Ellen Brown: Deficit Terrorists Strike In England -- USA Next?

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Ellen Brown: Deficit Terrorists Strike In England -- USA Next?

  Ellen Brown, Complete Article Link

Last week, England's new government said it would abandon the previous government's stimulus program and introduce the austerity measures required to pay down its estimated $1 trillion in debts. That means cutting public spending, laying off workers, reducing consumption, and increasing unemployment and bankruptcies. It also means shrinking the money supply, since virtually all "money" today originates as loans or debt. Reducing the outstanding debt will reduce the amount of money available to pay workers and buy goods, precipitating depression and further economic pain.

The financial sector has sometimes been accused of shrinking the money supply intentionally, in order to increase the demand for its own products. Bankers are in the debt business, and if governments are allowed to create enough money to keep themselves and their constituents out of debt, lenders will be out of business. The central banks charged with maintaining the banking business therefore insist on a "stable currency" at all costs, even if it means slashing services, laying off workers, and soaring debt and interest burdens. For the financial business to continue to boom, governments must not be allowed to create money themselves, either by printing it outright or by borrowing it into existence from their own government-owned banks.

Today this financial goal has largely been achieved. In most countries, 95% or more of the money supply is created by banks as loans (or "credit"). The small portion issued by the government is usually created just to replace lost or worn out bills or coins, not to fund new government programs. Early in the twentieth century, about 30% of the British currency was issued by the government as pounds sterling or coins, versus only about 3% today. In the U.S., only coins are now issued by the government. Dollar bills (Federal Reserve Notes) are issued by the Federal Reserve, which is privately owned by a consortium of banks.

Banks advance the principal but not the interest necessary to pay off their loans; and since bank loans are now virtually the only source of new money in the economy, the interest can only come from additional debt. For the banks, that means business continues to boom; while for the rest of the economy, it means cutbacks, belt-tightening and austerity. Since more must always be paid back than was advanced as credit, however, the system is inherently unstable. When the debt bubble becomes too large to be sustained, a recession or depression is precipitated, wiping out a major portion of the debt and allowing the whole process to begin again. This is called the "business cycle," and it causes markets to vacillate wildly, allowing the monied interests that triggered the cycle to pick up real estate and other assets very cheaply on the down-swing.

The financial sector, which controls the money supply and can easily capture the media, cajoles the populace into compliance by selling its agenda as a "balanced budget," "fiscal responsibility," and saving future generations from a massive debt burden by suffering austerity measures now. Bill Mitchell, Professor of Economics at the University of New Castle in Australia, calls this "deficit terrorism." Bank-created debt becomes more important than schools, medical care or infrastructure. Rather than "providing for the general welfare," the purpose of government becomes to maintain the value of the investments of the government's creditors.

England Dons the Hair Shirt

England's new coalition government has just bought into this agenda, imposing on itself the sort of fiscal austerity that the International Monetary Fund (IMF) has long imposed on Third World countries, and has more recently imposed on European countries, including Latvia, Iceland, Ireland and Greece.

Deficit hawks point ominously to Greece, which has been virtually squeezed out of the private bond market because nobody wants its bonds. Greece has been forced to borrow from the IMF and the European Monetary Union (EMU), which have imposed draconian austerity measures as conditions for the loans. Like a Third World country owing money in a foreign currency, Greece cannot print Euros or borrow them from its own central bank, since those alternatives are forbidden under EMU rules.

Greece is stuck in the debt trap, but the UK is not a member of the EMU. Although it belongs to the European Union, it still trades in its own national currency, which it has the power to issue directly or to borrow from its own central bank. Like all central banks, the Bank of England is a "lender of last resort," which means it can create money on its books without borrowing first.

The "deficit terrorists," however, will have none of this obvious solution, ostensibly because of the fear of "hyperinflation." A June 9 guest post by "Cameroni" on Rick Ackerman's financial website takes this position. Titled "Britain Becomes the First to Choose Deflation."

Hyperinflation or Deflation?

The dreaded threat of hyperinflation is invariably trotted out to defeat proposals to solve the budget crises of governments by simply issuing the necessary funds, whether as debt (bonds) or as currency. What the deficit terrorists generally fail to mention is that before an economy can be threatened with hyperinflation, it has to pass through simple inflation; and governments everywhere have failed to get to that stage today, although trying mightily. Cameroni observes:

"[G]overnments all over the globe have already tried stimulating their way out of the recent credit crisis and recession to little avail. They have attempted fruitlessly to generate even mild inflation despite huge stimulus efforts and pointless spending."

In fact, the money supply has been shrinking at an alarming rate. In a May 26 article in The Financial Times titled "US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus," Ambrose Evans-Pritchard writes:

"The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever.

"'It's frightening,' said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,' he said."

Too much money can hardly have been pumped into an economy in which the money supply is shrinking. But Cameroni concludes that since the stimulus efforts have failed to put needed money back into the money supply, the stimulus program should be abandoned in favor of its diametrical opposite -- belt-tightening austerity. He admits that the result will be devastating:

"[I]t will mean a long, slow and deliberate winding down until solvency is within reach. It will mean cities, states and counties will go bankrupt and not be rescued. And it will be painful. Public spending will be cut. Consumption could decline precipitously. Unemployment numbers may skyrocket and bankruptcies will stun readers of daily blogs like this one. It will put the brakes on growth around the world. . . . The Dow will crash and there will be ripple effects across the European union and eventually the globe. . . . Aid programs to the Third world will be gutted, and I cannot yet imagine the consequences that will bring to the poorest people on earth."

Hyperinflation, however, is a bogus threat, and before we reject the stimulus idea, we might ask why these programs have failed. Perhaps because they have been stimulating the wrong sector of the economy, the non-producing financial middlemen who precipitated the crisis in the first place. Governments have tried to "reflate" their flagging economies by throwing budget-crippling sums at the banks, but the banks have not deigned to pass those funds on to businesses and consumers as loans. Instead, they have used the cheap funds to speculate, buy up smaller banks, or buy safe government bonds, collecting a tidy interest from the very taxpayers who provided them with this cheap bailout money.

Seeking Solutions

The alternative to throwing massive amounts of money at the banks is not to further starve and punish businesses and individuals but to feed some stimulus to them directly, with public projects that provide needed services while creating jobs. There are many successful precedents for this approach, including the public works programs of England, Canada, Australia and New Zealand in the 1930s, 1940s and 1950s, which were funded with government-issued money either borrowed from their central banks or printed directly.

The Chinese have done better, expanding their economy at over 9% throughout the crisis by creating extra money that was mainly invested in public infrastructure.

The EMU countries are trapped in a deadly pyramid scheme, because they have abandoned their sovereign currencies for a Euro controlled by the ECB. Their deficits can only be funded with more debt, which is interest-bearing, so more must always be paid back than was borrowed.

The EMU model is mathematically unsustainable and doomed to fail unless it is modified in some way, either by returning economic sovereignty to its member countries, or by consolidating them into one country with one government.

A fourth possibility would be for member countries to set up publicly-owned "development banks" on the Chinese model. These banks could issue credit in Euros for public projects, creating jobs and expanding the money supply in the same way that private banks do every day when they make loans. Private banks today are limited in their loan-generating potential by the capital requirement, toxic assets cluttering their books, a lack of creditworthy borrowers, and a business model that puts shareholder profit over the public interest.

Unlike the EMU countries, the governments of England, the United States, and other sovereign nations can still borrow from their own central banks, funding much-needed programs essentially interest-free. They can but they probably won't, because they have been deceived into relinquishing that sovereign power to an overreaching financial sector bent on controlling the money systems of the world privately and autocratically. Professor Carroll Quigley, an insider groomed by the international bankers, revealed this plan in 1966, writing in Tragedy and Hope:

"[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences."

Larry

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

You beat me to that one Larry. I read it and it's an excellent article. Lets hope that someone up in Washington DC is reading it. Jon

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

investorzzo - I'm pleased to scoop the scoopmaster!  I try to stay up with Ellen Brown as she is one of the few competent economic analysts and on top of that, she constantly offers practical solutions.  To underscore what she is saying, consider the following:

Greenspan Says U.S. May Soon Reach Borrowing Limit

Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a “tectonic shift” in fiscal policy to contain borrowing.

“Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis,” Greenspan said. “Our policy focus must therefore err significantly on the side of restraint.”

An austerity program, or more accurately, the greatest depression is coming our way if these bumbling idiots are allowed to continue running and ruining our economy.

Medvedev sees chance for new world order

Dmitry Medvedev, the Russian president, said Moscow was bidding to help lead efforts to build a new world economic order after the old system collapsed in the global financial crisis.

Opening Russia’s annual economic forum in St Petersburg where hundreds of global chief executives have flocked, Mr Medvedev said the renewed interest in Russia this year was a sign of a changing world in which the institutions of the western-dominated world order had had their day amid thousands of corporate defaults and the threat of sovereign defaults. 

“What had seemed untouchable has collapsed. The bubbles that created the illusion of flourishing economies have burst,” Mr Medvedev said. “For Russia this situation is a challenge and an opportunity.

Interesting that Medvedev speaks about our "western dominated" economic order in the past tense.  He seems to agree with Ellen Brown that the West has tried to re-inflate the economy but to no avail.  We know that you can't borrow your way out of debt but in the past we were able to blow bubbles that made it appear that the real economy was working.

All of our money is temporary - we effectively rent it from banks.  Everyday some of it must be returned as debt repayment and then it is destroyed.  If the government reduces the trajectory of huge deficit spending, the money supply is going to begin to collapse.  Contractions in the money supply to the point of a depression will hit average people like a sledgehammer.  

Ron Paul, Peter Schiff and the other crazy pundits that were crying out for the hyperinflation wolf will finally get the greatest depression that they have been unwittingly seeking.

It is refreshing to read Ellen Brown as she offers us a sustainable alternative to economic Armageddon.  She would take a shotgun and blow the banking wolf away once and for all by having us as a nation, issue sovereign money again.

Larry   

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

Ellen Brown's premise is riddled with conceptual errors:

England's new government said it would ... pay down its estimated $1 trillion in debts. That means ... shrinking the money supply, since virtually all "money" today originates as loans or debt.

This is wrong on three counts:

1. Growth in the broad M3 money supply, mentioned in the article, is largely dependent on private-sector debt expansion. The growth trend in private sector debt can move opposite to the trend in public debt, as it has done during the crisis when government debt exploded, while private sector debt stagnated or even shrank.

2. As long as there is a sufficient stock of government debt in private hands, the central bank can expand or contract its balance sheet without regard to the government's fiscal policy. That is, the government could run a fiscal surplus, paying down debt, while the central bank continues to expand its balance sheet via open market purchases of government securities. In other words, fiscal policy does not dictate monetary policy. 

3. England's new government [funny, I thought it was the UK's new government] is not speaking of 'paying down' any debt. Rather, it is proposing to reduce fiscal deficits to smaller, but still negative numbers. Even if the tighter deficit target is achieved, the government will continue borrowing and adding to net debt, but at a reduced annual rate.

I don't dispute Ms. Brown's assertion that austerity could backfire. But she doesn't understand the basics of deficits, debt and monetary policy, and ends up botching the technical aspects while advancing her ideological positions. 

On the cover of her book The Web of Debt, she is identified as Ellen Hodgson Brown, J.D. [Juris Doctor]. It's not that lawyers can't do economics, but this particular one seems to have strayed outside her realm of competence. You'd think a lawyer -- even an American one -- would get the distinction between England and the United Kingdom.

I'd rather read Helen Brown (Sex and the Single Girl) than Ellen Brown. Cool

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

Hello Machinehead,

I've added Helen Brown (Sex and the Single Girl) to my reading list.Cool  To the defense of Ms. Brown, let me offer some counter-points:

Machinehead wrote:

1. Growth in the broad M3 money supply, mentioned in the article, is largely dependent on private-sector debt expansion. The growth trend in private sector debt can move opposite to the trend in public debt, as it has done during the crisis when government debt exploded, while private sector debt stagnated or even shrank.

Agreed, the private and public sectors may or may not move in harmony.

Machinehead wrote:

2. As long as there is a sufficient stock of government debt in private hands, the central bank can expand or contract its balance sheet without regard to the government's fiscal policy. That is, the government could run a fiscal surplus, paying down debt, while the central bank continues to expand its balance sheet via open market purchases of government securities. In other words, fiscal policy does not dictate monetary policy.

Theoretically this is true but it is not happening as we seem to have hit a peak debt in the private sector - there aren't enough willing and worthy borrowers to keep the pyramid scheme going.  The banks have not been expanding the money supply for at least some months now as shown in the following:

In theory, banks may expand the money supply by issuing new loans based on reserves but this doesn't seem to be happening as the money multiplier has been below 1 for the past year.  Again, I attribute this to peak debt in the private sector.

Our money supply IS contracting, which backs Ellen's analysis:

In my post #2, I mentioned that Alan Greenspan wrote "Greenspan Says U.S. May Soon Reach Borrowing Limit" which I think Ms. Brown is suggesting in her article.  If the interest rate goes up on our debt it would have huge consequences.  And, if the non-Federal Reserve decides to simply buy less debt who will pick up the slack?

Machinehead wrote:

3. England's new government [funny, I thought it was the UK's new government] is not speaking of 'paying down' any debt. Rather, it is proposing to reduce fiscal deficits to smaller, but still negative numbers. Even if the tighter deficit target is achieved, the government will continue borrowing and adding to net debt, but at a reduced annual rate.

There is some discussion in the U.K. on reducing the debt as evidenced by two articles; Rothschild plan would see privatization of Britain’s massive public motorway and from the Daily Mail Radical plan to privatise motorway network which could pave the way for toll system.

Selling off the public's transportation infrastructure to pay off government debt has no "ideological opposition" in London today, if a recently published report is to be believed.

A plan to privatize the UK's motorway network, giving toll firms access to large swaths of road, would take place under the guise of paying down the government's debt, British media reported Tuesday, citing a number of key officials who support the scheme, proposed to all major political parties by NM Rothschild, one of the world's oldest, most influential and little discussed investment banks, founded by the Rothschild family.

One way to reduce debt is to offer collateral and that is being discussed in the U.K. though the number does not appear to approach the $1 trillion she mentioned.  I'll ask her for a source and let you know what she says.

I think Ms. Brown is offering competent analysis as far as what is actually happening on the ground.  And more important, her solution of sovereign money is just what the doctor ordered! 

Let me leave you with a question...if the people and property of the U.S. are solely backing our money, why are we (as a nation) borrowing it from private banks with interest?

Larry 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
machinehead wrote:

Ellen Brown's premise is riddled with conceptual errors:

England's new government said it would ... pay down its estimated $1 trillion in debts. That means ... shrinking the money supply, since virtually all "money" today originates as loans or debt.

This is wrong on three counts:

Machinehead, the effect on the money supply depends upon whether you look at M3 in the total context or whether you simply say that whenever debt is paid down M3 will collapse by the amount of payment (and ignore other players in the system). Your second and third points are also more sophisticated than the level at which this op-ed is written. I think there should be some licence in writing for the masses without having to  clarify  the whole nine yards.

However  this article and its citations reveal that it is really a rebuttal to the "deficit terrorists" who scream hyperinflation and in particular the deflation scenario proclaimed by Cameroni as the best response to the global crisis, which is "worth it". You should read this to see where Ellen is coming from. Cameroni's opening sentence is "David Cameron’s new Government in Britain announced Tuesday that it will introduce austerity measures to begin paying down the estimated one trillion (U.S. value) in debts held by the British Government."  Ellen's opening sentence "Last week, Britain's new government said it would abandon the previous government's stimulus program and introduce the austerity measures required to pay down its estimated $1 trillion in debts.",  focusing more on austerity and disputing Cameroni's viewpoint.

http://www.rickackerman.com/2010/06/uk-deflation/

Thus it is more appropriate to discuss this article in regard to deflation, inflation, debt and sovereign money rather than criticise her for not explaining how M3 works, the difference between fiscal and monetary policy and the difference between debt and deficit.

 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

Possible source for debt reduction plan:

Osborne to tackle £1 trillion of debt

Chancellor George Osborne will take aim at Britain's national debt – heading for £1 trilion – in his emergency Budget on Tuesday.

While attention has focused on reducing the Government's deficit, which is the amount it borrows each year, Osborne will tell MPs that it is equally important to start shrinking the total stock of borrowing.

Larry

 

 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

Larry,

Ellen Brown asserted that '[government] paying down debt ...means shrinking the money supply.' A simple counterexample will suffice. During the late 1990s, thanks to strong tax receipts, the US federal budget transitioned from cash deficit to cash surplus. But this sharp withdrawal of fiscal stimulus in no way prevented the Federal Reserve during 1995-2001 from continuing to expand the monetary base -- the only monetary aggregate that it directly controls:

 

And, during the late Nineties fiscal tightening, the broad M3 money supply (thin blue line in the graph below) continued to grow robustly:

 

Point being, there is no necessary connection (as Ms. Brown suggests) between fiscal tightening and money supply shrinkage. The Federal Reserve could and did continue expanding the monetary base during the late 1990s fiscal tightening episode. Thanks to robust private sector lending, broad M3 continued to expand as well.

It could be different this time -- if the money multiplier stays depressed, M3 might fail to expand during the coming fiscal tightening. But there is no explicit link between fiscal and monetary policy which mandates such a result. Fiscal tightening has no direct effect on open market operations (monetary base management) whatsoever. Ms. Brown, I think, is either confused, or getting carried away with her anti-austerity rhetoric. 

BCA Research, for one, has advocated 'quantitative easing' by the ECB in order to counter the presumed contractionary effect of fiscal tightening. That is, to step hard on the monetary accelerator to counter the fiscal braking effect. Such action is not only possible, but in the case of the Bank of England (and contrary to Ms. Brown's alarums), even likely:

http://www.bcaresearch.com/public/story.asp?pre=PRE-20100611.GIF

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
DrKrbyLuv wrote:

Possible source for debt reduction plan:

Osborne to tackle £1 trillion of debt

Chancellor George Osborne will take aim at Britain's national debt – heading for £1 trilion – in his emergency Budget on Tuesday.

While attention has focused on reducing the Government's deficit, which is the amount it borrows each year, Osborne will tell MPs that it is equally important to start shrinking the total stock of borrowing.

Larry

Good find, Larry! This article may indeed be what Ellen Brown is reacting to. But look at the next paragraph:

'This will be a powerful message,' said a Treasury source, who added that the Chancellor wants to see debt falling as a percentage of gross domestic product earlier than the 2016-17 target pencilled in by the former Labour Government.

Shrinking debt as a percentage of GDP is not the same thing as 'paying down debt.' In the postwar years, the US substantially reduced its high debt-to-GDP ratio, even as the total stock of debt steadily mounted. How? GDP grew faster than total debt did. It's all about relative growth rates.

The 'debt to GDP' criterion is a quote from a Treasury source. Whereas 'shrinking the total stock of borrowing' appears to be the reporter's own interpretation, based on a mistaken notion that reducing the debt-to-GDP ratio means 'paying down debt.' It doesn't, but Ellen Brown may have been misled by this part of the article. 

The UK Treasury isn't proposing to actually pay down debt, and couldn't do it if they tried (another recession would intervene before they could reach the goal). But the Bank of England may well be forced into a stimulative monetary policy to offset the fiscal drag.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

This article is right on.  Total credit in the world is contracting, and will continue to do so.  The fractional reserve banking system is fatallly flawed in that it is predicated on the need for the system to always expand & grow.  Once growth peaks & stalls out, it falls backwards & implodes like an imploding ponzi scheme.  Credit has peaked.  The deflationary collapse is coming regardless of how many dollars are printed.  If they print a massive amount of dollars then there will be total debasebent of currency & it will be good to have precious metals.  If the USD somehow retains some respectability, then cash will be king (I doubt this is possible).  All other assetts will deflate on a relative basis.

Expansion / inflation -> peak expansion -> massive deflation -> massive liquidation

It ain't going to be pretty.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
machinehead wrote:
DrKrbyLuv wrote:

Possible source for debt reduction plan:

Osborne to tackle £1 trillion of debt

Chancellor George Osborne will take aim at Britain's national debt – heading for £1 trilion – in his emergency Budget on Tuesday.

While attention has focused on reducing the Government's deficit, which is the amount it borrows each year, Osborne will tell MPs that it is equally important to start shrinking the total stock of borrowing.

Larry

Good find, Larry! This article may indeed be what Ellen Brown is reacting to. But look at the next paragraph:

'This will be a powerful message,' said a Treasury source, who added that the Chancellor wants to see debt falling as a percentage of gross domestic product earlier than the 2016-17 target pencilled in by the former Labour Government.

interpretation, based on a mistaken notion that reducing the debt-to-GDP ratio means 'paying down debt.' It doesn't, but Ellen Brown may have been misled by this part of the article. 

Ellen can't have been misled by this article since it has a timestamp of 19 June 2010, 5:56pm presumably British Standard time or 12:56pm EST. Ellen's article has a timestamp of June 18, 2010 at 14:58:39.

It seems that the Chancellor is simply clarifying the rumblings of the past week.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

In assuming that monetary policy will remain contractionary, Ellen Brown overlooks a different point that's still beneath the MSM radar screen. In reaction to the 2008 crisis, the two most aggressive actors on the monetary front were the Bank of England and the Federal Reserve, arguably in that order of priority. Both roughly doubled their balance sheets. And they promised that when the crisis passed, all those excess assets they acquired would be unwound, before they began to feed inflation.

When these promises were made, no one foresaw that deficits would expand to a double-digit percentage of GDP; the specter of sovereign default would arise; and that governments would suddenly 'get religion' about fiscal austerity.

But because the sovereign credit and fiscal landscapes have altered beyond recognition, those monetary promises now must be quietly abandoned. (You heard it here first.) In an austere environment of fiscal tightening, central banks cannot possibly stand by helplessly while the money supply stagnates or shrinks. Quite the opposite: the BOE can and will react to prevailing conditions more promptly than the parliamentary budget process. When fiscal retrenchment brings the growth-chilling effects that Ellen Brown (and I) expect, the BOE will aggressively expand its balance sheet to offset the fiscal drag. Promises to shrink its balance sheet will be set aside and forgotten. The Federal Reserve will follow the BOE's lead, as it has since the crisis began. Shrink its balance sheet? No possible way!

With a delay (thanks to the anti-inflationary rectitude of its teutonic board members), so will the ECB. Unfortunately, it will all be for naught. What's needed in southern Europe is debt restructuring -- not even on the discussion agenda now. The ECB is going to end up with a balance sheet of sovereign junk debt, that gets converted into 'new drachmas' and so forth, and probably haircut in principal value as well. Then the Germans will stalk out in a huff from the rump euro area, and the whole project collapses in a fog of recrimination. 

Oh, well -- it seemed like a good idea at the time. Embarassed

 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
SteveW wrote:

Cameroni's opening sentence is "David Cameron’s new Government in Britain announced Tuesday that it will introduce austerity measures to begin paying down the estimated one trillion (U.S. value) in debts held by the British Government." 

http://www.rickackerman.com/2010/06/uk-deflation/

No citation or link is provided in Rick Ackerman's article to back up the claim about 'paying down' debt. I can't find the text of Chancellor George Osborne's statement to the House of Commons, but all the articles I have found find summarise his statement like this:

Mr Osborne is due to unveil an emergency Budget on Tuesday of next week, and has pledged to cut public spending to reduce the deficit.

http://perspicacious.co.uk/banking/uk-growth-forecast-is-downgraded/27022/

Confusing 'deficit' with 'debt' is a common error. Both 'Cameroni' and Ellen Brown are making this error. Cutting the deficit in no way implies 'paying down debt.'

Here's a third-party, rating agency opinion to reinforce the point:

In light of austerity measures adopted in other European countries, Fitch said "both the size of the UK deficit currently projected for 2011 and the failure to reduce it to 3% of GDP within five years are striking".

http://www.guardian.co.uk/business/2010/jun/08/coalition-must-cut-budget-deficit-faster-fitch

If the deficit can't even be reduced to 3% of GDP within five years, then there is no possible way that 'paying down debt' has been proposed. At a 3% of GDP deficit, the total stock of debt is still increasing, albeit less slowly.

It's unfortunate that 'deficit' and 'debt' are sometimes confused. But Ellen Brown and Rick Ackerman are propagating the error. Both of them should be smart enough to know better.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
DrKrbyLuv wrote:

Ron Paul, Peter Schiff and the other crazy pundits that were crying out for the hyperinflation wolf will finally get the greatest depression that they have been unwittingly seeking.

Larry   

Larry

I don't believe that Ron Paul or Schiff have been crying out for inflation but instead have been warning of the dangers of (hyper)inflation as a result of monetary policy. In fact, I recall in a recent videblog Schiff excoriated the Fed for not allowing the economy to deflate (which he said would be healthy) and instead engaging in QE. 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

Great post, Larry. Thanks again!

It's unfortunate that 'deficit' and 'debt' are sometimes confused. But Ellen Brown and Rick Ackerman are propagating the error. Both of them should be smart enough to know better.

Good point, machinehead.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

As to the debt reduction in the U.K.; if it happens, it may just be transferring collateral as opposed to making payments. Rothschild plan would see privatization of Britain’s massive public motorway and from the Daily Mail Radical plan to privatise motorway network which could pave the way for toll system

"Selling off the public's transportation infrastructure to pay off government debt has no "ideological opposition" in London today, if a recently published report is to be believed...Last year, Gordon Brown began the process of a fresh round of privatisations, announcing asset sales of £16billion, including the Tote, the Dartford Crossing and the student loan book...Media reports estimated the sale of Britain's motorway to private interests would generate some £100billion for the government. Politicians are also considering an electronic tracking system that charges drivers based on distance driven."

I think that this should be very offensive to our sense of fair play as the money owed was created for virtually free by the private banking system but yet the government and private sector pledged collateral to monetize the debt.  If the money was created for free, I don't see how the private banking system should be in a position to take assets for free.  If they had actually lent their money that would be one thing but they didn't.

One economic indicator I would love to see is a schedule of debt repayment from the private and public sectors.  The Federal Government seems to perpetually roll over it's debt but the private sector, state and local governments actually repay most of their obligations.  This would help quantify the inherent deflationary force that comes with the destruction of money.

Anyone have any ideas as to how such a number might be estimated? 

machinehead wrote:

Point being, there is no necessary connection (as Ms. Brown suggests) between fiscal tightening and money supply shrinkage. The Federal Reserve could and did continue expanding the monetary base during the late 1990s fiscal tightening episode. Thanks to robust private sector lending, broad M3 continued to expand as well.

It could be different this time -- if the money multiplier stays depressed, M3 might fail to expand during the coming fiscal tightening. But there is no explicit link between fiscal and monetary policy which mandates such a result.

Point well made in your Post #7, clearly as you have shown, it is not a necesarily a cause and effect.

earthwise wrote:

I don't believe that Ron Paul or Schiff have been crying out for inflation but instead have been warning of the dangers of (hyper)inflation as a result of monetary policy.

I agree, sorry my wording was misleading...my point was that these guys like many, were saying that we were heading for hyperinflation by pouring so much money into the banking system.  The assumption being that the increase in base money would be expanded by the banks making new loans.  That didn't happen.  The banks got rich while the people suffered.

It seems to me that we are heading for day of reckoning decision that will greatly effect our lives and future generations.  "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."  - Lord Acton

I think it is amazing beyond comparison that few of the pundits and none of the supposed "honest" politicians will ever mention the possibility, yet alone the benefits, of a sovereign money system. 

Larry

Note: Good to see you back John99!   

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
DrKrbyLuv wrote:

One economic indicator I would love to see is a schedule of debt repayment from the private and public sectors.  The Federal Government seems to perpetually roll over it's debt but the private sector, state and local governments actually repay most of their obligations.  This would help quantify the inherent deflationary force that comes with the destruction of money.

Anyone have any ideas as to how such a number might be estimated? 

While the Federal Reserve's Z.1 Flow of Funds report does not attempt to forecast future repayments, it does say that private debt expanded 3.5% in the last quarter, while state and local debt expanded 4.25%. This is the norm. Old debt is paid off by rollovers, plus an added increment of new debt. In an inflationary system, nominal debt levels almost never decline.

http://www.federalreserve.gov/releases/z1/Current/z1r-1.pdf

For the UK, the Office for Budget Responsibility projects that net borrowing will continue for the next five years, though at declining rates:

Our central forecast is that borrowing will fall from 11.1 percent of GDP (£156.1 billion) tin 2009-10 to 3.9 percent of GDP (£71 billion) in 2014-15.

The high, but declining, levels of borrowing over the forecast period mean that PSND [Public Sector Net Debt] rises to 74.4 percent of GDP in 2014-15.

http://budgetresponsibility.independent.gov.uk/d/pre_budget_forecast_140610.pdf

Of course, the Chancellor's budget speech on Tuesday could change this projection. He likely will announce higher taxes, and could propose sales of public assets as well. However, it would be extremely surprising, bordering on maniacal, if Mr Osborne actually proposed to run a budget surplus to pay down net debt. Not only is such a goal out of reach -- even achieving a 3.9% GDP deficit by 2014-15 is a daunting challenge -- but also, budget projections more than five years out are meaningless. Governments change; the next recession may begin (or at least will be five years closer), etc.

In the entire post-1973 floating exchange rate era, there are few if any instances of OECD countries actually paying down sovereign debt. It would be an anamolous, 'man bites dog' story if such a bizarre thing happened.

By the way, the reasoning behind the 3% of GDP deficit limit laid down in the EU's Maastricht treaty is that if GDP is increasing by 3%, then the debt-to-GDP ratio will hold constant. A growing economy can support growing debt, in other words. But now instead of being a ceiling on deficit spending, the 3% of GDP guideline has become a distant, unattainable desideratum.

This is what used to be called, during the Clinton era, 'defining deviancy downward.' Laughing

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

"I'd rather read Helen Brown (Sex and the Single Girl) than Ellen Brown."  Truly a sexist remark MH and not up to your pungent humor.  Don't spoil an excellent assessment with a sophomoric coda!  

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

Greece selling islands to pay debt

BEIJING, June 25 (Xinhuanet) --Greek government is selling a number of the islands including a part of Greece's top tourist destinations Mykonos to pay some of its staggering national debt, media reported on Friday.

“I am sad – selling off your islands or areas that belong to the people of Greece should be used as the last resort,” said Makis Perdikaris, director of Greek Island Properties, according to the report of The Guardian. Some of the real estate could bring in millions of euros.

The government expected that the sale or long-term lease of some islands will attract investment that will generate jobs and taxable income.

People are living in denial that think this is a necessary action.  The debt was created for free by the banks who will now line up for the fire sale.  Our system is a man made concoction of usury that we naively accept as legitimate.  

"The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve"  - Aristotle

Greece lightning: Ancient Parthenon lit from above as storm breaks over Athens

Zeus is father of gods and men. A sky god, he controls lightning, which he uses as a weapon, and thunder. He is king on Mount Olympus, the home of the Greek gods.  Surely he is sending a signal to the Greek people and the usurious banks.

Larry 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

 

How much is Santorini then or even a small piece of it?

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
rara-avis37 wrote:

"I'd rather read Helen Brown (Sex and the Single Girl) than Ellen Brown."  Truly a sexist remark MH and not up to your pungent humor.  Don't spoil an excellent assessment with a sophomoric coda!  

I chose Helen Brown because the name rhymes with Ellen Brown, and cited the title since some may not be familiar with it nearly 50 years after its publication. Plenty of non-PC terms [by today's standards] were in vogue in 1962, including 'single girl.' No offense intended.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

Is this song about Ellen Brown?

Stolen and tweaked --from the album, Mink Car--They Might be Giants:

Back in high school I knew a girl,
Not too simple and not too kind,
We both grew up but I heard she changed,
From a New Wave fan to another kind.
She thinks she's  Helen Gurley Brown,
Or some other cultural figure we don't know a lot about.

But on the 30th of June I come home,
And saw her reflection in the window of a store,
She was talking to herself,
Not too simple and not too kind.
I walked on by.
It was complicated and stuck in my mind.

Oh, Ellen Brown, Ellen Brown,

Where are you, in your pretty pink gown,

Ellen Brown, Ellen Brown

 

 

 

 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
DrKrbyLuv wrote:

People are living in denial that think this is a necessary action.  The debt was created for free by the banks who will now line up for the fire sale.  Our system is a man made concoction of usury that we naively accept as legitimate.

There is a corollary to all this that most people seem to miss, and certainly this article does as well.  While the banks were creating money for free, it means that the people using the money were also getting vast benefit they had not earned!  In most of the western world, we are all living well beyound our means because we have allowed ourselves to live in an illusion of wealth brought about because of the fiat money system.  So while you and others decry that the banks are stealing from the people, you really have to say we have all stolen from the future and from the most productive members of society.  The bankers may have stolen a bit more, but we are all very very guilty of living beyond our means.  Governments are particularly guilty as they use fiat to borrow and provide an illusion of wealth.  Look at all the unsustainable welfare/warfare projects we have today.  Without fiat, none of this would be possible because it would be impossible to actually tax to cover the lavish goverment hand outs.  At some point people refuse to participate either with resistance or resignation.

Larry, this is why I do not support your soverign money proposals.  I don't care if it's a government or a bank, if they are creating money with no physical stablizing force (ie fiat) we will end up in the same situation.  We will rob from the future because instant gratification buys more votes.  We need sound money, that is not controlled by banks or governments.  I'm a firm believer in hard currencies (precious metals) because it distributes power and control of the currency to the productive citizens in a society.

 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
rhare wrote:

Larry, this is why I do not support your soverign money proposals.  I don't care if it's a government or a bank, if they are creating money with no physical stablizing force (ie fiat) we will end up in the same situation.  We will rob from the future because instant gratification buys more votes.  We need sound money, that is not controlled by banks or governments.  I'm a firm believer in hard currencies (precious metals) because it distributes power and control of the currency to the productive citizens in a society.

rhare,

I am in agreement with you but I think there may be another possibility with regards to sovereign money supporters that you may be overlooking.  If you think the way that I do, then you probably believe that the concentrated benefits of money creation come at someone else's or many others, expense. 

I think that many supporters of sovereign money see money creation as a net good that does not come at others expense.  If this is correct, I am not sure how our different perspectives can be resolved.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
goes211 wrote:

I think that many supporters of sovereign money see money creation as a net good that does not come at others expense.  If this is correct, I am not sure how our different perspectives can be resolved.

Great observation.  I think you may be right.  I believe any centralized control of money creation will ultimately be a problem.  However, I don't really have a problem with governments, central banks, or any other entity creating money.  I firmly believe any centralize solution will always result in debasement the currency to gain advantage by dispersing the loss across the users of the currency, but that is my belief.  What I want is competition for currency.  What I don't understand from the "soverign money" people, most seem to think a centralized (read forced) solution is the only thing that will work.  I find it arrogant that they believe they "have the right answer".  I know I certainly don't know what is best, so I want the right to choose, change my mind, live with my choices and I believe others should have the same choice.

The thing that really set me off was the term "Deficit Terrorists".  This crapola that blames central banks for all the ills is dangerous because it hides the fact we have all been responsible and have all benefited from this folly but are now about to pay the price.  Unless we all recognize that we have all been part of the problem with our oversized government (defined as one that runs deficits) dispensing favors to all (healthcare, welfare, war, roads, parks, subsidies, ...) we are doomed to simply put another bad solution in place.

I would ask all those providing "one size fits all solutions" to ask themselves one question: What if your wrong?

 

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
agitating prop wrote:

Oh, Ellen Brown, Ellen Brown,

Where are you, in your pretty pink gown,

Ellen Brown, Ellen Brown

'Pretty pink gown'? Your provocative ersatz lyrics compel me to respond with an excerpt from 'Naomi' by Mr. T. Experience (love their bloody mary mix, don't you?), which I hope you will take seriously to heart:

No one understands your comments
Or why you're so obsessed with undergarments
From multi-cultured pearl to Glamour girl
Took less than a day
And your Wonderbra world of Disney
Was just a makeover away

Ellen, it's just a matter of time

What's that they're saying now?
Oh wow, she looks good in tears
That you can't allow but now
You haven't looked this young in years

You look sweet walking down the street
But no one's even slowing down
They can't decide, should they offer you a ride
Or the head of Helen Gurley Brown?

Ellen, it's just a matter of time

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
machinehead wrote:
agitating prop wrote:

Oh, Ellen Brown, Ellen Brown,

Where are you, in your pretty pink gown,

Ellen Brown, Ellen Brown

'Pretty pink gown'? Your provocative ersatz lyrics compel me to respond with an excerpt from 'Naomi' by Mr. T. Experience (love their bloody mary mix, don't you?), which I hope you will take seriously to heart:

No one understands your comments
Or why you're so obsessed with undergarments
From multi-cultured pearl to Glamour girl
Took less than a day
And your Wonderbra world of Disney
Was just a makeover away

Ellen, it's just a matter of time

What's that they're saying now?
Oh wow, she looks good in tears
That you can't allow but now
You haven't looked this young in years

You look sweet walking down the street
But no one's even slowing down
They can't decide, should they offer you a ride
Or the head of Helen Gurley Brown?

Ellen, it's just a matter of time

I yearn for the old Ellen, for our long ago tryst,

Now they tell me you're an economist.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

All kidding aside, here is a nice RT, Kaiser report featuring Ellen Brown. I find her point of view pretty sympatico with my own.Go to 14:30 to see the interview.

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
agitating prop wrote:

I yearn for the old Ellen, for our long ago tryst,

Now they tell me you're an economist.

Just you wait --

in my next life I'm coming back as an economist
watch the world go by in ignorant bliss
where a pie chart can bring ecstasy
and wall street is the land of the free

[by Tom Flannery, In My Next Life I'm Coming Back as an Economist]

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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...

I love Kaiser's comments. When Brown describes how govt/bank actions seem to make no sense, Kaiser responds with, "it makes perfect sense if you think these people are tyrants!"  Gotta love it...Russian TV, the only trustworthy tv news out there! Weird parallel universe we find ourselves in these days.

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agitating prop
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Re: Ellen Brown: Deficit Terrorists Strike In England -- ...
machinehead wrote:
agitating prop wrote:

I yearn for the old Ellen, for our long ago tryst,

Now they tell me you're an economist.

Just you wait --

in my next life I'm coming back as an economist
watch the world go by in ignorant bliss
where a pie chart can bring ecstasy
and wall street is the land of the free

[by Tom Flannery, In My Next Life I'm Coming Back as an Economist]

Did Ellen Brown really get deficit and debt confused? I guess she's NOT an economist, but a lawyer, author. That's a fundamental mistake, a really grosse error, for someone who has authored a book about economic matters, even if they aren't  a trained economist.

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