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The Separation of Money and State
Posted By dpacheco On June 20, 2009 @ 4:42 pm In Socially Responsible Business | No Comments
The following is an excerpt from  The End of Money and the Future of Civilization by  Thomas Greco, Jr.. It has been adapted for the Web.
Money needs to be depoliticized, and the time has come for the separation of money and state to be accomplished.
Some will argue that money and state have already been separated, since the central bank in the United States, the Federal Reserve, is a privately owned corporation that operates independently of the U.S. government. But that separation is more apparent than real. In reality, the federal government and the central bank are both controlled by a small group of powerful men (mostly), and they work together in ways that are detrimental to the common good. The collusive arrangement between them, following the pattern that was instituted more than three hundred years ago with the founding of the Bank of England, is the pattern that prevails today in virtually every country of the world, regardless of whether the central bank is privately owned or government owned.
Under this arrangement, the banking cartel gets the privilege of creating money as debt and charging interest on it, while the central government gets to spend as much as it wants without regard to its limited tax revenues or the popular will. Does anyone really believe that the U.S. government, for instance, will ever repay its accumulated debt that now amounts to more than $10.8 trillion? That’s more than $35,000 for each man, woman, and child in the United States, not counting the full extent of the ongoing bailouts and stimulus spending being enacted as this book is finalized in February 2009, nor the massive amounts of government guarantees that are not reported as part of the debt.
Through legal tender laws and banking regulations, governments endow their respective central bank currencies with the full support of the government, and give the banking establishment the privilege to effectively monopolize everyone’s credit and lend it out at interest. While the central government of the United States is precluded from directly monetizing its debts, that same result is achieved indirectly through the banking system. When government borrows money to finance its budget deficits, it sells its bonds on the open market. It is not only the portion which is bought by the Fed that gets monetized, but also the bonds that are bought by the commercial banks. This debt monetization process has the same effect as spending counterfeit money into the economy.
When it comes to financing its operations, government can look either to its current tax revenues or to its future tax revenues. If current tax revenues are deficient, as they almost always seem to be, government must borrow. When government borrows in order to finance its deficits it would appear that it is choosing to tax us later instead of taxing us now. Ordinarily, money borrowed must eventually be repaid out of future revenues. That means there must be eventual budget surpluses sufficient to offset the current budget deficits. But budget surpluses have been few and far between, so governments and central banks together have conjured up another possibility—monetization of the debt and legally enforced circulation of debased currency by means of legal tender laws.
It should be obvious by now that the debts of the central government will never be repaid. As described in the previous chapter, it is like the farmer adding water to his milk. The part of the debt that is monetized adds “empty dollars” to the money supply, dollars that are not matched by additional goods and services going to market. The part of the debt that is not monetized by the banking system is acquired by individuals and institutions who allocate our collective savings to be spent by the government. The situation is very much like the following: Suppose you are regularly putting money aside into a shoe box to save up for your college education, but your drug-addicted parent is regularly taking that money out and replacing it with their IOUs. Will that suffice to get you through college? Only if your parent changes their ways and repays what they owe you. Our government is the wayward parent. It has been taking real value out of the economy and providing empty promises in return. Will it ever reform itself and start paying back its debt? Judging from past experience, that will never happen. What then is the likely prospect?
Fiscally irresponsible government has only two choices: it must either eventually default on its debt repayments—acknowledging that its bonds, bills, and notes are worthless—or it must continue to monetize more and more of its debt. For a country like the United States which constitutes the world’s biggest market and whose currency serves as the global reserve currency for foreign governments and investors, the former course is unthinkable. That leaves continued monetization, continued bailouts, and inflation. According to official figures, inflation rates in the United States for the past several years have been modest—in the range 3 percent—but at other times they have been much higher. Furthermore, these figures do not seem to reflect the true cost of living. The most common measure of inflation, the Consumer Price Index, has been widely criticized in this regard. In any case, the cumulative effect over time of government debt has been an enormous decline in the purchasing power of the dollar. The prospects are for that decline to accelerate as the budget deficits and trade deficits continue to mount up. On the global scene, the dollar has already lost a major part of its value and is beginning to lose its status as the preferred global reserve currency.
Under the central banking regime that prevails in virtually every country around the world, money has been politicized. The collusion between politicians and international bankers enables governments to extract wealth from the economy by deficit spending, and banks to extract wealth by charging interest on money as they create it by making loans. These two parasitic elements take wealth away from productive members of society and lavish it on military adventures, international intrigues, wasteful boondoggles, and financial finaglers. The truth of the matter is that central banks have one overriding function—to manage the effects of the parasitic drain, to decide who will pay the price and who will feel the pain. They can either (1) restrict credit in the private sector, thus causing recessions, bankruptcies, and unemployment; or (2) they can expand credit and inflate the money supply by monetizing debts (either public or private) that are ultimately uncollectible.
Article printed from Chelsea Green: www.chelseagreen.com
URL to article: http://www.chelseagreen.com/content/the-separation-of-money-and-state-2/
URLs in this post:
 The End of Money and the Future of Civilization: http://www.chelseagreen.com/bookstore/item/the_end_of_money_and_the_future_of_civilization:paperback
 Thomas Greco, Jr.: http://www.chelseagreen.com/authors/thomas_greco_jr