New Money Machine?
By Benjamin Gisin
Over the course of the last 12 months, a historic division has
emerged in the value of money. For financial investors, money�s
value has reached an all-time low. For the majority of Americans �
the nation�s work force and business owners � money�s value has
reached an all-time high.
Investors have accepted next-to-zero interest rates when temporarily
loaning money to the U.S. government. The volume of money seeking
investment returns is larger than the pool of debtors capable of
providing a return. Financial investors simply cannot find enough
qualified borrowers. Lenders and borrowers, by virtue of how they
invoke debt when creating and distributing money, have saturated the
national economy with what the Fed reported on 3/12/09 was $52.6
trillion of debt.
The working sector of the economy is experiencing a dramatic rise in
the value of money. With 5.1 million jobs lost during this economic
downturn, people are willing to work � if they can find work � for
far less. Small businesses are failing by the thousands. Money�s
value is so great, people go through humiliating acrobatics just to
work. Money�s power, due to its lack of presence in the physical
economy, is giving greater incentives to employ crime as a way to
The physical economy is like a deep sea diver whose volume of oxygen
(money) is cut back. The oxygen suppliers, i.e. banks and investors,
cannot qualify the diver for more money (oxygen).
All the while, fingers are being pointed at personalities as the
cause of the problem instead of simply recognizing a systemic flaw
in our means of exchange. Without a robustly circulating medium or
other universal process of exchange, jobs, governments and economies
The old money machines (banks and financial investors) are unable to
get a sufficient amount of money, backed by debt, into a physical
economy. This creates tremendous pressure for another money machine
to emerge. Federal Reserve Bank chairman Ben Bernanke and the
Secretary of Treasury Timothy Geithner are being forced to stoke up
another money machine � the Federal Reserve Bank itself.
Over the last 12 months, the Fed created $1 trillion in new money to
buy debt and assets from investors and others. This $1 trillion
ended up in bank checking accounts and in the Treasury�s account at
the Fed. Recently the Fed announced it will buy up to $750 billion
in agency mortgage-backed securities and buy $300 billion in U.S.
government debt. The Fed buys these assets by creating new reserves
for banks which ultimately translates into more checkbook money.
While the Fed�s money machine is precipitating criticism for its
potential to cause inflation, why is that criticism not leveled
against banks and investors who operate in a similar way? At the
same time, the need for a means of exchange by the nation�s working
sector and stock markets are insufficiently met. If the physical
economy and government are without sufficient means of exchange,
what choice does it leave society?
Little known is the Fed�s money machine has levers that can be
switched to supply money to the physical economy without debt � a
better form of oxygen. Money can be withdrawn through taxation to
avoid inflation. There is a public desire to pass-on a world without
debt to our future generations. The Fed�s money machine is capable
of allowing the first step. It only needs a public mandate that
emerges as law.
While the financial system is in financial crisis, the nation and
its economy is in a means-of-exchange crisis. One of the problems
with the current financial system is its inability to facilitate a
robustly circulating medium in the physical economy.
At the risk of sounding democratic, the nation is at a crossroads of
choosing a new means-of-exchange path. A path that suggests public
exploration and consensus as to what our future means or processes
of exchange will be. There is little question other options abound
if it is recognized a change is needed.
For more information and discovering what options are emerging,
subscribe to Peaceful Economics newsletter. Annual subscription
$21.95, for 6 issues. Phone (208) 523-2717, or send check to PO Box
3662, Idaho Falls, Idaho 83403.
For speaking engagements, radio interviews or comments phone (208)
523-2717, or e-mail
Benjamin Gisin is a veteran banker and former senior agricultural
approval officer for one of the nation�s largest agricultural banks.
Since 1998, he consults businesses and agricultural producers facing
credit challenges. He writes and lectures extensively on the
evolution of money, economics and food security.