An intriguing proposal about how to rethink the global financial
system is the notion of debt free money. This idea is typically raised
in relation to the fact that the US Federal Reserve is not a central
bank, it is a privately owned institution. The documentary “Secrets of Oz”
details a long history of battles between American bankers and US
presidents, with the bankers winning in 1913. The greenbacks issued by
Abraham Lincoln were debt free money, for example. The documentary is
worth watching, not necessarily for what it proposes as a solution, but
for its history of wars between bankers and politicians, the latest of
which we have just witnessed in the GFC.
The idea of debt free money is a questionable proposal for change. It is not going to happen any time soon and in America the contest was resolved in favour of bankers almost exactly a century ago. Moreover, this argument looks at the monetary system as a national phenomenon, when it has clearly become a global phenomenon with a life of its own. Still, it is worth considering for what it reveals about the situation in which we are now enmeshed and perhaps how the next crisis will be resolved when governments no longer have the financial fire power to produce another bailout. It also sheds light on the question of governance of the financial system. As previously suggested, governments have in this era of “financial de-regulation” handed over governance to the banks and traders, with predictable results.
First, I will list what I see as the flaws in the argument put forward by Bill Still in the “Secrets of Oz”:
The idea of debt free money is a questionable proposal for change. It is not going to happen any time soon and in America the contest was resolved in favour of bankers almost exactly a century ago. Moreover, this argument looks at the monetary system as a national phenomenon, when it has clearly become a global phenomenon with a life of its own. Still, it is worth considering for what it reveals about the situation in which we are now enmeshed and perhaps how the next crisis will be resolved when governments no longer have the financial fire power to produce another bailout. It also sheds light on the question of governance of the financial system. As previously suggested, governments have in this era of “financial de-regulation” handed over governance to the banks and traders, with predictable results.
First, I will list what I see as the flaws in the argument put forward by Bill Still in the “Secrets of Oz”:
- He blames the Depression and recessions on the use of bank issued money with debt. At best, this is a confusion of causation and correlation. The correlations are nowhere near as simple. There have been periods in which debt based money has been economically beneficial, there have been periods when it has been disastrous.
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