restoration

How a new money system can benefit the Great Lakes

Money needed for restoration and preservation of the Great Lakes ecosystem always seems beyond reach. It is encouraging to have the Obama administration, as part of its economic stimulus, commit $475 million to this task. But this falls far short of the tens of billions of dollars needed, especially when the Canadian commitment is so pathetic.

So what else is new? We are almost always short of essential government funding for human and environmental welfare. But things do not have to be this way!

With a changed money system our governments in Canada and the U.S. could easily provide ample funding not only for Great Lakes cleanup, but also for the entire range of environmental and social needs that confront us, while also gradually reducing government debt. While social activists collectively have vast understanding of the myriad problems that confront the human community, and of the solutions required for them, they share with most of the global population a profound ignorance of the destructive impact of our present money system, and of creative possibilities for a changed money system.

We cannot conceive of these creative possibilities so long as we think of money, as we normally do, only in terms of fiscal policy—the management of income and spending. We are all familiar with fiscal policy from our own experience with managing our own income and spending. But we have little understanding—and little information to give us understanding—of monetary policy. Our awareness of monetary policy is generally limited to the manipulation of interest rates by central banks. But there is another far more powerful aspect of monetary policy concerning which we are kept in the dark. This is the creation of money out of nothing!

Our money supply is no longer based on gold or any other specific commodity. And only about 3 per cent of our money is in the form of cash. The rest is in the form of records in computers kept primarily by banks, which give us paper duplicates. How does this 97 per cent of our money supply originate? Not from our federal governments, as is widely believed. It is created out of nothing by the private, commercial banks in their process of making loans.

Banks do not lend out the money of depositors. When they make loans, they create new money. They require that we put up valuable collateral as security for these loans, and then they get to lend us money that they create out of nothing! We borrowers have to pay the banks interest, and if we become unable to pay, they take over our collateral. How is this just?

And the problem goes much deeper.

When banks lend, they create the principal for their loans, but not the interest they require us to pay. Borrowers have to pay back both principal and interest, but since nearly all our money comes into existence as principal for bank loans, there is almost no money available in the society for interest payments. Collectively, we are driven to fight with each other over scarce money. Businesses push to raise prices, and in response workers press for higher wages. Inflation builds. People must resort to the only source of additional money—further borrowing from the banks with even greater interest burdens. Inevitably some borrowers default, bringing recession. Then banks seize our collateral. The system is rigged overwhelmingly in favour of banks, enriching a few and impoverishing many.

This money system is, moreover, a key factor behind the drive for impossible, unlimited, exponential economic growth. As borrowers compete for scarce money, they exploit the environment unsustainably.

The problems resulting from businesses and individuals borrowing at interest from private banks are enormous, but probably even more damaging is governments’ borrowing at interest from private sources including banks, which are authorized by those governments to create that money out of nothing! At the heart of our shortage of funding for public benefit is this practice of governmental borrowing at interest, so that a large proportion of tax receipts must constantly go to pay interest. This is entirely unnecessary! Governments can create their own money, and can either lend it interest-free for public investments, or, when additional money is needed in the economy, can simply spend it into existence as a free benefit.

It is not easy to change the current money system which overwhelmingly benefits private banking interests. But if the many activist organizations like Great Lakes United should join with labour unions to press for the needed changes in our money system, we would have a chance both to eliminate the gross injustices of our present money system, and also to make available abundant funding for social and environmental needs.

George Crowell, retired University of Windsor professor, has been working on monetary issues since 1994, and has been an individual member of Great Lakes United since that time. He can be reached at georgecrowell@rogers.com.

© 2010 Great Lakes News.