Articles

Articles by Richard C. Cook

Since January 2007, Richard C. Cook’s articles have been published on hundreds of websites and blogs worldwide and have appeared in a number of print magazines. Some have been translated into other languages. Most of the articles are presently archived in the following major websites.

From Global Research: Click Here

From Dandelion Salad: Click Here

From Market Oracle: Click Here

From Rense.com: Click Here

A Selection of Articles Follows:

“A Meditation on Our Monetary System: State of Permanent Siege”; published on numerous websites; this one is from Countercurrents.org: Click Here

Why Monetary Reform?

From After Downing Street

Future for Sale is a new feature-length documentary on the world economic crisis and possible solutions that has been written and directed by award-winning European filmmaker Maja Borg. Last year Maja traveled to my then-home in Williamsburg, Virginia, to film a series of interviews with me on the quiet streets of the restored 18th century capital of the colony of Virginia. It was a wonderful experience for me, my mother Marjorie Cook, and our friend Ruth Tshann, as we spent three fruitful days with Maja, producer Sonja Henrici, and their crew from Edinburgh, Scotland. We felt keenly the comparison between the simplicity and clarity of pre-industrial days and the madness that has engulfed humanity today. My mother was once a tour escort for Colonial Williamsburg and gave Maja and friends a tour down Duke of Gloucester Street with stops at the Raleigh Tavern and the silversmith’s shop. On the back porch of the Raleigh Tavern, Maja and I talked about the “Gap Chart” from my book We Hold These Truths: The Hope of Monetary Reform and how a new monetary system could be created that would be far more fair and functional than the bank-run horror now afflicting mankind. The last night of their visit we had dinner together at the Blue Talon Bistro with lots of laughter and warm feelings. Maja and Sonja are now in the late stages of editing. We can’t wait to see the final product which will include a number of reformers and visionaries from around the world. You can go to the website for Future for Sale and check on progress or donate to help meet expenses. We hope to see Future for Sale in the near future at film festivals and theaters. Here’s the website: Future for Sale

“Bursting Our Bubbles” — Article by Jim Hogue from Vermont Commons Based on Interview with Richard C. Cook

Link to Article

Article in Italian

Italian Translation of Article on Obama Budget by Marco G. Pellifroni Link to Article

Richard C. Cook on the Alex Jones Show: March 3, 3009 See the interview on YouTube

Obama Economic Program Increases America’s Bondage to Wall Street Billionaires:

It’s Time for a New Monetary System

by Richard C. Cook

March 23, 2009

This article previews the author’s new six-part video series scheduled for release April 2: “Credit as a Public Utility: The Solution to the Economic Crisis.”

The Obama administration is spending hundreds of billions of dollars trying to persuade the banking system to restart lending. Federal Reserve Chairman Ben Bernanke plans to create hundreds of billions more of new bank reserves by purchasing mortgage-related debt. With Bernanke and Treasury Secretary Timothy Geithner working together, “the initiative will seek to entice private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases. The government will share the risks if the assets fall further in price.” (Martin Crutsinger, AP) Finally, President Obama is taking over the distinction of being the biggest Keynesian in history with a fiscal year 2009 deficit of $1.75 trillion.

The cancer of debt grows by the day. According to Michael Hodges’ famed “Grandfather Economic Report”: “America has become more a debt ‘junkie’ than ever before, 
with total debt of $57 trillion, and the highest debt ratio in history. That’s $186, 717 per man, woman and child.”

With the federal bailouts of the financial system and the recession, the debt load has increased by $4 trillion in the last six months. What are we going to do with even more debt coming?

The growth in debt will be impossible for households to deal with when more then half a million jobs are still being lost per month. Impossible too for U.S. businesses when the drop-off of consumer spending reflects not only job loss but also a new propensity to actually save a portion of our earnings after the mortgage-based spending spree of the last decade.

The debt will be more possible to bear perhaps for the Treasury Department, which has benefited from investors searching for a safe haven so still being willing to buy Treasury bonds. This includes Treasury’s biggest current customer, the Bank of China.

Yet what does it say when the government can open its doors in the morning only if the Chinese give us permission? Secretary of State Hillary Clinton traveled to Beijing in February to be sure they still looked on us with favor and returned home to assure the president they did. But is this any way to run a country? Why can’t the most productive nation on earth afford to pay for its own government?

The Obama economic program, which so-called progressives call “revolutionary,” will take us further away from, not closer to, real solutions. The massive new debt it creates can only be enforced by the courts, the police, and ultimately military power. Within the U.S., the authorities are preparing for civil unrest. Overseas, “dollar hegemony,” the system by which nations like China continue to enable our massive debt, is increasingly unstable as the world bails on the dollar as its reserve currency.

When is anyone in authority going to utter the unutterable, which is that our financial collapse ultimately goes back to the fact that every dollar in circulation derives from a loan made by a bank to a producer, consumer, or the government, and that all these loans have attached to them a rental charge known as interest which is paid to the bankers’ monopoly? When will someone admit that the government’s economic recovery plan is a welfare program for Wall Street billionaires?

We live and work under a debt-based monetary system that has been in force since Congress passed the Federal Reserve Act of 1913. It’s how the system works. The government goes into debt, and the banking system then uses it as a reserve base for lending to the public.

It wasn’t always this way. In the 19^th century, until the Civil War, the government lived within its means. President Thomas Jefferson balanced the federal budget for eight consecutive years, and President Andrew Jackson paid off the national debt.

Back then the government issued currency based on gold and silver, and the U.S. mint stamped precious metals into coinage for anyone who brought it through the door. Local commerce was fueled by a system of state and local banks operating on the “real bills” doctrine. Inflation was virtually unknown, and unpaid debt led swiftly to bankruptcy and a sheriff’s sale.

When the Civil War began, President Lincoln needed money fast. The New York bankers offered outrageous terms: interest at 24-34 percent. So Lincoln was authorized by Congress to print and spend Greenback money directly into circulation. Contrary to later propaganda, the Greenbacks were not inflationary. They were upheld by the Supreme Court as constitutional and remained in circulation until the early 20^th century. They even spawned the Greenback Party that elected members of Congress and ran candidates for president.

But the bankers, by now centered on Wall Street, gained a foothold with the National Banking Acts of 1863 and 1864, where the banks were allowed to purchase Treasury bonds as a lending reserve. Currency issued by the state and local banks with their hard money reserves were taxed out of existence.

In 1913 the bankers’ trap snapped shut when the Federal Reserve System came into existence. After World War I, the currency inflated so much that the value of both the Greenbacks and coinage were destroyed.

A monetary system based on bank lending means constant cycles of inflation and deflation. The banks create these financial bubbles then destroy them, always to their profit. In the 19^th century, the deflations were called “panics.” The Great Depression was a bank-created panic on an unprecedented scale. The collapse of 2008-2009 is the panic we’re in now, but with plenty of assets on the market at fire-sale prices for those rich enough to cash in. For instance, there was a lot of hand-wringing when Citigroup’s stock dropped to $1 a share. But those who could still buy-in saw their holdings triple in value when the stock rose to $3 a share a few days later.

The solution is not to restart huge amounts of bank lending in order to create new bubbles. Unfortunately, the Obama budget is an attempt to create such a bubble based on Treasury securities. But this bubble too will likely collapse, because there is no economic engine on the horizon strong enough to pay the debt that will be used to inflate it. The next collapse could even lead to a world war if China and other creditor nations, possibly including those of Europe, decide to enforce their claims against us.

But economists, politicians, and others who say there is no immediate solution lie. They just don’t want to tell us what the solution is.

It’s to get rid of the debt-based monetary system altogether and return to one controlled by our representative government where a substantial amount of money is spent directly without borrowing or taxation. A Greenback system for the 21st Century is contained in the draft American Monetary Act developed by the American Monetary Institute and briefed to a number of members of Congress and congressional staffers.

A Greenback-type currency would be regulated to support the needs of the real producing economy, not bank speculation, and could be used to pay off the national debt, supplement taxes to pay federal expenses, capitalize a new federal infrastructure bank, or fund alternative energy R&D.

A currency based on real U.S. money would replace debt-derived Federal Reserve Notes. It doesn’t matter whether that currency is paper, gold, or electronic entries. What is important is that it exists in the right amount to conduct the business of the nation, is non-counterfeitable, is not misused for speculation, and does not have debt or interest attached to it. The Federal Reserve would remain as a processor and clearinghouse, but not a bank of issue.

Greenbacks could also be used for a basic income guarantee for citizens that would restart the economy at the grassroots level much more effectively than government top-down job creation based on more Treasury deficits. The need for consumers to borrow from banks or use credit cards even for necessities like groceries and health care would sharply decrease. I have proposed such a program through the Cook Plan that would provide citizens with a dividend in the form of vouchers in the amount of $1,000 a month. The vouchers could be used to capitalize a new network of community savings banks that would lend at the local level.

There is a good chance that the American Monetary Act will be introduced during the current session of Congress. It should be supported by anyone who cares about the future of our nation more than bankers’ profits.

© 2009 by Richard C. Cook

“The Last Picture Show”:

President Barack Obama’s Fiscal Year 2010 Budget

by Richard C. Cook

March 2, 2009

[“The Last Picture Show” was a 1971 film depicting the decay of small town America. It took place in the fictitious town of Anarene, Texas.]

We hear a distant tune reminiscent of America’s high and lonely places and the sound of a dry wind blowing. It’s March 2010 in the tiny West Texas town of Anarene. Nothing much happens here any more. The last business shut down a couple of years ago. It was a cement plant that went broke after the housing bubble burst and the banks stopped lending. The kids out of high school drive their jalopies from one end of Main Street to the other past boarded-up storefronts.

Some of the grown-ups carpool to low-wage jobs in a city 50 miles down the road. The elderly have had their Social Security eaten up by the high price of food but still get by on Spam and Kool-Aid. There used to be a movie theater, but it too closed a few months ago. Not a single person went to the “Last Picture Show.”

But there is change in the air! President Barack Obama, who was elected president a couple of years ago, is in the middle of his fiscal year 2010 budget. The 2009 budget had a deficit of $1.75 trillion, a number no fool could even have imagined before the crash of 2008. The projection for 2010 is $1.17 trillion, due to the government’s hopes for an economic recovery. But the jury is out on whether a recovery will ever happen.

Some say the banks are starting to lend again, though no one at the Anarene State Bank knows anything about it. Some say the city down the road is getting a plant to make blades for those new wind turbines. The Anarene high school got funding for an adult training course on writing resumes. The Nightly News says, “America is coming back.”

I wish!

So what is really going on here?

Well, President Obama’s 2010 budget has attracted a lot of attention. $1.75 trillion? That’s not federal spending. That’s new federal debt!

A good measure of fiscal policy is federal government tax revenues. Revenues for 2009 are projected at $2.19 trillion, off 13 percent from a year ago, due to the recession. With the huge bank bailouts and Obama’s $787 billion economic recovery program, 2009 expenditures are estimated at $3.94 trillion, an increase of 33 percent over 2008.

Then there’s the interest taxpayers must pay on the national debt, which will likely reach $600 billion in 2009. Of course almost 100 percent of all new federal debt is financed by foreigners, mainly China.

But don’t worry, the recovery program will succeed, and the economy will start growing again. THE GOVERNMENT PROMISES! Obama’s budget forecasts such a strong upsurge in economic activity by the end of 2009 that the net for the year will be GDP growth of 1 percent. (Yes, that’s what it says.)

Is it a contradiction that the government is conducting “stress tests” on the nation’s banks in which it is predicting that the recession will last at least until 2011 to see if those banks are strong enough to weather the storm? Yes, it is a contradiction. Even the Federal Reserve does not see recovery coming as quickly as Obama’s budget. Neither do any economists. The budget is not an honest document.

It gets worse. The budget says growth will then continue as far as the eye can see—the projections go out to 2019, when we’ll have a GDP of $22.86 trillion, 61 percent higher than 2008. Happy days will be here again!

So go back to sleep, America. It’s official. The recession we are in right now will end soon and is the last one ever.

This means that the financial industry will soon be fixed, plenty of good jobs will be available, climate change and drought will be overcome, the government budget will be right-sized, and America and the world will be content and at peace. All because of the decisions being made by the Obama administration and approved by Congress during these few critical weeks we’re in the middle of right now.

But there are a whole swarm of flies in the ointment. I’ll mention just two.

One is that according to University of Massachusetts economist Thomas Ferguson, who spoke at last weekend’s Eastern Economic Association national conference in New York, the Bush/Obama bank bailouts alone will cause a permanent addition of interest payments on the national debt of $100 billion a year forever. That means every American will pay, during the course of his or her lifetime, over $20,000 to rescue the banks from their bad loans. To put that number in perspective, it equates to 2-1/2 years of tuition at a state university that instead will be paid to the government of China or a similar foreign investor.

Yes, America, that is what your elected government just decided you will do.

Another is that the U.S. has had virtually no real economic growth since the early 1970s, because since then we’ve lived in a bubble economy. Look it up. Most of our industrial output has been flat or has declined. Whole industries, such as steel, are shadows of their former greatness. The automobile industry is on life support. We’ve imported huge amounts of foreign capital by selling them our real estate and businesses. As stated on the Economy in Crisis website:

“The United States now no longer controls many of its domestic industries. Over the last 10 years alone foreigners have spent $1.2 trillion to acquire more than 8,000 key US companies. Already as of 2002, foreigners owned fully 20 percent of American manufacturing. In many high-tech and defense-related industries, the proportion is far higher. Such US industries as mining, cement, publishing, engine and power transmission equipment, rubber and plastics, and sound recording and motion pictures are now largely foreign owned. Even in industries like pharmaceuticals, chemicals, industrial machinery, transportation equipment, electronics, metal industries, and coal and petroleum industries, foreign ownership has recently become very high.”

Until the last year, the biggest growth industry within the U.S. had been the financial sector, producing profits of over $500 billion as late as 2006. In other words, the U.S. has replaced working for a living with the manipulation of money and the extraction of interest, either by lending it or by brokering the lending and investment by foreigners. In order to enrich themselves, the financiers, with a lot of help from the government, created the merger/buyout bubble of the 1980s, the dot.com bubble of the 1990s, and the housing/equity/hedge fund/derivative bubble of the 2000s.

All this time, the federal, state, and local governments have tried to keep up by taxing every financial transaction they can get their hands on, including by raising property taxes on the inflated value of family homes. But now, with the last of the bubbles deflating, the tax base is vanishing. So governments, along with the private sector economy, which has been living on capital gains in the absence of job income for all but the very rich, have gone into the tank as well.

President Barack Obama’s economic recovery program, along with the budget just released, is an attempt to substitute a federal government bubble for the failed private sector ones. Like the private sector bubbles, this one is also based on debt. This is because debt is the only way anyone in the U.S. can any longer think of when it comes to creating a national money supply. It includes the president’s proposed $5 billion federal infrastructure bank for lending to state and local governments. This bank will probably offer better interest rates than the bond markets, but it’s still debt.

There was a time in U.S. history when other ways were known to create money; for instance, during the Civil War, when Congress authorized the Lincoln administration to spend Greenbacks directly into existence. The banks hated the Greenbacks, of course, so they got Congress to pass the National Banking Acts of 1863-64, which were the prelude to the Federal Reserve Act of 1913. Today, Greenback-type funding for the federal government is one of the chief provisions of the American Monetary Act drafted by the American Monetary Institute (www.monetary.org).

Another way to introduce debt-free money into the economy is through a dividend, such as the Alaska Permanent Fund, which in 2008 paid every resident $3,269 tax-free out of the state’s resource revenues. There is no good reason why such a dividend could not be paid by every state or by the federal government.

Greenbacks and programs like the Alaska Permanent Fund are part of what I call Dividend Economics. It’s why I’ve proposed the “Cook Plan,” which would be a system of vouchers for the necessities of life in the amount of $1,000 a month for any adult citizen who applied. A smaller amount would be provided as an allowance for children.

The vouchers would be taxed like any other income and would supplement other entitlements such as unemployment compensation, Social Security, etc. But taxes would be low for those who would use the vouchers as a main source of income. Under the plan, the vouchers would then be accepted as deposits at a new network of community savings banks that would lend at one percent interest to consumers, students, small businesses, local manufacturing establishments, and family farms.

This would introduce over $2.5 trillion of debt-free money into the economy over the next year, because under the “Cook Plan,” the dividend would be paid directly by the U.S. Treasury without borrowing or taxation. It would not be inflationary, because it would replace money from public bank lending and would result in new goods and services being created within the U.S. producing economy. In fact, we would see a renaissance of local and regional economic activity that would eventually transform the national economy as well.

You may ask, should we just be “giving away money?” My answer is that if the banks can create trillions of dollars in credit out of thin air for lending, why can’t the government create it for the people? The same goes with the trillions the government is borrowing to pay to the banks to reinflate the bubble economy. Give it to the people instead. Look at Obama’s economic recovery program that equates to $225,000 for each new job it hopes to create and probably won’t. Give that to the people too. Let them use the money as a dividend to live on during this emergency and create new jobs as well.

Right now there is nothing further from the minds of President Obama and his advisers than such ideas. That’s why his new bubble budget is America’s “Last Picture Show.”

© 2009 by Richard C. Cook

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The U.S. Economy: Designed to Fail

by Richard C. Cook

February 25, 2009

President Barack Obama showed a great deal of gumption in standing before Congress last Tuesday night delivering his first speech to the joint assembly. All the trappings of power were on display as members of the House and Senate, the Supreme Court, the Joint Chiefs, and the Cabinet hugged and waved at each other, preening in their tailored attire only two nights after the Hollywood stars put on their own show on Oscar night.

Too bad neither the president, nor Vice President Joe Biden and Speaker of the House Nancy Pelosi on the podium behind him, nor the jubilant Democrats with their solid majorities, nor the grumpy Republicans slouching in the minority across the aisle, know what they are doing as economic extinction stares the United States of America in the face.

Yes, it’s that bad. The day after the speech the Dow-Jones dropped to 7,271, almost 50 percent off its October 2007 high, with no bottom in sight. According to the Washington Post, the Big Three automakers are now facing a “bottom-up” collapse of their component supply lines if their vast network of suppliers doesn’t receive new federal loans within a week. Worldwide the situation is just as bad. The U.N.’s International Labour Organization reports:

“What began as a crisis in finance markets has rapidly become a global jobs crisis. Unemployment is rising. The number of working poor is increasing. Businesses are going under.”

President Obama’s speech was long on resolve but short on substance. He assured the nation:

“We will rebuild, we will recover, and the United States of America will emerge stronger than before.”

But accomplishing this depends entirely on one thing: more federal deficit spending to serve as the economic engine in an economy where bank lending has dried up because businesses and consumers can no longer repay their loans.

Unfortunately, the deficit is approaching the breaking point.

The U.S. Treasury is on-track to pay over $500 billion just in interest payments during fiscal year 2009 to finance the already-existing debt. The new debt this year will likely exceed a trillion dollars. The total debt burden on the economy as a whole could reach $70 trillion by 2010, with annual interest payments for individuals, households, businesses, and all levels of government reaching $3 trillion out of a GDP of $14 trillion that is now in sharp decline.

Financing the deficit continues to depend on whether China will still purchase Treasury bonds. This is why Secretary of State Hillary Clinton said frankly during last week’s trip to China, “We are relying on the Chinese government to continue to buy our debt.”

But at least President Obama is trying. He knows the economy can only recover if growth is rekindled. So he is focusing on the creation of jobs that translate into real worker income. But can he reverse a generation of job outsourcing and income stagnation? I don’t know of anyone who believes it. Will the Republican nostrum of more tax cuts do anything? Of course not. Not when unemployment is approaching Great Depression levels.

.

But neither President Obama, nor his Democratic supporters or Republican antagonists, should feel badly about what is happening. This is because the system they have been given to work with was designed to fail. The U.S. was saddled long ago with a debt-based monetary system, whereby the only way money can be introduced into circulation is through bank lending. It was the system that was instituted in 1913 when Congress gave away its constitutional power over money creation to the private banking industry by passing the Federal Reserve Act.

It was then that the catastrophe we are facing became inevitable. It took nearly a century to get here but it finally happened. We should have known it was coming when Federal Reserve-created bubbles replaced economic growth from our disappearing heavy industry, starting with the recession of 1979-83. We could have seen it coming when the dot.com bubble collapsed in 2000-2001, and Fed Chairman Alan Greenspan worked with the George W. Bush administration to substitute the housing bubble for a real recovery.

The day of reckoning is here. So don’t worry, Mr. President. It’s not your fault. When the collapse takes place the international bankers who will take over might even let you keep your job.

© 2009 by Richard C. Cook

Open Letter to Dr. Joseph Stiglitz and Challenge to Debate, February 5, 2009

Note: Dr. Joseph Stiglitz is a professor at Columbia University, former chairman of President Clinton’s Council of Economic Advisors, former chief economist for the World Bank, and a recipient of the Nobel Memorial Prize in Economic Sciences.

Dear Dr. Stiglitz:

I have just finished reading your article published on Alternet.org entitled, “Is the Entire Bailout Strategy Flawed? Let’s Rethink This Before It’s Too Late.” http://www.alternet.org/story/124166/

With all due respect, I believe you have missed the point of what is going on within the U.S. economy, which causes your proposed solutions to be similarly flawed.

The purposes of this letter are to delineate my objections to what you have written, to bring our differences before the public, and to challenge you to a debate when I visit New York City on February 27-March 1, 2009.

You state that, “America’s recession is moving into its second year, with the situation only worsening.” But you then say, “The hope that President Obama will be able to get us out of the mess is tempered by the reality that throwing hundreds of billions of dollars at the banks has failed to restore them to health, or even to resuscitate the flow of lending.”

You thereby imply that the economic crisis is due to problems within the financial sector and that it would be a good thing to “resuscitate the flow of lending” without challenging why that lending became such a huge factor in our economy.

I say: The problem does not lie with the financial sector except that the debt-based monetary system acts as a parasite on the producing economy, resulting in the vast overhang of debt that can never be repaid. “Resuscitating the flow of lending” will do no good, because the collapse of consumer purchasing power due to job outsourcing and income stagnation has made it impossible for people to pay their debts. Most of this debt now needs to be written off and our producing economy restored as our chief source of wealth.

You say of the government’s bailout actions late last year: “Then there was the hope that if the government stood ready to help the banks with enough money — and enough was a lot — confidence would be restored, and with the restoration of confidence, asset prices would increase and lending would be restored.”

I say: In making this observation you may be correct, but you fail to challenge the policy whereby asset price inflation, in the absence of real economic growth, has become an ersatz economic driver. Throughout your writings you have ignored the fact that the government and the banking system have deliberately created financial bubbles to shore up the economy, engender profits, and maintain tax revenues. This is what the Federal Reserve under Alan Greenspan did in collusion with the Bush administration to create a recovery when the Dot.com bubble was collapsing in 2000-2001. None of your proposals would revitalize the producing economy or restore consumer income. You seem to be mainly trying to re-inflate the asset-financial bubble in your own way.

You say: “The underlying problem is simple: Even in the heyday of finance, there was a huge gap between private rewards and social returns. The bank managers have taken home huge paychecks, even though, over the past five years, the net profits of many of the banks have (in total) been negative. And the social returns have even been less — the financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures — to the tune of hundreds of billions of dollars.”

I say: It is true that bank manager salaries and bonuses are obscene, but the way you characterize “social returns” is shortsighted. You speak of bank profitability falling short even though, since the financial deregulation of the 1980s and 1990s, the banks have become the nation’s chief growth industry, with profits as late as 2006 of over $500 billion. Further, the financial sector doesn’t really “allocate capital.” What it does is skim the cream off the top of the producing economy by financing consumption and facilitating the most irresponsible types of speculation in the real estate, equity, hedge fund, and derivative markets. For example, up to 97 percent of futures contracts comes from bank loans irrespective of whether such lending has any benefit for consumers or producers. The banks allocate capital primarily for their own benefit, which I believe you recognize, but we now need to find alternatives to a monetary system based on bank-created debt, not just try to get it running again while ignoring the disasters that have befallen working men and women and their families.

You say, in regard to the ongoing government actions: “But even were we to do all this — with uncertain risks to our future national debt — there is still no assurance of a resumption of lending. For the reality is we are in a recession, and risks are high in a recession. Having been burned once, many bankers are staying away from the fire.”

Again, you speak favorably of a “resumption of lending” as resolving the problem. I say: “What you are proposing is simply to shore up our debt-based monetary system without addressing the facts that our manufacturing jobs have been exported to China and other low-cost labor markets, our automobile industry is collapsing due to the failure of consumer demand, wages and salaries have stagnated for two decades, workers have not shared in productivity increases, and the total societal debt load on a GDP of $14 trillion is now approaching $70 trillion. These are the problems that must be addressed, not getting the banks to lend again when people can’t pay off the debts they already have.

You say: “What’s the alternative? Sweden (and several other countries) have shown that there is an alternative — the government takes over those banks that cannot assemble enough capital through private sources to survive without government assistance…Inevitably, American taxpayers are going to pick up much of the tab for the banks’ failures. The question facing us is, to what extent do we participate in the upside return?”

I say: “Having the government run the banks instead of the private sector will not restore the economic fundamentals of a weak economy. Availability of bank credit does not by itself lead to greater production of goods and services. What it should do is make the liquidity available for the production-consumption cycle to work smoothly. The idea that a deregulated financial sector should be given precedence over all the other economic sectors is the essence of the supply-side, trickle-down philosophy that began during the Reagan years and has catastrophically failed.

You say: “Eventually, America’s economy will recover. Eventually, our financial sector will be functioning — and profitable — once again, though hopefully, it will focus its attention more on doing what it is supposed to do.”

I say: Please tell us exactly HOW America’s economy will recover. Will it recover after real unemployment, including “discouraged workers” hits 20 percent, which it is likely to do over the next few months? Will it recover after millions of more people have their homes foreclosed? Will it recover after the automobile industry dies? What exactly is your prescription? If you don’t have one, I would ask you to consider what I am proposing in my paper: “A Bailout for the People: Dividend Economics and the Basic Income Guarantee.” In that paper I put forth what I am calling the “Cook Plan.” This consists of a $1,000 a month payment per capita made by the government through a system of vouchers for necessities that are then deposited in a new series of local community savings banks that would lend at one percent interest for small business, local manufacturing, and family farming. The vouchers would be a dividend, distributed as each citizens’ fair share of our amazing productive economy without recourse to government taxation or debt. The dividend would provide income security, eliminate poverty, and result in a renaissance of local and regional economic activity, and it would start to act immediately, not “eventually.”

On Friday, February 27, 2009, I will be in your hometown of New York City presenting the “Cook Plan” at the 8^th Congress of the U.S. Basic Income Guarantee Network and the Annual Convention of the Eastern Economic Association. That evening I will present the program at a Town Hall meeting in connection with President Obama’s series of citizens’ forums at Nola Studio B, 244 West 54^th St., 11^th floor in Manhattan, at 8 p.m.

On the evening of Saturday, February 28, I am free, and would be glad to meet you to debate these ideas at a location of your choosing.

Respectfully,

Richard C. Cook

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“The Basic Income Guarantee and Monetary Reform:

A Tale of Two Ideas”

Presented at the USBIG Network Annual Conference

Crowne Plaza Times Square Manhattan Hotel, New York, N.Y.

February 23, 2007

by Richard C. Cook

My name is Richard C. Cook, and I am the author of a book which has just been published by Thunder’s Mouth Press entitled Challenger Revealed: How the Reagan Administration Caused the Greatest Tragedy of the Space Age.

My book on Challenger came out last month. During the Challenger disaster investigations in 1986, I was the NASA whistleblower who disclosed the history of the flaws in the solid rocket booster joint that were the technical cause of the disaster. Today I am here to talk about another of my interests—the link between proposals for a basic income guarantee (BIG) and monetary reform.

Before NASA, I worked as a policy analyst at the U.S. Civil Service Commission, the Food and Drug Administration, and the Jimmy Carter White House under his special assistant for consumer affairs, Esther Peterson. After NASA, which I left soon after the Challenger tragedy, I spent twenty years with the U.S. Treasury Department. I retired in January 2007 after thirty-two years of federal experience.

While I am new to the USBIG Network, my interest goes back a long time. When I worked at the Carter White House, I was organizing a study group on monetary reform, which was to include income policy, when Carter was voted out of office in favor of Ronald Reagan in 1980.

The election of 1980 was a watershed in U.S. history. It was a takeover of the policy apparatus of government by the political right-wing, and it affected every aspect of American politics and culture. Those of us who remained in government but still believed we had a positive role to play in supporting the progressive aspirations of the American people thereafter kept a low profile. Even the Clinton administration made many accommodations to the conservative attitudes which had entered pubic life with the Reaganites and again with the Republican takeover of Congress in 1984. Democrats tend to romanticize the Clinton years, forgetting that the economic recovery of the 90s was fueled by foreign capital and ended with the bursting of the dot.com bubble and a stock market crash. From the standpoint of overall government policies, we have now lived in an atmosphere dominated by the conservative ideology for a full generation.

This period has been difficult for me personally because I would call myself a Jeffersonian-FDR democrat. But I believe we are beginning to see the pendulum swinging back in the direction of more progressive policies as the conservative ideology runs out of steam. What is has left us with are economic, ethical, and fiscal disasters, along with a state of perpetual warfare in the Middle East.

My experience long ago led me to the conclusion that the most important economic issue facing our nation and the world today is income security and that it is the job of the federal government, acting as the custodian of the commonwealth of Americans as defined in the preamble of our Constitution, to do something about it.

I said income security, not job security. People in this room know the world of difference between the two, as few others do. As many have come to realize, real job security is extremely difficult to achieve in an era where technology has made so many jobs obsolete and where the rapid pace of change has destroyed the typical career patterns of a generation ago. Lately I have been reading articles by a man named Marshall Brain who says that by 2030 robots will take over fifty percent of the jobs in the U.S. economy, and I agree that the potential is certainly there.

So a basic human right to income security cannot and should not be linked with an imperative that everyone be engaged in earning a living all the time. While more can always be done to foster job creation, it will never entirely solve the income security problem. Welfare-to-work is not the answer.

I believe, as I think many of you do here at this meeting, that the right to income security must be viewed as an absolute. This right, I believe without apology, is ultimately based on a spiritual value, that every human being who comes to life on the planet has a right to a minimally secure existence, which governments exist to ensure. I believe that income security is what people must first have to express their rights to “life, liberty, and the pursuit of happiness.”

These values are being threatened in today’s political, economic, and social environment as never before in U.S. history. Since the negative income tax was proposed in 1969, our nation has marched resolutely backward in maintaining a commitment to income security due to the conservative ideology. Conservatives wanted us to believe that eliminating much of the social safety net in favor of unbridled economic license would “lift all boats” and allow individuals to prosper in ways not possible under the shelter of the welfare state. This has obviously not happened.

Instead, “trickle-down” economics has totally failed. We have more than forty-five million people without health insurance, thirty-five million without enough to eat, increasing poverty, and a declining standard of living for all but the most wealthy. After a period of decline, violent crime, especially robbery but also murder, is increasing. The housing bubble has burst, leaving millions of people facing possible loss of their homes. The federal government, with a current debt approaching $9 trillion and $44 trillion in unfunded liabilities, has been declared bankrupt by economists close to the Federal Reserve. Their solution? Sell more U.S. assets to China. In the last several years the dollar has lost a third of its value to the dismay of foreign investors like China who have funded the Treasury deficit. Meanwhile, our public infrastructure is crumbling, with a maintenance deficit approaching $2 trillion according to the American Society of Civil Engineers.

After a generation of conservative rule, and in spite of three years of a balanced budget at the end of the Clinton presidency, public finance in the United States today is in crisis, if not total collapse. A quarter century of politics devoted to the dismantling of social welfare programs, privatization of public assets, huge tax cuts for the wealthy, continuing export of manufacturing jobs, deregulation of the financial industry, and huge expenditures on the war machine have eroded the ability of the federal government to do anything meaningful about income security.

If you set this crippling of government against such facts as the $53.4 million 2006 bonus given to the CEO of Goldman Sachs last December and the ongoing attempt by the Bush administration to conquer the Middle East by military force, you get a vivid impression of a society racing over a cliff. The article by Paul Krugman, the New York Times’ economics columnist, in Rolling Stone magazine last December entitled “The Great Wealth Transfer,” portrays a society that has fallen from its status as the world’s greatest industrial democracy to one that is beginning to resemble a banana republic oligarchy, with a ruling class that is unbelievably rich and a population that is sinking toward a state of debt slavery and economic peonage. The facts are undeniable and well-documented.

So where does the basic income guarantee fit into this gloomy picture? In the near-term, Congress, having returned to Democratic control, may raise the minimum wage a dollar or two an hour. The ongoing fall of the dollar will promote exports and so be a factor in job creation, though those jobs will be low-paying and have few benefits. If a Democrat is elected president in 2008, we may see some new federal job creation programs or tax incentives. But BIG is not on the horizon.

Yet I don’t believe the situation is hopeless in the long run. We have some examples to point to that over time could get people’s attention. One is the Brazilian experiment.

The other ray of hope is that the dire economic situation can act as a stimulus for progressives to begin challenging economic fundamentals. Here is where I think the
BIG movement could benefit by looking at what is going on in monetary reform, because any push to enact BIG through income redistribution is likely to face insurmountable difficulties. We are simply not going to get middle-class citizens to give up their mortgage deduction, for example, so the poor can get a break when they know that what Lou Dobbs called “the war on the middle class” is real and that it threatens their own financial existence.

Also, most Democrats are looking to the Clinton years of relative fiscal austerity as a model. The federal budget is likely to be slashed, some of the taxes on the upper brackets may be restored, and tax breaks for higher education may increase. But even if the Earned Income Tax Credit is enhanced or other types of tax credit enacted for the lower brackets, that is obviously not BIG in its full potential.

So where can the monetary reform movement enter into the picture? First, it challenges the assumption that the only ways government can get money to disburse are through taxes and borrowing. Second, it challenges the assumption that the wealth of a nation is a relatively fixed quantity—the GDP plus whatever growth rate is measured or assumed—and that the political process must decide how wealth is to be divided, with certain groups get more and others getting less.

But is has long been recognized that fiscal and tax policies can have a profound effect on levels of investment and economic activity. It has also been understood that GDP growth can be influenced by monetary policy, interest rates, and the availability of money. What has changed since the 1980s has been that the conservative revolution has greatly limited the ability of government to apply these tools while shifting more economic power to the private financial markets.

The thrust of the monetary reform movement, as least that segment of it not devoted to the introduction of local currencies, would be to shift the power of influencing the creation of wealth back to the government. One way to do this would be to create a federal authority charged with rebuilding the nation’s physical infrastructure through long-term low-interest loans. The Kucinich bill for a federal infrastructure bank similar to the New Deal Reconstruction Finance Corporation is an example. It would allow for the insertion of money and investment at the state and local levels and would also create new jobs.

On the side of money and credit, the Federal Reserve System has long operated by alternately stimulating and slowing the economy through its regulation of fractional reserve banking and through actions affecting interest rates, but never in ways that have proved truly effective. This is because attempts to use liquidity to manipulate economic growth are always tied to the creation of credit that must be repaid with interest.

In my opinion, it would be much more effective for the Federal Reserve simply to give away money, as it went a long way toward doing with the slashing of long-term interest rates leading to the recent housing bubble. Hundreds of billions of dollars were pumped into the economy, but now the bill is coming due because of the enormous inflation of housing prices that has left society as a whole much worse off than when the bubble began. But the bubble can be viewed as an income program for homeowners and speculators with a substantial multiplier effect for the entire economy. According to investment analysts, fifty percent of U.S. economic growth in 2005 was due to the stimulation of the housing market.

As I indicated, it would have been simpler if the Federal Reserve, or the U.S. Treasury, simply gave away money, and what I would like to suggest is that we begin to think about issuing a BIG without charging any cost at all to the federal budget through what has been called a National Dividend.

This is not a frivolous suggestion. It was proposed by Major C.H. Douglas and the Social Credit theorists of the 1920s and started a political movement which has continued through today in Great Britain, Canada, and New Zealand. This would be money creation at its simplest and most direct, similar to the Greenbacks legislated by Congress during the Civil War. Then, Congress authorized expenditures in the amount of $450 million, and the government simply spent the money into existence.

It was a system that worked remarkably well, one which the bankers have propagandized against ever since. Greenbacks still made up a third of the U.S. currency into the early years of the 20^th century. Few people know that FDR also had Greenback authority though he never used it. It was money supposedly created out of thin air, a true fiat currency, and if people tell you that the Greenbacks caused inflation, they are wrong. What is truly inflationary is debt-based money created by the Federal Reserve. In fact, since the Federal Reserve came into existence in 1913, the dollar has lost over ninety-five percent of its value.

I would strongly recommend that BIG proponents study the Social Credit ideas carefully. This is what first got me interested in monetary reform back in the late 1970s. What C.H. Douglas was saying was that in a technologically advanced economy, production is always ahead of the income available for consumption. He said that there is no way that the population of a nation can ever earn enough money to purchase what industry can produce. There is lag time and many inefficiencies in the distribution system. Also, there must be provision for household and business savings.

So in order to consume the production base and keep the nation’s workforce employed, the government must introduce purchasing power. The simplest way to do it is to issue what Douglas called a National Dividend at the start of each year to everyone, without means tests, without distinction as to whether you work or not. It is a Basic Income Guarantee. Remember, this was suggested in the 1920s. In fact, Douglas had succeeded in reconciling the capitalist system to principles of economic democracy in a way that all previous European thinkers had failed to do, including Marx.

Douglas’s ideas also had a strong ethical underpinning in that they postulated that the production of wealth was not just a result of the utilization of private resources or capital but of the brainpower and labor of the entire nation. People make things in a social context. All members of society contribute in some small way to the cultural fabric within which wealth is generated. So all should share in the benefits of a National Dividend. This went well beyond Marx’s labor theory of value where it was the worker who ultimately created wealth to encompass every single person of past, present, and future generations. Of course Social Credit was opposed by conservatives of every stripe whose highest value was private property, private ownership of everything of value, and the exclusive claim to the profits from private enterprise.

As time went on and the conservative attitudes of the time resulted in the Great Depression, economists realized that somehow money had to be generated on the side of demand if nations were to survive, and this led to Keynesian economics. It was done through high taxes combined with government deficit spending. Again, to fully examine how all this worked is beyond the scope of my talk today, as is a discussion of how Keynesianism gave way to monetarism. This is the system we are all too familiar with which is basically the Federal Reserve trying to regulate the economy through raising and lowering of interest rates.

Suffice it to say that monetarism has failed miserably, the latest fiasco being the aforementioned housing bubble. Reagan-era supply-side tax cuts, along with those of George W. Bush, were an attempt to compensate for the failure of monetarism to boost demand, but the problem again was that there has not been sufficient purchasing power except through increased household debt, a fact every economist recognizes. This is why retail sales are watched so closely at Christmastime, to be sure consumers are dutifully running up their credit card charges. It’s incredible that grown-ups really seem to believe this is a sign of economic health.

So I would conclude by suggesting to the BIG community to look seriously at monetary reform, especially the Social Credit ideas, for a theoretical underpinning of BIG proposals that I believe can take us farther than any system that looks like income redistribution. Again I mention the writer Marshall Brain, who advocates a $25,000 annual stipend for every citizen as their share of societal wealth. That would certainly be one way to do it, likely a very good way. What Douglas teaches is that such a stipend does not have to be raised through taxes or income redistribution. It can simply be issued to individuals as a credit or voucher against future production. It would be a simple, effective way to introduce liquidity into the economy, far better than the debt-based system of fractional reserve banking that leads mainly to profits for the banks at the expense of everyone else.

At the same time, it is important to keep the pressure on Congress and the political system to think about BIG when they think about income and tax policy. Any progress in this direction is worthwhile. It is also critical to work toward making BIG part of the progressive political agenda. See, for example, an article in The Progressive a few months ago by editor Matthew Rothschild entitled, “Our Sinful Economy.” It is essential to have workable proposals ready as our economy continues to stumble into the crises that are inevitable given the huge problems that exist with income maldistribution, the continuing decline of the social safety net, rising crime statistics, and the collapse of the ability of the federal government to meet the needs of the nation through the budget process.

What I am really trying to say is that the monetary reform movement can show that BIG is not only ethically and spiritually the correct attitude of society but that it is also an economic necessity. Two books on the subject which I strongly recommend are The Lost Science of Money by Stephen Zarlenga, head of the American Monetary Institute, and The Grip of Death, a Study of Modern Money, Debt Slavery, and Destructive Economics by the British author Michael Rowbothan.

Books such as these can provide help for the badly needed progressive consensus of what coherent alternative we can offer to the disastrous state of the nation and the world today. We are clearly witnessing a worldwide class war, where, as U.S. billionaire Warren Buffet has said, “If there is a class war, my class is winning.” I believe that BIG, combined with monetary reform, shows this war to be totally unnecessary.

One final note. You might reasonably ask why haven’t such monetary reform concepts as Social Credit and the National Dividend been adopted or even seriously studied by mainstream economics? The answer is obviously political. Mainstream economics is dominated by concepts favorable to control by the private financial industry. The last thing the bankers want is money in the hands of the rank-and-file of society that is not tied in some way to a monetary debt.

There have been times in American history when people were bolder and understood much better the consequences of our being what President Martin Van Buren called a “bank-ridden society.” Jefferson saw control of the economy by banks as the death-knell of freedom. During the last third of the 19^th century we had the Populist and Greenback parties which focused on monetary issues. There was William Jennings Bryan’s “Cross of Gold” speech when he ran for president in 1896. But with the passage of the Federal Reserve Act of 1913 the door of monetary progressive politics was slammed shut and has remained tightly fastened for almost a century. Progressives everywhere should be prying that door open again if not resolutely kicking it down.

Thank you for the opportunity to meet with you today at this important forum, and I look forward to many future encounters.