that we have publicly owned right now is our military. That’s our biggest public engine. The military is our biggest socialist project.
RS: And as Trump points out, it’s saving us in this–what is he citing all the time? The Army Corps of Engineers, they built this hospital at the Javits Center, they’re great, the Public Health Service, right? He’s bringing all these people in, you know, Fauci, all these people. They’re from the public side of things, and they’re saving us. And yet that’s not called democratic socialism. The use of the rhetoric, the language–and by the mass media, even, which embraces it–is so distorting of reality, it evokes notions of 1984. Language has no precision.
EB: Yeah, I agree. I actually try to avoid [Laughs] the major, the mass media. There’s so much interesting stuff in the alternative media now, it’s taking up all my time.
RS: Well, but go on with this analogy. Just compare Germany–you know, these are not two extremely different systems, you know. But you mentioned about banking, that Germany can do it in a more rational way than the United States, because they, after all, had been propelled in large measure by people like, along the way, Willie Brandt and others who actually defined themselves as social democrats or democratic socialists.
EB: Yeah. Well, the whole Sparkassen model, these are public banks. Every community has its little publicly owned bank. And they actually work with the customers, they don’t sell off their loans and mortgage backed security type packages. They keep the loans on their books, and so they care about whether these businesses survive. And so they work with the little businesses to make them, you know, more viable. And it’s because of this local Sparkassen model that support their small and medium-sized businesses that Germany has done so well relative to the rest of the countries in Europe.
RS: So you should explain how that works. Because people should understand, public banking is as American as apple pie. And I’ll give a couple of examples. I believe it would be, where, North Dakota, even Montana, they have examples of that, South Dakota. But Texas–everybody thinks of Texas as a triumph of capitalism. And one of the things that happened in our banking meltdown is California was actually hit a lot harder by these phony credit default swaps and, you know, collateralized debt obligations and liar loans than Texas. And as I dug into it, the reason is that when Texas came into the union, they had such a suspicion of banking that the Texas constitution actually prevented banks from getting into the mortgage business at first. And because they were stealing the claims of prospectors, and stealing the cattle, and everything. So anti-private-banking concern–I’m not going to say bias; concern–is a tradition in America, that populism in America. And actually, ironically, Texas had somewhat better regulation than California did in this regard.
So people should be reminded, this is not a foreign idea of progressive governance intruding on the economy to level the playing field and keep us all in the same game. There is actually a strong basis in America, and certainly the New Deal under Roosevelt, which is our last major time of crisis comparable to this one in an economic sense. You know, reluctantly, Roosevelt was a rich man. He certainly started out not being very radical, but he embraced strong government intervention out of necessity. And what you’re suggesting is that this time, maybe we actually will consider some more profound alternatives to letting, as we did in the great economic recession–a crisis manufactured as much by Goldman Sachs, which gave us Bill Clinton’s treasury secretary Robert Rubin. That crisis, you know, which leaves Goldman Sachs stronger than ever–maybe it will be different this time. Although I’m not optimistic. Are you?
EB: I try to be optimistic. I could go through the whole history of–[Laughs] you know, we–
RS: Go ahead. Be my guest. We need a primer.
EB: OK. We started out with public banks. That was our–the American colonists did not have money, they didn’t have gold. And they didn’t have banks. There was the Bank of England, but it was in England. It’s not like you had a bank on every corner like you do now. So things were pretty stagnant until they came up with this idea of issuing their own money. And that was the paper script; it was first issued in 1691 by the governor of Massachusetts when they needed a little–needed money to fight a border war, and couldn’t find anyone to borrow it from. So they just issued these paper receipts that were supposedly an advance against taxes. But because it was a lot easier to issue the receipts than to collect taxes from a bunch of frontiersmen that were kind of hard to peg down, they did tend to get more money out there than ever came back. And so that was the circulating money side. But it did tend to inflate, or deflate the value of the currency.
So in Pennsylvania, which was Benjamin Franklin’s colony, they came up with this new model where the government would have a bank, and the government issued the money, lent it to the farmers at 5% interest, which was far better than they could get anywhere else. And then the farmers would pay back the loans. And to make up the difference, the interest, the government could print a little extra money and, you know, make it all balance out. And that worked very well, and Pennsylvania particularly took off; the middle colonies took off and did brilliantly well. Then King George forbade some of the colonies to issue their own money, the ones that were really devaluing the currency.
And so Benjamin Franklin made the mistake of going to England and arguing the case. And he said, no, this is great, this is how we–this is why we’re so prosperous, that we can issue our own money. But of course, the purpose of having colonies was not to have prosperous colonies, it was to feed the mother country. And so the Bank of England leaned on the king in his other ear and said, you know, we couldn’t have this. So they shut down all the colonies, including Pennsylvania; none of them could issue their own money. And that was actually a leading cause of the Revolutionary War, according to Benjamin Franklin. But then they did finance the war with paper script, and that devalued virtually to nothing by the end of the war.
But as Franklin pointed out, he said isn’t this amazing, that we managed to win a war, just by issuing these little paper receipts, against the world’s major power. But at that point the founding fathers were so afraid of paper money that they didn’t–they just left it out of the Constitution. They didn’t say who would have the power to issue paper money, or money at all, except it said Congress shall “coin money” and “regulate the value thereof,” which presumably meant like gold, silver coins. But the real reason the currency had devalued was mainly because the British were counterfeiting it and giving it to everybody in sight to spend, which did devalue the currency. Plus during a war time, money is always–well, here you had the paper money of an army that might not win. And of course you’re going to take gold over that, which meant that the value of the paper currency relative to gold, of course, went down, down, down.
But then Alexander Hamilton set up the first U.S. bank, which because they really were short of money–they owed gold to France, for example, and they didn’t have enough gold. He set up the first U.S. bank, which was on the same model as the British banks, where you would have your capital in gold, but then you could issue 10 times that much in paper money. But that bank was shut down, and then the second U.S. bank was shut down. And we didn’t have a national currency until Lincoln, who then issued greenbacks–did the same thing, just issued the money directly, as the colonists had done. And with that he managed to win the Civil War, avoided paying 24-36% interest to the British bankers. And after that, rather than, like, the money supply collapsing, he actually doubled the money supply.
But after that, we went through an unusual period of productivity where the Transcontinental Railroad was built, among other things. So it was like Roosevelt’s, you know, New Deal, where they pumped money out there in the form of credit, and rebuilt the whole country with nothing. Where did they get the money? It was just credit that was recirculated. So then–but then the greenbacks were recalled, and silver was demonetized, and the money supply shrank. And so we went through another depression, which was almost as bad as the Great Depression. So you had the farmers and the factory workers, they marched to Washington trying to get a return to the greenback system. This was supposedly the basis for the plotline of The Wizard of Oz, which I wrote Web of Debt around.
Anyway, so we had this very large populist movement attempting to get the government to nationalize the banks. They said, we want the power to borrow directly from the government, and you know, we want the ability to issue the money directly. And they almost–that was the one and only time that we almost had a third party that won a presidential election.
RS: What year are we in now?
EB: OK, so that was 1896 and 1900. [omission] The populists almost won. But to avoid any sort of nationalization of the banks, we got the Federal Reserve in 1912. Actually, the postal banking system was set up in 1911, which was another totally public banking system through the post offices. We should have that again; we should have that right now as a way to pay off these–at least the one $1,200 payment, but I think as a way to pay a UBI for all the unbanked and underbanked. So we had a very strong postal banking system, which was public; every post office could just open a window, a baking window, and you could do your banking there. And it was very popular until–
RS: By the way, it should be pointed out as a footnote, Donald Trump attacks the Post Office all the time. But the Post Office is the one institution that is most clearly defended in our Constitution. Our Constitution–not in the amendment, in its main body. And I want to thank a great FCC former lawyer, Mark Lloyd, who’s a professor at USC Annenberg School, for bringing this up all the time. The U.S. Post Office–full disclosure, I worked my way through college in the post office [Laughs]. But seriously, the U.S. Constitution names the existence of a public postal service as essential to the functioning of the new republic. And that’s often forgotten, you know. Government institutions were valued.
EB: Yeah, both my brothers did that too. And they both had long hair. [Laughs] I bet you had long hair. Yeah, no, I totally agree. And it was what Roosevelt could have done and should have done. During the Great Depression, people were rushing to the post office, to the postal banks, pulling their money out of the private banks, which were collapsing and they didn’t trust them. So they pulled their gold out, and were depositing it in the postal banks, and this was precipitating the collapse of the private banks. So what Roosevelt could have done was just strengthen this postal banking system, which worked very well. They were paying 2% interest, and people loved it. But instead we passed FDIC insurance, which meant that we the people were actually guaranteeing our own private deposits in these banks. So the banks, again, a public-private partnership where the bank gets the profit and the people bear the losses.
And then we had, the one thing that came out of that whole populist movement was the Bank of North Dakota. That was set up in 1919, when in North Dakota the farmers were going through their own depression. And they were borrowing from these big out-of-state banks, and they wanted to keep their money in their state and use it for their own purposes. And so they set up their own bank and their own granary, which is still operating as a public institution. And that bank has worked brilliantly well. They’ve got a $7 billion loan portfolio right now, and I think they had 18% return on equity last year. Even when the state itself is doing poorly, like right now they’ve got an oil crisis–still, the Bank of North Dakota just has record profits, year after year, because of their business model. They’ve cut out the middlemen, and they’re just doing–it’s just a nonprofit operating for the benefit of the people and the government, the state government.
RS: You know, I love doing these podcasts, because I learn something. I learn a lot. But one of the takeaways from this discussion is that the model of where America should be going is in North Dakota. Not on Wall Street, not in Manhattan, not in the sophisticated Harvard, New England circles–which after all, Harvard gave us most of the shrewd, I would say thieves, but they gave us the hustlers of Wall Street. They were the main provider, along with Yale and other schools. So look to North Dakota.
And I want to wrap this up by getting you to talk about what we should be doing now. And talk about your most recent book, and talk about what we can do in this crisis. Because we are going to be spending an awful lot of the public’s money. We’re going to be committing to big debt. And as you say, this is a time where maybe we can have change. So what should people be demanding? What should be the program? If we, you know, the democrats claim they’re the great progressive alternative, but they threw all this money at the so-called small business community without any real standards, and therefore it’s being ripped off. And by the way, that’s probably going to be free money, because it’ll probably be forgiven. So what should we be doing now to put some progressive, fair element into what is going to be the greatest American spending program of all time?
EB: Mm-hmm. Well, I think of course we should try to get them to pass a universal basic income. You know, they’re redoing the bailout; I think Congress has realized they screwed up by leaving the people out of it, basically. And so they’re talking about more legislation. So we should insist on, I would say, on that first of all. But also, one of these facilities, the special purpose vehicles, is a municipal bond facility, where they would buy municipal debt. And so I think we should be leaning on the Federal Reserve and Congress to–Congress should allocate some money specifically to capitalize public banks. And the Federal Reserve should be leaned on to fast-track this, to get a Fed master account. Once you are a bank, you can now borrow at 0.25% at the Fed’s discount window. Which basically is, you know, free credit.
And the Fed is encouraging banks to do that. It used to be that it was considered a black mark on your record, and banks didn’t go there, because it meant that nobody else wanted to lend to them. But now the Fed is saying, no, come to us. We’re giving you free credit, we want you to get this credit out into the real economy. So public banks–the states are missing this opportunity. They’re paying three or four percent on their bonds, and there’s no bond market right now, nobody wants to buy the bonds. But they could be borrowing at–for nothing, just like the banks, if they had a bank. But for that, we need to fast-track these banks, and that could take some legislation. So I would lean on governments for that.
RS: Let’s have a teaching moment here. Let everyone listening to this, after they hang up–they should also read your book; give us the title of your latest book?
EB: Banking on the People: Democratizing Money in the Digital Age. And then my previous book was The Public Bank Solution, which does talk all about public banks. And Web of Debt was about–
RS: Yeah, and they should go to your website, right? The public bank solution, ellenbrown.com, books, and they can get it there.
EB: Yeah, ellenbrown.com is my website.
RS: Right, and you are the founder of the Public Banking Institute. I must say, you’re an incredible font of information. But I want to make this, really give this a cutting edge. I want anybody listening to this to call–take out your credit card. One of your credit cards. And you probably don’t even know what interest rate you’re paying on it. Your card you got from Wells Fargo, or you got from Bank of America, or you got from Chase, or anyone. And there are things that don’t call themselves banks that also have access to that public window. You know, I think Goldman Sachs was quickly redefined as a bank, a commercial bank, to be able to take advantage of the bailout in the Great Recession. But you have this credit card. Ask what they’re charging you right now on your credit card. And correct me if I’m wrong, Ellen, but tell people right now what that same bank is paying for the money they’re borrowing, and if they’re charging people 10, 12, 15, 18, 23%, 25% interest. That is the measure of this scandal, as far as I’m concerned.
EB: Right. And they’re paying–if they’re borrowing from the Fed, it’s zero to 0.25%. The repo market is only slightly more than that. And that is the rate for borrowing from other banks as well, in the Fed funds market. And if they’re borrowing from their–if they’ve got deposits, like Chase and the other big banks have virtually all of our deposits, or you know, a major portion of individual deposits are in those big banks–they’re paying nothing. On their, you know, to borrow your money in order to lend it back to you at–I think the average for credit cards now is 21%.
RS: All right, but if somebody, let’s say they’ve been standing in line at Costco or Walmart since 5:00 this morning. And they’ve got this credit card from a bank. And they’re going to go and buy groceries, they’re going to buy what they need to keep their family alive, right? And they’ve got that credit card. What would that credit card be typically carrying as interest, and how much is Chase or Bank of America or Wells Fargo paying for the money they’re getting from our government? From us? That’s the gap I want to–
RS: They’re paying zero–
EB: They pay nothing, and we pay 21%. I did see a special, and many people don’t realize that if they pay their minimum balance on their credit card, they are paying that 21% interest, and it compounds. So, really, you want to pay off your balance. Don’t think that you’re just putting things off by paying the minimum.
RS: Yeah, but you–that’s good advice if you’ve got the money. But you’re trying–you’re standing there in line–
EB: Waiting for your $1,200 check. Yeah.
RS: –you want to buy–yeah, you’re trying to buy milk and bread, and you’re hoping you’re not over your limit on that bank credit card, right? And that food–there’s going to be a premium of anywhere from, what, 13%, or 10% would be considered a great rate, you know, up to 25%. There’s no usury standard, thanks to–by the way, we used to have–in fact, when Texas [Laughs] came into the country, was admitted as a state, they had a strict stance against usury, against exorbitant interest. And they were forced over the years to drop that. Texas, of all places–like North Dakota, OK. There was a populist feeling against this.
And the Bible–the new, the old, the Muslim interpretation, the Jewish interpretation–all of them have a condemnation of usury. It’s pretty standard out there. And yet, in this moment of crisis–this incredible moment of crisis, while the banks send us these messages that they care about us, they’re worried about us, all they’re really saying is, hey, you know what? You can delay your mortgage, but we’ll tack it on at the other end. Or, they’re saying we’ll make it even easier for you to get a loan, but it’ll be a good loan for about three months, six months, maybe even a year, and then it’s going to jack way up. If you borrow the money it’ll jack way up, if you get something new it’ll jack it way up.
And that is not a subject of discussion. You know, the idea that charging–this is why, you know, Jesus threw the money-changers out of the temple, for goodness’ sake. We claim, very often politicians claim, you know, some religious authority for what they’re doing. But no reporter–I watch these White House briefings. Not one single reporter ever says, wait a minute. In this time of crisis, when all Americans are suffering through no fault of their own, why does a bank like Wells Fargo, American Express–why does Chase, why American Express, all these banks that have been bailed out–why do they get to charge exorbitant–any culture in the world would consider a 25% interest to be gangster usury. Evil. The work of the devil, you know. And yet that is not even a subject for discussion.
And the limits on interest rates were put in by bipartisan majority, just as Bill Clinton’s deregulation of Wall Street, and all the banking was done as a bipartisan thing. He cooperated with the republicans, but it was Bill Clinton who did what Ronald Reagan could do and took the main New Deal restraints off Wall Street, and caused the Great Recession. Well, the same thing’s happening now. The democrats and republicans are haggling about everything except protecting the average American working person consumer from exorbitant interest rates that cost them money. And they’re doing things that seem to be a favor, but they’re getting the American public deeper into debt. And those legitimate small businesses that are taking these loans, they’re probably the ones that are going to be expected to pay it off, you know.
So I think this would be an important–why don’t you take this? We’re going to go a little bit longer, because I think this is–it’s not dry economics. It’s what you’ve got in your wallet. It’s whether you lose your home, OK? Lots of people–you know, as I said, black people in America lost almost 70% of their net worth, according to the Federal Reserve. Brown people lost 60%. Net worth–everything their family had collected up to the point of the great housing recession. So we’re talking about, really, the survival of most people in this crisis. And we’re going through one of these things where they claim to be doing us a big favor by opening that spigot at the Federal Reserve and at the Treasury, but we’re going to end up–we, individual taxpayers, denied money for schools and for education, and for medical coverage and everything else. You know, the big banks are going to be richer than ever, just as they were–and they were bigger than ever–after the Great Recession bailout under Barack Obama. Is that not an accurate view?
EB: Yes. And I think it would be reasonable to demand that we pay no interest during this crisis. I mean, the bank has to get their money back, I guess. But you could do a moratorium on interest. And not to mean that it would accumulate later, but just no interest. Because supposedly, under all the stress tests, they’ve all got a big pot of money sitting somewhere, waiting for a disaster like this. And this is the disaster, so let the banks bear the brunt of it. I mean, they don’t need their $20 million annual salaries, you know, the presidents or whatever, CEOs.
RS: So let’s say you had a meeting–have you ever met Nancy Pelosi?
RS: Well, OK, let’s say–well, actually, but I was at one meeting with you where we met Governor Gavin Newsom, right? And he seems like a very reasonable, good, progressive fellow. And let’s say you were having a discussion with either–both, let’s go on the federal level to Nancy Pelosi. And you advance the arguments you just made now, and then after with Gavin Newsom. What do you think their response would be?
EB: Well, I imagine they’d get a lot of pressure from the banks. I mean, that’s not the reason. But we’re pushing for public banks, which is like another alternative. Instead of trying to fight the old, build the new. Build a new model, and people will come. That would be the theory. So we want public banks where people can borrow very cheaply; you know, that it would be nonprofit. So just enough to cover the cost of the bank, and that’s it. I mean, we could certainly argue that, but I don’t know that they would be able to go along with that.
RS: Well, why not? I mean, it would seem to be common sense. Even the president has told us–President Trump has actually declared something I’ve very rarely heard in my life: If you’re out of work, it’s not your fault. If you don’t have money to buy food, it’s not your fault. OK? They’re not saying, oh, you didn’t work hard enough, or you didn’t study, or you didn’t–no. It’s recognized now that this “invisible enemy” [Laughs] has done us great harm, this virus, OK. And they’re looking for scapegoats; they want to blame it on China or someone else, OK, or the democrats want to blame it on the republicans and vice versa.
The reality is that even this free-market capitalist president of ours, this gonif, this guy who was able to swindle and sell and everything, has been forced by reality to state the obvious. That if you are out of work, if you don’t have food on your table, if you’re worried about your shelter–and in California, hopefully Gavin Newsom has put in some restrictions, or is urging restrictions on eviction or foreclosures, which we didn’t do in response to the great housing meltdown under Barack Obama. Maybe in some states like California, there’ll be–foreclosure, on eviction and housing foreclosure, there’ll be a hiatus on that. But the fact of the matter is, even Donald Trump has had to recognize, you’re in trouble now and it’s not your fault! I’ve told you to stay in your house. The factories are closed, everything’s closed, you can’t make a living. We’re going to come to your aid.
But the bottom line of this whole discussion, Ellen Brown, is basically they’re going to come–they’re coming to the aid, supposedly, of ordinary people, that is going to screw ordinary people at the end of this game, just like the housing meltdown, and the survival after the housing meltdown, the Great Recession, ended up hurting ordinary people rather than helping them. Isn’t that the takeaway of this whole discussion? And, actually, of your life’s work, your 13 books.
EB: Yes. And what I try to do in my books is present solutions, and I think there are solutions out there. But I agree. One good of this crisis is it’s ripped the mask off this current system that we have. We can see behind the curtain, we can see what they’re up to, we can see it’s totally corrupt and fraudulent. And it’s time for the public to step in with their own, making their own public interests known, and accepted and catered to.
RS: Well, you know, it’s interesting. I’m going to end on this, but as I say, I learn a lot from these podcasts. And you know, up to now I’ve been talking about George Orwell’s 1984 as my fear of where we’re headed, this dystopian, bleak future. But you’ve held out another image: The Wizard of Oz. And you brought it up before, and we didn’t really get into it. But what you just described is that this is a Wizard of Oz moment, isn’t it? And tell us that history of that movie, and what its connection is.
EB: All right. So you had Dorothy, who supposedly–
RS: What year was that, by the way, what time?
EB: It was originally written in 1899. And it was a march on Washington in 1894 that inspired it [omission]. In the book, which became a movie, you’ve got Dorothy and the Tin Man, who represents the out-of-work factory workers, and the [scarecrow] who represented the impoverished farmers. And then the lion, who was William Jennings Bryan; that was the name I couldn’t think of. William Jennings Bryan was the presidential candidate in 1896 and 1900 for the populist movement, but he actually ran as a democrat, and they were kind of upset about that; that was another reason they called him a coward, that’s why he’s the Cowardly Lion.
But anyway, so they were attempting to go back to the original monetary system of the American colonists and of Abraham Lincoln, the greenback system, and a public banking system where the people could borrow directly from the government, which would have the power to create the money that they lent. So you don’t have to go scrambling, pretending to borrow it overnight, you know, and then pay it back in the morning, which is how our whole repo market works right now.
So that was a very good model, and now 100 years later we should–it’s about time that we actually tried it, put that into effect. The original American model that our Constitution was supposedly, you know, attempting to memorialize. The Declaration of Independence and all the freedoms we were supposed to have–we don’t really have those freedoms, as Roosevelt pointed out, unless we’ve got economic security. So the government really has a responsibility to provide a floor to the people with its power to issue money. And that would be something in the nature of a national dividend, also called the universal basic income.
RS: So just to end it, I’d like to leave people listening to this with a homework assignment. I use it as a professor, anyway. Would the homework assignment maybe be to go watch or read The Wizard of Oz? Does the movie do the message justice? Let’s end with, encourage people to do their homework. So tell us a little bit more about what we can learn from The Wizard of Oz.
EB: OK, so the message was that we actually have the power within ourselves. That Dorothy had the power to get back home on her feet, which in the book they were silver slippers, not ruby slippers, representing the power of–the silver had been demonetized, but we could go back to a silver standard. Anyway, we have the power to create our own money through a public banking system. And that we–we can do it all. We’ve got it within ourselves. We’ve got heart, we’ve got mind, and we’ve got the power to issue money.
RS: And who is the wizard? Might it have been the media as well, the establishment? I mean, what role?
EB: Yeah. Well, at the time, the president had a man behind him who was–I’m not even thinking of his name, but was kind of the, you know, the guy behind the curtain who was calling the shots. But then you had the witches, who were the bankers, the eastern bankers and the–the witch of the west was the Rockefeller bankers, and the witch of the east was the British bankers; Morgan, who got his money from the British bankers. I mean, there’s all kinds of symbolism all through the story. But anyway, the basic message is that we have the power within ourselves, we just have to realize it.
RS: Well, that’s a good point on which to end this. And I must say, what I love about–this is not the first time, I’ve loved your writing for Truthdig as I was editing it. I think people should check out your work and your books. But what I think is so incredible about this is, you know, yeah, you could tell people you could read a lot of different books that are out there. But maybe watching The Wizard of Oz.
And what you’ve had the ability to do in your writing is make this, bring this down–I shouldn’t say down. Bring it up to the level of people who don’t care about these grand abstractions, which are usually conceived in elite law schools and business schools and everything, which are basically obfuscation about what banking does, about how the economy works. And you really get down to where the rubber meets the road and how it affects people.
So I want to thank you, Ellen Brown. I recommend to people to check out your books, check out the Public Banking Institute, go to ellenbrown.com for more information, to do your homework. And, yes, watch The Wizard of Oz through new eyes, through Ellen Brown’s eyes, as a morality tale of where we are in this pandemic, but also now, major economic crisis.
That’s it for this edition of Scheer Intelligence. I want to thank KCRW for hosting these shows. Christopher Ho there is the person who does the good work of getting us up on the air. I want to thank Natasha Hakimi Zapata for editing and writing the introduction of these essays. And of course, Scheer Intelligence is really Joshua Scheer, our producer, who lines up these great guests and tells me what questions to ask and keeps the whole thing operational, as we’ve been doing for about four years now. And hopefully, we’ll see you next week with another edition of Scheer Intelligence.