Balancing the Books has Come to Mean No Accountancy


Economic sages have warned that when you are trying to replace a bankrupt economic system, you must avoid putting the change in the hands of a leader of the system being replaced. And for having ignored that, the United States is in deep trouble.
Elsewhere in this and previous issues of ER we have told how human capital in this age of high technology on this planet, but on our moon and a moon of a far outlying planet, sources of essential minerals are being tracked down and their exploitation being designed in quantities and chemistries unknown on the Earth. Obviously, this requires a highly educated population of scientists and engineers, that the United States does not have. Moreover, due to the misconceived notion of how budgets can be balanced by deliberately shutting their minds to what money and accounting might be about.

There is no lack of school teachers and university professors, and many schools are being closed down. Supposedly, to balance the budget. But human capital was recognized as early as 1961 as the most productive investment a government can make.
But as we explain elsewhere in this issue, the United States has not in peacetime retained the human capital that Japan and Germany managed to, even after having lost a world war.

First we must include a word on what a balanced budget could possibly mean in an age like ours. When gold is no longer money, only the credit of the central government serves that purpose. Under F.D. Roosevelt, the Glass-Steagall law was brought in that prevented commercial banks from taking over for their own investments the other "financial non-banking pillars": stock brokerages, insurance and mortgage companies.

The reason for that law: When a speculative mega-bank takes over such non-banking pillars, it makes a bee-line for the cash reserves they hold for their own businesses and use it as the cash base for creating its own credit. That procedure it applies over and over again until it gets into serious trouble.

The might of the speculative banks depended on their power to manipulate interest rates, both lowering them as ploy to entice the unwary to burden themselves with debt, and then raising the rates to serve as a battering ram to dispossess them of their firms and their homes.

To restrain this destructive power of interest rates, the statutory reserves had been devised. These required the banks to deposit with the central bank a portion of their capital, on which they earned no interest. To cool off an overheated economy the statutory reserves merely had to be raised, leaving the banks with less capital to gamble. These dulled the killer-edge that interest rates would have as the sole pacemaker of the economy. Unfortunately, getting rid of the statutory reserves, first by disregarding them and then by their outright repeal, left the economy wholly at the mercy of the speculative mega-banks.

And that, if fact, is where the present crisis grew and expanded until it got the world into its current trouble.

Now a word on what paying off or paying down the debt means under these circumstances.

Part of what is called the government debt in the world today is in fact the money supply, which is neither gold nor silver, but only the credit and credibility of government. The rest is human capital – recognized a half-century ago as the best investment a government can make.


– from COMER, July 2010


"The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government ever since the days of Andrew Jackson..."
– Franklin D. Roosevelt