This important essay was written by Radio Free Market Special Commentator and Guest Host, Mr Aaron Brown.
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MM
The Muddled Economics of Ellen Brown and the Greenbackers
by Aaron Brown
Ever since 2008 and the explosion of public interest in the Federal Reserve and monetarysystem, I have kept track (in my noggin) of different ideological and theoretical objections to the Fed. One of the most common objections I have seen to the Fed is that it is private, as if the so-called privacy of the Fed is what makes it such a destabilizing and evil institution; those individuals who hold this point of view more often than not are in favor of public control over money as a remedy to the “private” Federal Reserve. If you are one of those who are of this mind, that the Fed is private and that it is this characteristic that makes it so insidious, I have news for you- the Fed is not private. It is a creature of government through and through[1].
One of the most entertaining Fed-watchers to read is Ellen Brown, author of Web of Debt. Full disclosure, I have not read her book. I have however read many of her articles and understand her arguments. I’d like to point out first off that the website for Web of Debt has the subheading “How Banks and the Federal Reserve are Bankrupting the Planet”. Her most recent article was published today (1/13/2011) in globalresearch.ca. Slowly but surely however, I have seen her objection to the Fed go from red-hot around the financial crisis of 2008, to apparently being in favor of empowering the Fed to do more. Let’s read her latest article.
It’s the Corporations, Man!
“The Federal Reserve was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no “quantitative easing” for municipal governments.”[2]
In regards to her first sentence, she needs to read the first link. The Federal Reserve was not set up by bankers for bankers; at least, that is not the only party for which the Federal Reserve was set up and is not the only party that benefits from its existence. The Fed was created for the benefit of two parties: the banks, as she correctly points out, and the government[3], as she neglects to highlight or even mention. This is not in my opinion an accidental slipup and even if it is its importance is such that I have to point it out. Sadly, because of authors like Dr. Brown, the public is led to a false understanding that the Fed and the government are engaged in some sort of heroic struggle, the private Fed greedy for profits and control, and the government powerless to stop them and/or negligent of their duties, when in truth the Fed is at its core a partnership between banks and government. To harp on the obscene profits the Fed confers on the banks and special interest groups and forget to mention that the Fed does so with the blessing of the State and that the State greatly benefits by having a central bank is a transparent “mistake”, as Dr. Brown’s remedy is to hand over the money power from the Fed to the Treasury; if the point were driven home that with a central bank, the State can obtain instant access to as much money as it desires at any time, no one would pay any attention to the nonsensical solution that transferring control of the henhouse from the Fox’s agent to the Fox itself will solve our economic ills.
Why do I continue to hammer this point? Is there really such a problem with leaving out
this characteristic of the Fed, i.e. that it is not just a banking cartel, but a government-sponsored banking cartel? To answer that you have to ask yourself this: if the Fed is bad, private or not, why not just abolish it and be done with it? It is at this juncture that the real battle begins as to the question of what the Fed should be replaced with. For those who ignore the statism inherent in centralized monetary control, the answer seems to be to follow the actual law laid forth in the Constitution and “Give the power of the purse back to the Treasury where it belonged in the first place!”
I can see how this could appear to be a good solution, as most people continue to believe that the government is us, and we are the government. At least monetary control in the hands of the government means we the people can hold our elected officials accountable. If the above describes your place on the free-market vs. government intervention spectrum, a full rebuttal of this point of view is handled by Rothbard[4], but in short: the government is not you, we are not the government, and frankly, the individuals in government, for the most part, wouldn’t help you if they could, and even if they genuinely wanted to help can’t comprehend that it is their interventionism that causes crises in the first place (Ron Paul notwithstanding…because he understands economics and thus says no to everything).
Whole Lotta (question) Beggin’ Goin’ On
It only takes about 100 words for Brown’s article to begin to get interesting- and very peculiar. Remember that Dr. Brown claims to be an opponent of the Fed, the cover of her own book an (awesome) photoshopped picture of the Fed with spider legs and Earth tangled in its web.
“The Fed’s low-interest facilities could have been used to restore local government credit, just as it was used to restore the credit of the banks…Why? It can hardly be argued that the Fed doesn’t have the money… According to data recently released, the central bank provided roughly $3.3 trillion in liquidity and $9 trillion in short-term loans and other financial arrangements to banks, multinational corporations, and foreign financial institutions following the credit crisis of 2008. ”
1. Her first sentence just begs the question. The Fed used low-interest facilities to restore bank credit. But is this desirable? It is a fallacy that low interest rates are just the thing for an ailing economy. A cursory study of Austrian economics and the Mises-Hayek business cycle[5] reveals that this is the last thing the Fed should be doing.
2. Whatever her definition of “restore” is with regards to the first sentence, it certainly isn’t the commonly accepted meaning, as in to bring back to good health. “Restore” in this sense is a custom definition that means counterfeiting money to enable banks to pay back their contractual obligations, i.e. cover up their insolvency/fractional-reserve fraud.
3. This paragraph just begs the question (a frequent fault of hers), is “restoring” local government credit, bank credit, and that of municipal and state governments a good thing? Readers of her article are just supposed to take on faith that the Fed’s ultra-easy monetary policy has made the situation better. Has it? Unemployment is over 20%[6], inflation is heating up[7], nations are abandoning the dollar[8]. If you have some positive indicators I’m all ears.
4. Aside from those who spend all day reading Maynard, most would agree that creating trillions out of thin air and loaning it to some of the most reckless economic actors of the day in the name of “protecting the people” sounds insane and fraudulent, and rightly so. But instead of condemning the bailouts and stimulus on the basis of principle and economic logic, Dr. Brown turns around and says, “So yeah, Wall Street and the corporate cronies got a bailout. So where’s ours?” Wrong question; unsurprisingly her solutions are also wrong. The problem is that the bailouts were implemented in the first place and the principle of a bailout in general. Additional bailouts of municipal and state governments will do naught but cause higher prices, further institutionalize moral hazard, and further the economic discoordination. If she got her wish, it would probably destroy the dollar…that is, more quickly.
5. To finish off, it’s interesting to note how a staunch opponent of the Fed now appears to be begging for its assistance. She goes through all the trouble of demonizing the Fed and then does a 180 and calls on it to be even more activist than it has been, this time by bailing out state and local governments.
I Hate the Fed…But Think it Should Bailout Everyone
“If the Fed could so easily come up with 12.3 trillion dollars to save the banks, why can’t it find a few hundred billion under the mattress to save the states? Obviously it could, if Congress were inclined to put non-bank lending back into the Fed’s job description. Then why isn’t that being done? The cynical view is that the states are purposely being kept on the edge of bankruptcy, because the banks that hold Congress hostage want the interest income and the control.”
Here’s the argument. The banks got money from the Fed, why doesn’t the Fed lend to the states? Just because it’s against the law? This is Congress’s fault for being so lazy. Funny how a self-proclaimed opponent of the Fed is blatantly calling for Congress to bestow on it the power to bailout any economic actor including states and municipalities.
More question-begging. Even if the state and local governments could get money from the Fed, is this actually desirable? He who frames the question wins the debate, right? The first sentence limits the entire debate, as Brown demands, “…why can’t it find a few hundred billion dollars to save the states? (emphasis mine).”
The real question is would a gift of a few hundred billion dollars (created out of thin air of course) actually do what she says, i.e. “save the states”? Implicitly the reader is supposed to believe that bailing out the banks “saved” the economy and by that logic a bailout of the states would “save” the states, which is patently false. Go back and read that sentence again. The idea that the bailout helped anything is false, false, false. If AIG, Merrill, Bank of America, et al were allowed to go the way of Lehman the earth would not have broken free of its orbit and the economy would not have collapsed. In truth, we would have endured a brief, sharp period of depression followed by a real recovery[9]. Also, are the state and local governments in their current conditions worth saving? No. They are bloated, bureaucratized nightmares. The governments don’t need a bailout- they need to get out of the way and cease their cost-concealing command-and-control methods to allow the price-revealing free market to operate unhampered.
She then, knowingly or unknowingly (at this point it’s hard to believe the latter), perpetuates the false government vs. business paradigm, when in fact they are partners, pals, buddies, amigos. The government and big business are NOT enemies. They are friends. Just as a side note, this government-corporate arrangement constitutes economic fascism of the Mussolini-Hitler variety[10].
Pretentious, Incalculable, Not Its Business
“Congress must summon the courage to take needed action; and that action is not to impose ‘austerity’ by cutting services, at a time when an already-squeezed populace most needs them. Rather, it is to create the jobs that will generate real productivity.”
The land, labor, and capital going towards the “services” that the government provides are not conjured out of thin air. The government is not some sort of philanthropist with an exogenous source of wealth that it graciously showers down upon the people. Government only has the resources that it steals through taxes, inflation, and outright expropriation. Those resources that the government allocates to itself by fiat are resources that the private sector now can NOT use. I fail to see the rationale behind expanding the government at a time when the private sector is shedding jobs like…well, like it’s its job. The populace does not need services from the government, which by definition are of lower quality and higher cost than services provided by the private sector, i.e. it takes the government more resources to make a worse product. The populace does not need Congress to have courage. The populace needs Congress to abolish their own positions and get a job, a real job where they are subject to the rigors of the market. Their current occupation, like a parasite,deprives its host of the essential nutrients required for good health.
Dr. Brown seems to be, in my opinion, extremely naïve about the government and the individuals who run it. Private sector greed is always emphasized, but government greed? Never. Why this inconsistency? The individuals who run the government are not any more moral, any more honorable, or any more capable of directing economic activities than any of the rest of us. Even if, notwithstanding the Hayekian pretense of knowledge[11] and calculation problem[12], the individuals in government could “create the jobs that will generate real productivity”, that is not in their job description. The role of the government in the United States (used to be at least) is this and only this: to protect your life, your liberty, and your property, NOT to be an activist, egalitarian force with arbitrary and constantly morphing responsibilities.
For More on This Story
This concludes my take on Dr. Brown’s position in this article. For some far more entertaining and informed Austrian rejoinders to her theories and proposed solutions, see Gary North’s section entirely devoted to her regurgitated brand of Greenbackism[13].
[1] Oberholster, Sarel. “The Independence of the Fed?” Ludwig von Mises Institute. 19 Mar. 2010. Web. 13 Jan. 2011. <http://mises.org/daily/4171>.
[2] Brown, Ellen. “America’s Economic and Social Crisis: The Fed Has Spoken: No Bailout for Main Street.” GlobalResearch.ca. Web. 13 Jan. 2011. <http://globalresearch.ca/index.php?context=va&aid=22768>.
[3] “It then became clear to these big-business interests that the only way to establish a cartelized economy, an economy that would ensure their continued economic dominance and high profits, would be to use the powers of government to establish and maintain cartels by coercion, in other words, to transform the economy from roughly laissez-faire to centralized, coordinated statism.” Rothbard, Murray N. “Origins of the Federal Reserve.” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/daily/3823>.
[4] Rothbard, Murray. “The Anatomy of the State.” LewRockwell.com. Web. 13 Jan. 2011. <http://lewrockwell.com/rothbard/rothbard62.html>.
[5] Brown, Aaron. “Austrian Economics & The Austrian Theory of the Business Cycle by Austrian Economics on Prezi.” Prezi. Web. 13 Jan. 2011. <http://prezi.com/zrfujceodidd/austrian-economics-the-austrian-theory-of-the-business-cycle/>.
[6] “Alternate Unemployment Charts.” Shadow Government Statistics. Web. 14 Jan. 2011. <http://www.shadowstats.com/alternate_data/unemployment-charts>.
[7]“Alternate Inflation Charts.” Shadow Government Statistics: Home Page. Web. 13 Jan. 2011. <http://www.shadowstats.com/alternate_data/inflation-charts>.
[8] “Russia, China Lift Restrictions on Trade in Ruble and Yuan | Business.” RIA Novosti. Web. 14 Jan. 2011. <http://en.rian.ru/business/20101123/161462980.html>.
[9] Murphy, Robert P. “The Depression You’ve Never Heard Of: 1920-21.” The Moral Liberal. Web. 13 Jan. 2011. <http://www.themoralliberal.com/2009/12/15/the-depression-youve-never-heard-of-1920-21-robert-murphy/>.
[10] Flynn, John T. “What Is Fascism?” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/daily/2903>.
[11] Hayek, Friedrich A. “The Pretence of Knowledge – Friedrich A. Hayek – Mises Daily.” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/daily/3229>.
[12] Mises, Ludwig Von. “Economic Calculation in the Socialist Commonwealth.” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/econcalc.asp>.
[13] North, Gary. “Ellen Browns Web of Debt Is an Anti-Gold Currency, Pro-Fiat Money, Greenback, Keynesian Tract.” Gary North. Web. 13 Jan. 2011. <http://www.garynorth.com/public/department141.cfm>.
