(Part two of a four-part series examining the monetary system.)
One of the unspoken absurdities of our money system is government debt. Under our system, the only way a government can pay for its programs and services is through taxes or borrowing. Since taxes are never enough to meet its budget requirements, government is forced to borrow money. It does this through selling government securities such as treasury bills and bonds. These are basically IOUs with the promise to pay interest on whatever they borrow. The cumulative effect of government borrowing is well known. In Canada, the single largest federal spending item is interest payments on the public debt. In 2006, it amounted to just over 15 cents of every tax dollar. That figure is going up as the Harper government projects $64 billion in deficits by 2011. In the United States, the deficit has ballooned to an astounding $1.7 trillion. Government debt eventually reaches a point where it cripples a country. You see it in the conditions of the roads, in higher taxes, overcrowded hospitals, and child poverty – everything must be eroded in the name of servicing debt payments. Yet there is no lack of resources, labour, or knowledge to solve these problems; there is, however, a lack of money. This raises the question: Why is the issuance of credit controlled by private banks and not the government? In 1921, the great inventor Thomas Edison put it more succinctly: “If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good … both are promises to pay; but one promise fattens the usurer, and the other helps the people.” Abraham Lincoln realized this during the civil war, when bankers would only fund the war at interest rates of 24 to 36 percent. Since this would obviously bankrupt the North, he bypassed the private banking system altogether and authorized the printing of fully legal treasury notes (which is where the expression “Greenbacks” comes from). This money was not backed by reserves or gold, but by “the full faith and credit of the United States”. This interest-free money helped win the war and turn America into an economic power – the steel industry, the railroad system, and even free higher education was established under this innovative money system. Unfortunately, it was short-lived. After Lincoln was assassinated, the bankers resumed their place as the dominant money power. These days, the distracted public unleashes their anger over their deteriorating quality of life against political parties. They blame the left for raising taxes. They blame the right for cutting back social programs. A divided public suits the bankers fine because it means nobody is questioning why they have a monopoly on the money supply. The fact is, under the weight of enormous public debts, politicians don’t have a choice but to raise taxes or slash programs. Until we reorder the money system so that it benefits the entire public, and not just a private banking cartel, we’ll be hearing more of these tedious partisan debates for years to come.