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Ellen Brown inteview and comment
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John Gelles
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Oct 30, 2009 07:11 PST
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The Daily Bell, Switzerland, A Journal of Free Market Thought
Copyright, if any, would allow the following at the teachable moment as
fair use when offered by a non-commercial discussion of its topic on the
merits. This interview is the same as already printed here with a short
comment added.
Issue 388 • Sunday, August 23, 2009
Web of Debt author Ellen Brown on debt money, why money is collapsing
and why central banks need adult supervision
The Daily Bell
The editors of The Daily Bell are pleased to present this exclusive
interview conducted by Scott Smith with Web of Debt author Ellen Brown.
Introduction: Ellen Brown developed her research skills as an attorney
practicing civil litigation in Los Angeles. In Web of Debt, her latest
book, she turns those skills to an analysis of the Federal Reserve and
"the money trust." She shows how this private cartel has usurped the
power to create money from the people themselves, and how we the people
can get it back. Brown developed an interest in the developing world and
its problems while living abroad for eleven years in Kenya, Honduras,
Guatemala and Nicaragua. She returned to practicing law when she was
asked to join the legal team of a popular Tijuana healer with an
innovative cancer therapy, who was targeted by the chemotherapy industry
in the 1990s. That experience produced her book Forbidden Medicine,
which traces the suppression of natural health treatments to the same
corrupting influences that have captured the money system. Brown's
eleven books include the bestselling Nature's Pharmacy, co-authored with
Dr. Lynne Walker, which has sold 285,000 copies.
Daily Bell: Nice to meet you.
Brown: My pleasure!
Daily Bell: Can you tell us your book's thesis in a nutshell?
Brown: Our money is an illusion. Except for coins, which compose only
one ten-thousandth of the money supply, all of our money today consists
of debt to private banks. Banks always take back more money in principal
and interest than they put into the money supply as principal, making
the system basically a pyramid scheme. After 300 years, this scheme has
spread around the world and has now reached its mathematical limits. The
whole world has been captured in the debt trap of a private
international banking monopoly.
Daily Bell: These are clearheaded deductions about economics. How did
you get interested?
Brown: In my earlier books, which were on health and the politics of
health, I saw the pharmaceutical industry as the force to be reckoned
with and exposed. I was on the legal team of a Tijuana cancer therapist
named Jimmy Keller, who showed Ed Griffin's documentary "World Without
Cancer" to all his patients. I read Griffin's book of the same name and
realized that the banking, drug and oil cartels were basically the same
entities, and that their power came from the power to create money that
they had usurped from the people themselves. This was such a
mind-boggling insight that I felt I had to write about it.
Daily Bell: How did you make the jump from nutrition to finance?
Brown: My first book was on nutrition but my later books focused on the
politics of health and what is wrong with our health care system. I feel
we have been misled about drugs and healing, and I wanted to expose that
and set it right. After reading "World Without Cancer," I read Ed
Griffin's book "The Creature from Jekyll Island," which I thought was
great right up to the end; but I felt his solution would not work. I
then read other books on the subject and got my grounding in it. I
actually got interested in writing on economics and the Federal Reserve
in the seventies, but that was before the Internet, and I wasn't able to
follow my hunches to the end. When that remarkable tool became
available, the missing puzzle pieces fell into place and I could see the
larger picture and had to write about it.
Daily Bell: Tell us some more about your background, where you grew up
and when you traveled.
Brown: I was born in California, grew up in the Detroit and Denver
suburbs, graduated from UC Berkeley in English and then from UCLA Law
School. I met my husband Cliff in law school, and we worked as attorneys
in L.A. for 10 years (11 for him), until he burned out on Beverly Hills
law and decided to join the U.S. Agency for International Development.
He always wanted to go abroad, and it gave me a chance to write and have
more time with the kids (we have two). From 1989 to 2000, we lived in
Kenya, Honduras, Guatemala and Nicaragua. Then I got divorced and
returned to the States, where I discovered this most interesting of
writing subjects. I'm still good friends with my ex; I just ran out of
topics overseas! There was more to it than that, of course, but I do
feel I had to come back to the States to find this topic du jour. My
daughter now works for a U.N. N.G.O. and my son is a graduate student in
economics in Michigan.
Daily Bell: What's been the reaction to your book?
Brown: Remarkably good. I get flooded with email, which is great. With
my other books, I didn't have much contact with readers and felt like a
ghostwriter. With this one, I feel like a lightning rod, attracting
ideas from everywhere. I credit it to the Internet, an amazing
historical development that has changed the game worldwide.
Daily Bell: Are you familiar with Austrian finance? What do you think of
it?
Brown: I am, and I enjoyed reading Murray Rothbard; but I don't think
the Quantity Theory of Money is correct. Prices do not benignly adjust
to a contraction in the money supply; this has been shown historically.
When the money supply contracts, workers get laid off, businesses shut
down, and the economy goes into a recession or a depression. It's a
fallacy to think you can control prices by controlling the money supply
- or even that you can control the money supply ("you" meaning, of
course, the central bank). In the 1970s and 1980s, when Milton
Friedman's monetarism was popular, attempts were made to regulate prices
by regulating the money supply, and they didn't work. Some major
recessions resulted, and Third World countries got locked hopelessly in
debt from a radical increase in interest rates, but the money supply
couldn't be controlled.
The Federal Reserve doesn't create money; banks do. The Federal Reserve
just responds by providing the reserves they need after the fact if they
come up short. And adding money to the system doesn't raise prices - not
if workers and materials are available to make goods. If you add money
to the system, the money will go looking for goods, and merchants will
respond by making more. Supply and demand will go up together and prices
will remain stable. An increase in interest rates is more likely to
raise prices. Merchants raise their prices to cover their costs, and
interest is a major cost.
Daily Bell: Are you a free-market economist or something else?
Brown: I believe in free markets, but I don't believe we have them
today. Virtually every market now is manipulated and controlled. We lost
our free markets when we gave away the power to create money to a
private banking elite. They got their power through sleight of hand, and
it can be reversed only by reversing the sleight of hand. Ironically, to
get back our free markets, we need some government intervention. The
economy has been captured by thieves, and we need some rules and
regulations to put the genie back in the bottle.
Daily Bell: What's wrong with a gold or silver monetary system?
Brown: To answer that question properly will take more than a few
sentences, but I'll try to be succinct. There are three ways a precious
metal system could be set up: (1) a "gold-backed" fiat currency, of the
sort we had until 1933 domestically and until 1971 internationally; (2)
100% gold coins, as Ed Griffin recommends; or (3) gold, silver and
anything else trading freely with dollars, as recommended by Ron Paul.
The first alternative failed historically and doesn't work
mathematically. Nixon had to take the dollar off the gold standard
internationally after DeGaulle traded in his dollars for gold and the
British then tried to trade in theirs, and the U.S. was about to run out
of gold. In a "fractional reserve" system, only a fraction of the gold
necessary to cash in all the dollars "backed" by gold is actually held
in the banks' vaults. When people figure that out, you get runs on the
banks and the banks have to close their doors. Roosevelt was faced with
the same problem. People had panicked and were trading in their dollars
for gold at the banks. The dollar was then 40% backed by gold, so
whenever anyone cashed in $2 in paper money, $3 in loans had to be
called in. The result was a radical collapse in the money supply.
Option #2, an all-gold currency, won't work for a number of reasons, but
I'll just mention one: where are you going to get the gold? To be fair,
the government would have to swap all the dollars in the money supply
for gold. Assume a $13 trillion money supply (M3) and that there is $4
trillion worth of gold in the world (per the last report I saw). Even if
you could acquire every penny's worth of gold, you'd have to revalue the
gold so that it was worth $3000/ounce. Goldbugs say that's doable, but
here's my question: how are you going to get the gold? What are you
going to buy it with? Your paper dollars are going to be worthless. What
Indian woman wearing that gold around her neck is going to be foolish
enough to trade it for your paper dollars?
Ed Griffin would just divide the outstanding money supply by the gold in
Fort Knox, but we don't know if there's any gold left in Fort Knox, and
even assuming there is, the dollar value per ounce is going to be so far
from anything resembling the real market value of gold that tying the
dollar to gold will lose all meaning. If you want a fixed money supply,
why not just have Congress order up X number of dollars, forbid any more
to be issued, and make it illegal for banks to create credit on their
books? Let them lend what they have and no more. Even that won't work
though; you'll quickly degenerate into recession or depression, because
there won't be enough money for innovation, development and the like.
The ability to create and extend credit is a good thing and is necessary
to a thriving economy. It's just a question of who gets to create it,
private banks (which then proceed to charge interest on it that they
siphon off the top as profits) or public banks, drawing on the "full
faith and credit of the United States" because they are the United
States and can return the profits to the United States, maintaining a
mathematically sound system?
The third idea - allowing people to trade in any currency they want -
doesn't solve anything and just creates new problems. What's the
exchange rate going to be between these various domestic currencies, and
who is going to set it? Are you going to allow shortselling between
currencies, derivative bets, etc.? If you have silver and gold coins
trading together, what happens if gold goes up in value relative to
silver? Will you have to change the face value of the coins? They could
be left unstamped, but then you won't really have coins; you'll just
have round gold bars. Then why not just keep your gold bars and sell
them for paper dollars as needed? If the paper dollars lose value, as
goldbugs are sure they will, the gold bars will fetch more dollars when
sold, so value will have been preserved just as it would have been if
the gold were actually turned into gold coins.
Daily Bell: You are somewhat cynical about government, yet your
solutions feature government involvement. Can government really be
trusted to do the right thing?
Brown: I have faith in the sort of government "of the people, by the
people, for the people" described by Abraham Lincoln; but we don't have
that now. What we have is government controlled by a few giant
corporations, and they got their power by acquiring the power to create
the national money supply. "Allow me to issue and control a nation's
currency," Amschel Mayer Rothschild allegedly said in the 18th century,
"and I care not who makes its laws." That statement may be apocryphal,
but that is how they did it, and that is the power we have to get back
if we want a just and trustworthy government that represents people
rather than wealthy corporations.
Daily Bell: Do you believe in a business cycle - and that central banks
aggravate it by printing too much money?
Brown: We had obvious business cycles in the 19th century when we were
on the gold standard. Banks would issue banknotes that were many
multiples of the gold they held in their vaults, until the paper money
supply so far outstripped its backing that people realized the banks
could not make good on all their gold-backed notes and there would be
runs on the banks. "Fiat money" was not the problem though. The whole
system was a ruse. The gold backing allowed private bankers to create
paper money on a printing press and lend it at interest, pretending it
represented gold the bankers did not really have in their vaults.
Privately-issued paper money that is only partially backed by precious
metals is a form of counterfeiting whether the sums are prudently
managed or not.
Daily Bell: Was central banking over-printing of money the proximate
cause of the economic crisis?
Brown: No. Alan Greenspan did lower interest rates to ridiculously low
levels in 2001, precipitating the housing bubble that precipitated the
current crisis; and he gave his blessing to derivatives, which allowed
banks to move loans off their books, package them up, and sell them to
investors, making room on their books for more loans and fanning the
housing bubble. But it wasn't the central bank that over-printed money.
It was the commercial banks, and of course they don't actually "print"
it. They just create it as accounting entries on their books. The
"crisis" came when there was a sudden shift in accounting rules, from
"mark to fantasy" to "mark to market". The idea was to rein in the over
exuberance\ of the banks; but the banks were just doing what they had to
do to keep the Ponzi scheme going: create ever more loans. The real
cause of the crisis was the Ponzi scheme itself: it just ran out of its
food source.
Daily Bell: What are the best investments to make throughout the
business cycle, and do they change over time?
Brown: They change over time, and because markets are so heavily
manipulated, you can't really know what they are unless you're an
insider. The rest of us just have to pay very close attention and ride
the roller coaster. A case in point was a year ago, when gold was about
to break through $1000, oil was hovering near $150/barrel, bank stocks
were plummeting, and so was the dollar. Suddenly in July, everything
miraculously reversed - the dollar and bank stocks shot up, and gold and
oil plunged. What happened? The Japanese central bank later admitted in
its local paper that the central banks had colluded to manipulate the
markets.
Daily Bell: What do you think of the current economic crisis. Are
Western countries handling it well?
Brown: Yes and no. The credit system has collapsed and Western central
banks are trying to pump it back up with "quantitative easing," which is
a better approach than President Hoover took when he tried to tighten
the government's belt and "balance the budget" in the early 1930s. But
bailing out the banks is the wrong approach. Governments should be using
quantitative easing (essentially money-printing) to build infrastructure
and pay the government's bills rather than trying to clean up the toxic
books of failed banks. The problem is that the central banks are there
to serve the banking system, not the people. We need truly national
central banks. England and Canada technically own their central banks,
but their governments still borrow from private banks. They don't use
their central banks as if they owned them. China, Malaysia, and South
Korea do; and they're faring quite well these days.
Daily Bell: Do you believe in the bailouts taking place in America?
Brown: No. We've been extorted into them. We've been made to believe the
only way we can save our credit system is to spend our hard-earned
taxpayer money to save the banks that got us into the mess, but that's
not true. We can set up our own public credit system and let the private
parasitic cartel fend for itself. They made billions in the free market;
let them go down in the free market.
Daily Bell: Can you explain the genesis of the financial crisis?
Brown: Taking the long view, it's the end of a 300 year Ponzi scheme.
Virtually all of our money is created by banks as loans; but banks
create only the principal, not the interest necessary to pay their loans
back. More is always owed back than is created in the first place, and
new borrowers must continually be found to take out new loans to create
the money to pay this extra interest. After 300 years, the whole world
has been locked in debt, and the parasitic pyramid has run out of its
food source.
All sorts of scams and schemes were devised to plunder the last dollar
out of borrowers - securitization of subprime mortgages to move them off
the banks' books and make room for more, derivatives to supposedly
eliminate the risk of subprime default and induce investors to buy, etc.
But the schemes have been exposed, and the "shadow lenders" - the
investors induced to buy these bundles of subprime debt - have gone away
and they aren't coming back any time soon.
The shadow lenders made up $10 trillion worth of the mortgage market.
Virtually all of our money consists of credit (or debt), and a big chunk
of this credit has disappeared. The money supply is collapsing, and that
is what has caused the financial crisis. The solution is to put money
back into the system; but the banks can't do it, because the Bank for
International Settlements has imposed a tourniquet on lending with the
Basel Accords.
We need to set up our own public banks, which cannot run short of "the
full faith and credit of the United States" because they ARE the United
States (or whatever local government is setting them up). In the U.S.,
we should nationalize the Federal Reserve and let it operate like a real
government-owned bank, issuing money and credit on behalf of the public
for infrastructure and other government expenditures. States could also
set up their own credit mechanisms by setting up their own banks.
Daily Bell: Do you believe that some of your ideas will be taken up
officially?
Brown: I keep trying, knocking at any doors I see; but it's a
slow-moving machine. The first step is mass education and popular
understanding.
Daily Bell: Have you heard from Wall Street about your ideas?
Brown: No.
Daily Bell: Are you at all worried about the reaction to your ideas?
Brown: I try to suggest solutions that are good for everyone. I think
the private banking business has actually come to the end of the line.
They're scrambling desperately to hold it all together, but there's not
much more they can do. The whole multi-trillion dollar derivatives
edifice was constructed in an attempt to bring business back that the
banks were losing to their competitor non-bank institutions, but it
didn't work in the end. I think the bankers might be relieved to pass
the baton. Not that they want to lose their existing fortunes, but they
might be ready to retire to their favorite islands and let the next
generation tackle the problem; or to take jobs exercising their
expertise in a new public banking arrangement with the stable backing of
the government.
Daily Bell: You do a great deal of public speaking. What do you
emphasize most in your talks?
Brown: Solutions, solutions, solutions. This nut can be cracked. We've
been looking at the problem wrong. When we step outside the box and look
again, it's all quite simple. Truth is simple.
Daily Bell: What are the most important - seminal -- articles of yours
that you would encourage everyone to read? Where can they be found?
Brown: My articles can all be found on my website at WebofDebt.com. I
try to write one every week or two, and they're quite topical, but the
most popular (per the OpEdNews ratings) have been "It's the Derivatives,
Stupid!", written in September 2008 after the Lehman/AIG collapse;
"Borrowing from Peter to Pay Paul: The Wall Street Ponzi Scheme Called
Fractional Reserve Banking" (December 29, 2008); and "Toward a Solution
to the Debt Crisis in California" (July 13, 2009). My latest article is
"The Public Option in Banking: How We Can Beat Wall Street at Its Own
Game" (August 8, 2009), posted on the Huffington Post among other
places.
Daily Bell: On behalf of all of our readers we thank you for sharing
your views with us - and for your courageous and important work.
Brown: You're welcome. I don't feel courageous; I just write. I live
with my 90-year-old mother in a senior village. I need the excitement!
After Thoughts with Scott Smith
Scott SmithWow. Ellen Brown is surely a brilliant, self-trained
economist as well as a successful writer. Sharp as a needle, she lances
through the rhetorical silliness of most financial writing to drive
straight to the heart of the West's major problem: money is a debt not
an asset.
And yet ... even despite this clear-eyed approach to finance, we retain
some reservations, mostly based on our affinity for free-market
economics. With all respect to the brilliant Ms. Brown, let us share
them with you.
Debt-consuming money: We wonder if debt money is quite so mathematical
proposition as she makes out. We think a considerable amount of money
gets purged via bankruptcies and ruin in recessions. The money goes away
as does the interest accrued, thus the system may be self-sustaining to
a degree and the interest accrual never entirely overwhelming.
Money standard: We do believe the West can go back on a market based
silver and gold standard. You don't have to divide up the gold in Fort
Knox. All you have to do is assume that the system cannot stand but
actually breaks down. Once it has broken down, paper money becomes
worthless and people around the world begin to recirculate gold and
silver as money. They take it out of their mattresses, their vaults,
their pockets. It is a new, spontaneous order of market money. That's
how a market-based hard money standard would come about. It would just
happen. There would be no organizing force other than people's
overwhelming desire to utilize a form of money that retained value.
Trust in government: Third, we have a hard time with the idea that
governments can be trusted with the money supply. Ms. Brown uses Lincoln
as an example, and unfortunately, given these days of Internet
revisionism, that is perhaps not an overwhelming example. Lincoln was
human, too. He didn't "free" the slaves until it was politically
expedient, threw a number of his political and media opponents into jail
and unleashed a Carthaginian trail of blood and destruction on the South
toward the end of the war that left its cities leveled. From a monetary
standpoint, he was the author of "greenbacks" that the Union used to
fund the war and which quickly deteriorated to a value of nullity.
Lincoln, who was certainly a great man in some ways (depending how you
define greatness) provides us with only one example of how the
government deals with money. But there are many others. History is
littered with debased currency. It is much wiser, in our opinion to let
the market deal with money - and not the government.
Business cycles and central banks: Finally, it should be clear to anyone
reading the Daily Bell for any length of time that we believe it is
central banks that are responsible for the West's destructive business
cycles. From our point of view there is just no gainsaying the role of
central banks in money production. Central banks overproduce money and
subvert the natural cycle of the money marketplace. We are also
free-banking oriented and tend to believe that fractional reserve
banking would be OK in a market environment and that there are
historical episodes that tend to prove this is so.
Anyway, to each his own. We very much enjoyed interviewing Ms. Brown.
She has an original mind and her thoughts about money have attracted
considerable attention. Aware of free-market thinking but not of it, she
offers us a creative alternative that should, if nothing else, inspire
us to contemplate money stuff and its often-questionable value.
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