CW 811 FBF - The American Monetary System and QE2 with Ellen Brown Attorney and Author of 'Web of Debt'

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How's everybody doing? Thank you so much for all your.

Interest in the last couple of shows. I know a lot of you were just jumping out of your chairs at the financing that really frankly very unbelievable financing that we talked about on episode number 241 for foreign nationals and IRA.

Buyers and people with more than 10 properties.

It's just a phenomenal opportunity. So there's some really good stuff. And you know what is so nice about this folks?

Never in all my years, and there.

Are more years I've been in this business than frankly I care to admit. But you've heard me slip a couple times on the show, so you probably know the number.

But anyway, in all my years I've really never seen a scenario where private money or hard money financing really works for both the lender and the borrower like I am seeing today. And why is that? Well, it's because capitalism, it's not perfect.

It'S just better than everything else.

And capitalism has rushed in to fill the void left by the dysfunctional complete.

Scams known as Fannie Mae and Freddie Mac and the secondary market and Wall street and their collateralized debt obligations and all that garbage out there.

And it's rushed in to fill the gap, but it's also rushed in and another way that capitalism has worked so.

Well and it would work a lot better frankly if the government would get out of the way, but the market.

Has adjusted so much that the combination of people buy properties based on a pay. They don't really care much about the.

Price of the house or the apartment complex.

They care about the effective cost. And the effective cost consists of what can you obtain financing for and what is the price. It's the blend of those two items.

And of course there are other items in there, expenses, property taxes, etc.

But really it's the, the major thing.

Is the effect, the difference of the.

Price and the combination with the financing.

Right.

And so prices have corrected so much in some markets where you're buying far.

Below the cost of construction and then.

You get financing that's reasonably good. And why is that financing reasonably good? Well, the reason private financing actually can make sense for a borrower.

Now, okay, and what we talked about, by the way, I'm kind of blending two subjects here, but what we talked about on episode number 241 was not private financing in the strictest sense. That is through a bank and a community bank. And a lot of times you can.

Get these pretty good deals through community banks. And that is, I don't want to say totally exclusive to us, but it's almost exclusive because it came through a.

Special relationship, a banking relationship with our vendor, who we have a long relationship with.

And you're not going to hear about.

That much of anywhere else. There will be, I don't want to say totally not anywhere else, because there.

Will be when a certain competitor of.

Ours is back from vacation, that competitor will probably be offering it. But you know, then again, folks, we don't really have any competition. That's what I always learned from Earl Nightingale in the old days.

If you constantly think of how your business will be done five years from.

Now, ten years from now, you really don't have any competition.

And when you look at a company.

Like Apple, the most valuable company on the planet by far, especially with their stock lately, that's just incredible. But an amazing company. No question about it. When you look at that, you know.

A company that thinks in the future.

And thinks in an innovative way, I.

Mean really, do they really have much competition at all?

Well, not really.

Remember, you're listening to Flashback Friday. Our new episodes are published every Monday and Wednesday.

But anyway, back to this banking thing.

So you see a special deal like.

That that we talked about on the last episode, unbelievable financing, IRA buyers, foreign nationals, people with more than 10 properties.

Even people that are credit challenged. And you see the private financing that so many of you have expressed an interest in lately. And by the way, if you are.

Interested, just email me jasonasonhartman.com again. I'll make the introductions is because when.

It reaches a good effective cost and it makes sense for the borrower and the lender alike, everything really meets. And that's when you have what's known as price discovery. So you have price discovery in terms.

Of this private financing now, making it.

A great deal for both parties. And oddly enough, someone might be a.

Borrower on some of this private financing.

Offered through our network and a lender at the same time. And you think, how can that be? Isn't it like going to the casino and betting on red and black and roulette? Well, not exactly, because different deals happen.

In different time frames and in different marketplaces and so forth.

So it's really kind of interesting how I'm seeing that unfold with our clientele.

How sometimes they'll be a lender and then other times that very same person.

Who lent money to another party will be a buyer borrower. And boy, it just works both ways.

Because of the particular circumstances in which they find themselves.

So some great stuff there. We're going to talk a lot more.

About private lending at our next Meet.

The Masters event in March. And by the way, we just booked a totally new speaker on Land Trust.

And I'm really quite excited about that.

I got his package reviewed it. It's pretty darn interesting.

Not hypey, not scammy, like so many speakers on that subject out there.

I interviewed him for the and he will be a speaker at our Meet the Masters event. So we're getting some variety, we're getting some new speakers. So for those of you groupies out.

There, we appreciate you coming back every time.

Some of you have been to every.

Single Meet the Masters event and we.

Love to see you coming back, but we are a little worried that you.

Might get bored and you need some new speakers. So we're going to have some. And this will be the first time we present the St. Louis Market at any of the Meet the Masters events. So we've got that lined up and I think that's going to be a real showstopper.

And we're going to do another.

Another thing that we're going to do that's really interesting. You know, we've done client panels before at that event, but this time we're.

Actually going to do a local market specialist panel and we might even pick.

On the clients just a little bit.

Because what we're going to do is we're going to have you hear from people who are very, very experienced vendors.

Or local market specialists, investors in their own right.

And we're going to have you hear.

About some of the problems and some.

Of the things and some of the areas in which investors shoot themselves in the foot, some of their own mistakes.

That they've made over the years, over.

Many years, and just kind of really open it up to hear about that. So we're not doing a client panel.

This time, but this will be the.

First time that we're actually doing a vendor panel.

And I think that's going to be very interesting. So that'll be Saturday night. And it's it's just going to be an awesome event. We're trying to keep it new and stimulating for those of you who keep coming back and also, of course, for.

Those of you new attendees as well. Before we get in today's interview, we've.

Got our guest today is Ellen Brown.

She is the author of Web of Debt.

She talks a lot about monetary policy, fiscal policy, Federal Reserve, that kind of stuff.

And she has been on the show.

Before a long, long time ago. And I want to say that's back in like 90 or 100 right around there.

But we're going to have her on today on show number 242 to talk about some fairly new developments. And that interview was recorded just about.

I don't know, two months ago maybe. So we've got to get it aired again.

These interviews don't always have to be.

Super timely because this stuff changes sort of slowly. It's not like breaking news, but it's still very interesting.

And one of our clients, Steve, sent me a really telling article, and it fits in with today's guest interview a little bit because she really is an.

Expert on Federal Reserve stuff.

And I guess what happens is the federal and I say federal in quotes.

Because the Federal Reserve is just about as federal as Federal Express. Of course, you all know that it's a pseudo governmental entity created back in 1913, and it's really largely been a scam.

But we know how we can exploit.

That scam to our benefit as investors.

And by the way, I did an.

Interview today with the author of an interesting book I read a couple months ago entitled the Age Curve. And he's a demographer, talks about how demographics affect the economy and so forth.

Similar to the way Harry Dent does.

And of course, we had Harry Dent on the show in the past, but.

This was interesting because he predicted on.

The show that you'll hear in several episodes we'll play that One for you.

But he predicted that Obama was going.

To win the election in November.

And most of you regular listeners probably.

Know how I feel about that. And that's not positive. I'm not a fan of any big government socialist type policy, which, you know, I think Obama represents that all too well because, you know, he's the first president in history that has increased our.

Debt by $5 trillion. That's trillion with a T and inside.

Of, you know, basically three years.

So what if we give him five.

More years in office and he doesn't have to worry about reelection? You know, I think he's really going to go all out.

But hey, you know what? Who cares? As much as I may hate it philosophically, we know how because we were studying this stuff. We know how to exploit the heck.

Out of that as investors and that's going to benefit us big time.

But what I want you to hear in this article, and frankly, I kind of hate to read to you because.

I'm not a voiceover person, so I always think my reading does not sound very good.

But this is a New York Times article. And what's interesting about it is I guess what happens, and I didn't know this before reading this, is that the Federal Reserve transcripts of their meetings are kept private or secret.

The Federal Reserve is very secretive, first of all.

But I guess the transcripts of their, their meetings are released after five years. So this is interesting because this article details a meeting that the Federal Reserve had and back in 2006.

Okay, now you all know what was going on in 2006. We were on the verge of catastrophe back then.

And, you know, life looked pretty grim.

There for a while. But, you know, obviously life goes on and the market adjusts and things are really kind of coming back. And you know, I have to say from my side of the spectrum, I see investors coming out of the woodwork. I see business being very strong right now.

It was pretty decent last year, but.

I think this year will be even better.

And this, this is, this article just.

It blew my mind reading this okay.

New York Times article and forgive me, our client Steve sent it to me.

On January 13, but I do not see a date on this article.

So I'm just going to read you some of it. And I hope, and I kind of.

Think you can tell where my snarky commentary comes in and what is in the article. It's sort of too hard to chop it up, say when I'm commenting, but I think you can kind of tell and I'll Try and make that obvious in the inflection in my voice.

But the article's entitled and you know, if you want to Google this article.

Read it yourself because I'm not going to read the whole thing.

But the article is entitled Inside the Fed in 2006, Colon, a coming crisis and banter.

And it's just really, really telling.

And it's amazing to me how the people who are charged with leading our economy that the brightest guys in the room, so to speak, the smartest guys in the room.

There was a documentary about Enron with that name that, by the way, is really interesting. And if you haven't seen it, I recommend you. I don't know if it's on Netflix, but look it up and check it out. That's the smartest guys in the room about Enron.

But it's really amazing how stupid these people are. It's just how stupid, how careless, how just wrong they have been in so many ways. And I want to make my full disclosure here because one of the parts.

In this article talks about how they.

Did not realize how intertwined the housing.

Market had become and how it had become so intertwined with Wall street and the financial markets.

Just a reminder, you're listening to Flashback Friday, our new episode are published every Monday and every Wednesday.

Years ago, those were really kind of two separate things.

You know, housing was housing, real estate was real estate and Wall street and banking. And when I say banking, I don't mean mortgage lending and foreclosures. I mean the broader concept of banking before Glass Steagall, or back in the days of Glass Steagall, I should say.

And all of that stuff, they really.

Weren'T intertwined the way they are now.

And you know what?

I didn't realize that either.

And that's one of the reasons I.

Underestimated how bad this crisis would become.

Because, look, I knew in 2003, 2004, 2005, I mean, I was in the.

Business and I saw it and I.

Knew lending was far too careless. I knew that a lot of these borrowers would default.

I knew that there was a massive amount of fraud going on in the mortgage business. Heck, I had a mortgage rep who worked for me. Remember, I owned a couple different mortgage businesses within my traditional real estate company, Platinum Properties International. I sold that company to a Coldwell Banker affiliate back in 2005.

And, you know, I had a couple different mortgage arrangements over the years.

Some that I owned outright and some that were affiliated business arrangements or net branches. You know, they had all these different Hybrids of businesses.

And I knew there was a lot of fraud.

I mean, I had this one guy that worked for me and if you asked me, the guy was a crook. It just almost didn't matter what the truth was, I don't think. You know, in the mortgage business in the heyday there, and it was really disgusting, frankly. But I weeded him out of my business as quick as I could.

But I knew that that was going on. I knew there would be a foreclosure issue.

But gosh, did I know about these.

Complicated, crazy derivatives and the collateralized debt obligations and the forms of fake insurance that were being traded on Wall street and that bankrupted the country of Iceland?

Heck, no. I didn't know any of that.

But gosh, I'm just a commoner. I'm just an everyday guy that pays attention and studies the economy and the markets. I'm not an insider in the Federal Reserve or the Treasury Department. I mean, they should know. Ben Bernanke and Alan Greenspan, they should know. And you're going to see how woefully ignorant Bernanke was in this article.

So without further ado, let me just read some of this stuff to you, okay? It's mind boggling.

Washington. As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers. The officials laughed about cars that builders.

Were offering as signing bonuses. In other words, what that means, folks, is that builders were offering, they'd give you a car if you'd buy a house or a condo. It was amazing.

And about efforts to make empty houses look occupied. They joked, Remember, this is a transcript of a meeting that was a private.

Meeting among Federal Reserve officials. Okay, that's my commentary. And here you're hearing about what happened behind closed doors.

They joked about one builder who said that inventory was rising through the roof. But officials meeting every six weeks to discuss the health of the nation's economy gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts the Fed released on Thursday. Instead, they continued to tell one another throughout 2006 that the greatest danger was inflation. The possibility that the economy would grow too fast.

Are you kidding me?

That's just amazing that someone would think.

That in 2006, right? Okay, back to the article.

Quote, we think the fundamentals of expansion going forward still look good.

Unquote. Timothy Geithner.

That's TurboTax, Timmy. Right, Timothy Geithner. Then President of the Federal Reserve bank of New York, told his colleagues when.

They gathered in Washington in December of 2006.

Some officials, including Susan Bees, I guess.

Is how you pronounce that a Fed.

Governor suggested that the housing downturn would actually bolster the economy by redirecting money.

Into other kinds of investments.

And there was general acclaim for Alan Greenspan, who stepped down as chairman at the beginning of the year, for presiding over one of the longest economic expansions.

In the nation's history. Now, what's funny there, my commentary that.

Greenspan in his early days was a friend and a fan of the famous.

Author, the late famous author Ayn Rand, who wrote a great book entitled Atlas.

Shrugged, which if you have not read.

Atlas Shrugged, you need to read that book. It is the most incredible 1200 pages you're likely to read anytime soon. And the Fountainhead and many other books.

If you want a short Ayn Rand book to read. By the way, one that I like.

Is just a collection of essays and the title really has nothing to do with the.

But it's called the Virtue of Selfishness.

And I would highly recommend you read it. Really interesting little collection of essays there.

Anyway, what's interesting about Greenspan here, my commentary, is that Greenspan being a devotee.

Of Ayn Rand who actually gave a.

Eulogy at her funeral, and I think.

She passed away in the early 80s.

If I'm not mistaken, and Greenspan became the total sellout, the total Keynesian prime. The pump, print fake money, create inflation, create money out of thin air. Totally contradictory to anything Ayn Rand would have ever believed.

Okay. And so that's just amazing to me, right, my little commentary on Greenspan there.

Anyway, it says Mr. Geithner suggested that Greenspan's greatness still was not fully appreciated. An opinion now held by a much.

Smaller number of people.

Meanwhile, by the end of 2006, the economy was already was shrinking by at least one important measure, total income. And by the end of the next year, the Fed had started its desperate struggle to prevent the collapse of the financial system and to avert the onset of what could have been the nation's first full fledged depression in about 70 years. The transcripts of the 2006 meetings released after a standard five year delay. Now my comment, why the heck aren't they released right away? Why is any of this stuff secret? Well, why do we even have a.

Federal Reserve in the first place? My thinking, but back to the article.

Clearly shows some of the nation's preeminent economic minds did not fully understand the basic mechanics of the economy that they.

Were charged with shepherding.

The problem was not a lack of information, but it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned.

Out to be broken.

It's embarrassing for the Fed, said Justin.

Wolfers, an economics professor at the University of Pennsylvania.

You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and the financial markets. Quote, it's also embarrassing for economics, he continued, my strong guess is that if we had a transcript of any other economist, there would be at least as much fodder. Many of the officials who appear in the transcripts have since spoken publicly about the Fed's failings in the years before the crisis, but the transcripts provide a raw and detailed account of those errors as they were made evidence the problems in the housing market accumulated at each meeting of the Federal Open Market Committee, which sets policy for the central bank. Quote, we are getting reports that builders are now making concessions and providing upgrades such as marble countertops.

And by the way, they got that wrong. I'm sure they weren't marble. They were probably granite. People don't usually do marble countertops because.

Marble is too porous and it absorbs liquids.

So granite would be a better choice.

Anyway and other extras and in one case even throwing in a free Mini Cooper to sweeten the deal.

George Gwinn, I guess is how you.

Say that then, president of the Federal Reserve bank of Atlanta, said at the June meeting. The committee consists of governors of the Federal Reserve and the presidents of the 12 regional banks. The speed of the fall off in housing activity and the deceleration in housing prices continue to surprise us, said Janet Yellen, then president of the Federal Reserve.

Bank of San Francisco, said in September.

One builder she spoke with said, quote, toured some new subdivisions on the outskirts of Boise and discovered that the houses, most of which are unoccupied, are now being dressed up to look occupied with curtains, things in the driveway and so forth, so as not to discourage potential buyers.

Wow.

Can you believe it, folks? What a scam, you know, I mean, it's just like window dressing everywhere you look.

Anyway, back to the article.

For a famously private institution known for its cryptic, formulaic statements, the meeting transcripts offer a rare glimpse of senior officials in relatively unguarded conversation, somewhat akin to the tapes that some presidents made in the Oval Office. My comment are you thinking Richard Nixon there, folks? Wasn't it like 8? I'm just talking now wasn't it 8 minutes that had disappeared those missing tapes from the Oval Office?

Anyway, back to the article.

The Fed officials exchanged jokes, gossip about people who are not present, and speak much more frankly about the economy and policy than they did in public remarks that they made contemporaneously. The results are unlikely to burnish any of their reputations in as much as they could not see the widening cracks beneath their feet. But the Fed's chairman, Ben Bernanke, appears as the most consistent voice of warning that problems in the housing market could have broader consequences.

Well, Ben, I'm impressed by that. You know, I think Ben is largely.

Full of it when I Hear him on 60 Minutes. What's he been on 60 Minutes twice now? A sitting Federal Reserve chair has never.

Ever been on 60 Minutes before. That's how crazy the times we live in are, right?

Anyway, the general consensus on the board, summarized by Mr. Geithner, was that the problems in the housing market had few broader ramifications. We don't see troubling signs yet of collateral damage, and we're not expecting much.

Geithner said at a September meeting.

Mr. Bernanke initially agreed, telling colleagues that his first meeting as chairman in March. I think we are unlikely to see growth being derailed by the housing market. Can you imagine, folks, my commentary? These are the smartest guys in the room, and they have access to information we don't have. They know things we don't know. They have insider information, and can you believe how optimistic they are? But Bernanke starts to get a little.

Cautious, and I'm impressed. The article goes on.

As the year rolled along, however, Mr. Bernanke increasingly took the view that his colleagues were too sanguine. Quote, I don't have quite as much confidence as some people around the table that there will be no spillover effect, he said. As for Mr. Geithner, who became Treasury Secretary in 2009, of course, remember Obama.

Appointed the guy who can't even file his own tax returns, and now he's treasury secretary. Craziness, huh? Okay, back to the article.

In 2009, his spokesman, Anthony Cooley, said, quote, secretary Geithner was an early source of initiative at the Fed to reduce risk and make the financial system more resilient. Even before 2006, unquote, some Fed officials argued that a housing slowdown would be good for the broader economy.

Now, we'll think about that one. Now, this is interesting.

I really believe that the drop in housing is actually, on net, going to make liquidity available for other sectors for rather than being a drain going forward, and that will also get the growth rate more positive, unquote, Ms. Bees told colleagues at the committee's June meeting, but she could not be reached for comment Thursday.

I'm almost done here, folks.

And even Ms. Yellen did not believe that the problems in the housing market would have broader consequences. Quote of course housing is a relatively small sector of the economy and its decline should be self correcting, she said.

Well, folks, you know what, that's kind of true.

It would be more self correcting without.

So much government intervention.

My comment One fundamental reason for this blindness was that Fed officials did not understand how deeply intertwined the housing sector.

And financial markets had become.

They were also convinced that financial innovations, by distributing risk of losses more broadly, had increased the strength and resilience of the system as a whole. Folks, you can just Google and find.

This article and read it for yourself. But that to me is mind boggling.

It is scary how little the smartest people in the room, the people who we have charged to lead our country, to lead our economy, Geithner appointed by Obama. I mean, just, I'm not going to.

Say what I want to say on the show because that's just mind boggling. It really is.

Anyway, let's get to Ellen Brown, author of Web of Debt. This Meet the Masters event coming up in March. Be sure to join us. We are labeling the theme for this and Doug thought of it, so thank.

You for this one.

The theme for this Meet the Masters event will be Revenge of the Cash Flow Investor.

That's right, Revenge of the Cash Flow Investor. So we're going to talk a lot about cash flow at this next event in March.

So be sure to register@jasonhartman.com and we look forward to seeing you there.

And we will be back with Ellen Brown in just a moment.

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It's my pleasure to welcome Ellen Brown to the show. She's the author of Web of Debt and she is talking to us today from Basel, Switzerland. So we're going to try and make the sound quality as good as possible.

And if you've heard her on the show before, you've heard that she talks.

A lot about monetary and fiscal issues. And it's going to be really interesting because we're going to get her perspective a little bit from Europe and on the latest crises and things that are going on. Talk about the debt ceiling, etc. Ellen, welcome. How are you?

Hi.

Thanks, Jason.

I'm fine.

Well, good. It's good to have you on the show. So first, first of all, the most recent big fiasco in the news as far as monetary issues and fiscal issues is, of course, the debt ceiling. You say that the debt ceiling is unconstitutional. Tell us what you mean by that.

Well, it's in the Constitution that the government will pay all its debts or all its agreements.

Everything is already agreed to. And the debt ceiling involves a budget.

That has already been passed. So we've already agreed we're already committed to those things. I mean, it includes things like Social Security. I mean, these are legal agreements.

And so that would be a violation.

Of that constitutional amendment to impose a debt ceiling after the fact.

And we've had this debt ceiling contradiction ever since.

Well, for about 100 years. It had to do with World War I when we were attempting to persuade our creditors that we weren't going to.

Discontinue to finance things through debt.

It was sort of like this would be a temporary measure. We would just issue these bonds and of course we did. We kept raising the debt ceiling periodically, and it's always been assumed that we would raise the debt ceiling.

So that's it.

That it would be a breach of the President's duty to actually pay on time. It's a duty in the Constitution.

So what do you think? With another increase in the debt ceiling, and we've had so many so far, and just the amount of easing and money printing out there, what are your thoughts about inflation and deflation? I mean, the deflationists say there's still more deleveraging coming, but maybe we've gone through the major share of it. The inflationists say the money printing is rampant and the future is very inflationary. And frankly, I think the present is already pretty inflationary in so many things. What are your thoughts on inflation versus deflation?

Well, there are two definitions of inflation. One involves prices and the other involves the size of the money supply. And the money supply has actually shrunk. And the reason is that M3, what they used to report up until 2007.

Right. That they stopped reporting. Now, that's a little bit suspicious as a way to maybe hide inflation. But go ahead with what you're saying.

Well, it included what's called the shadow banking system. So it included the money market and.

The savings or the money of large institutional investors.

And they tended to put it in the money market. So the whole shadow banking system is the thing that collapsed in the fall of 2008. There was this freeze in the money markets, and that's what precipitated this whole crisis. So that shrunk by $5 trillion. And you can see it particularly in housing prices.

I mean, if you consider that loans.

Are an asset or they're counted as an asset on the books of the banks, and the value of all these.

Properties has shrunk, and in that sense, the money supply has shrunk. So the Fed has only put back two or three of that too, anyway.

And so there's still a large gap between the amount of money in circulation.

Available for trade compared to what was there in 2007 before we started to.

Have all these problems.

That's because what you're saying is that the credit supply has shrunk and money in circulation plus credit available, I guess, is maybe a way to look at.

Yeah, money is credit, Right?

Sure.

Virtually everything but coins.

Yeah.

That goes into a bit of a more esoteric thing which I'd love for you to explain. And the listeners have heard about that before, how money is debt. But do you want to maybe just explain that real quickly because a lot of that's a. It's pretty hard for people to get their head around that concept initially when they're looking at this stuff.

Well, most people assume you see these.

You learn this in school, and you, you see pictures of the Bureau of.

Engraving and Printing of these printing presses running. And they're government printing presses.

So you figure that the government prints.

The money, but that's not really where our money comes from.

It's the Federal Reserve that authorizes the.

Bureau of Engraving and Printing to print.

And it gets these bills for, I.

Think now, six cents a bill, even if it's a hundred dollar bill or whatever it is. So this is Federal Reserve money banknotes.

It goes back to the 19th century.

When banknotes were literally issued by individual banks and they had the name of the individual bank on it.

In 1913, the Federal Reserve took over that process. And so instead of many banks issuing.

Their own banknotes, you had one central.

Bank issuing supposedly the current the country.

But when the Fed issues the money.

They don't just hand it over to.

Congress to do with as they will, they lend it.

So all that money comes into it, gets into the money supply in the.

Form of a loan. I mean, they basically lend it to banks as they need it. And that's still only a small portion of the money supply. Most of the money supply is created.

By banks themselves, private banks, when they issue loans.

So that's another misconception. Most people think the banks are lending their depositors money, but in fact they make this loan first. They make the loan whenever a creditworthy borrower walks in the door. And they write the loan into the account of the borrower as a deposit.

And when they need the deposits is when. And that borrower writes checks on his account that go into another bank or.

For some reason leave the bank.

And then the checks have to clear. And they clear usually through the Federal.

Reserve, which is just watching the money coming in and the money going out. And at the end of the day, you have to have as much coming in as going out because the banks are always right at the margin, they always operate at the limit because they don't want their extra money sitting around doing nothing.

So to get that money to clear.

Their checks, they have to borrow from other. They typically borrow from other banks or they borrow from their own depositors, but they're still not actually lending the money they got from the depositors. All they're doing is clearing the checks with it.

I mean, they're just Making the books.

Balance, but the money still belongs to the depositors. So you're double counting that. How is it that when you never.

Go to the bank and they say, sorry, we just lent your money out.

To Mr. Smith, come back in 30 years, it's always available for you. And yet supposedly the deposits are backing the loans to their borrowers. So what they're doing is they're drawing from this pool.

So there's just a limited pool here.

And they're using it well under fractional reserve lending. You could use it, you could make it grow by a factor of 10.

So if you had a 10% reserve.

Requirement, you would have to hold back.

10% of your deposits and you could lend out 90%. But meanwhile the deposits always stay in the bank.

And yet you're allowed to issue a loan equal to 90% of your deposits. And then that loan would become a check, would go into another bank which.

Would now have, say it was a $900 loan, now they can lend $8,100.

Of that holding back 10%.

So that's how it multiplies until $100 becomes $1,000.

It's unbelievable. The way to look at this is that money is lent into existence. Right. Is that a fair way to say that money is lent into existence? I want listeners to remember that money is lent into existence. Very, very important concept. And really it's hard to get one's head around that. It really is. You really have to think about the way that happens a bit. But that's good explanation.

So they don't want us to get our heads around it.

That's, you know, when this recently, Bernie Sanders, you know, there was a 16 trillion dollar audit, I mean the audit of the Fed that showed that there.

Were $16 trillion that had been advanced for the banks in short term loans in order to save them from the credit crisis. I mean, I guess that's been advanced ever since 2007.

But Ben Bernanke resisted and resisted and he said no. People would lose confidence in their banks.

If they understood, if they knew all.

These details, if they knew the scam that is being portrayed. Right.

If they saw how the sausage was made. The point is that the banks don't have the money.

They never have the money until after they make the loan. And then they scramble around and find it.

They borrow it from some other bank, but it's still a deposit in the other bank. You know, they're, they're borrowing against these.

Deposits basically, or lending against these deposits. Yeah.

So it's all Slight of hand.

Yeah, it really is, except for one. Sorry, we didn't hear you there.

Coins are created by the government and they're issued outright.

So they're real money. I mean they're debt free money. But that's only a billion dollars out of the whole, that's like 1, 10,000 of the money supply.

And then arguably the money that the Fed has added by quantitative easing is interest free money.

I mean, they do lend it into the system, but they didn't, the Fed didn't borrow it to get that money.

Well, let's talk about QE2 for a moment here. So QE2, quantitative easing 2, not to be confused with the Queen Elizabeth to the ship, because it's funny, they refer to that as the QE2 also. So what is it and did it fail or did it work? I think it failed.

It did, but I think they do need a QE3. I mean it was not a bad idea. But the problem with QE2 was it.

Was $600 billion that was supposedly for the purchase of long term government debt. But in the 1930s there was a.

Law passed that said that the Federal Reserve could not buy bonds directly from the government. Now this is just a banker ruse as far as I can see. It's just to make sure that the.

Banker middlemen get in there. So, well, I mean the justification was.

It would be too easy for Congress.

To just walk right over to the.

Fed and get the money, you know, just right out, just borrow it.

So instead the Fed has to borrow.

On the open market, which means they.

Have to borrow from these particular bond dealers.

I think there's 22 of them, or there were 22 of them that are allowed to sell bonds to the Fed. Well, more than, oh, 20, I guess.

So 2012 of these are now foreign.

Banks and they do it at a secret auction. So these foreign banks won the auction. I mean, most of this money was.

Sold to foreign banks because they had.

More incentive to get the money than the other banks. They have this problem in Europe, for one thing.

They have their own credit crisis and.

They could do this carry trade where they can get a nice, they can just turn around and use this very cheap money for collateral for their own investment purposes. Anyway, somehow it wound up largely in.

Foreign banks and they, it's just sitting on their books. I mean, I think the major mistake.

That the Fed made on that was that they agreed to pay interest on these. So there are now $1.6 trillion in.

Excess reserves sitting on the books of the banks.

Not doing anything. So that was a mistake.

The reason the Fed pays the interest is to maintain control over the fed.

Funds rate, which is so arcane and obscure it's really hard to even, I.

Mean, to understand, let alone explain. But their theory is that they don't.

Have any other means of control. So they figure as long as they.

Can control the interest rate of banks.

Borrowing from each other, that's a fed funds rate, then they still have some control over the money supply. But they don't. They absolutely have no control over the money supply.

But anyway, the fed funds rate, they.

Don'T want it to go any lower than 0.25%.

And so they figure if they pay.

Interest in like that themselves, then there's.

No incentive for the banks to borrow from each other. But I mean, surely the Fed itself understands how the whole banking system works.

They have to borrow from each other. That's how, that's where you get credit.

I mean, that's where you get your credit line.

So you could argue, well, there's 1.6.

Trillion sitting on in excess reserves sitting.

On the books of the banks. What do they need to borrow from for? But the thing is they're only sitting on the books of particular banks, largely these foreign banks.

So the local banks, these are the.

Ones that make the loans to local business.

They cannot get, they cannot borrow cheaply.

From the other banks like they used to be able to.

So therefore they can't.

That's why all these businesses are having their credit lines cut or turned into credit cards.

The bank cannot do credit lines to.

A bunch of different businesses because they don't know when these businesses are going to put in for a loan. They might all put in for a loan at the same time. Like maybe around the fall when they're.

Preparing for Christmas or something, or farmers.

You know, might need all at one time need a lot of liquidity.

So if they can't get a hold.

If they can't get the deposits to.

Cover these loans that they're going to.

Make, they won't make the loans.

So it's caused a credit freeze at the local level.

Even though you've got plenty of excess.

Reserves on the books of the banks, they're not on the books of the right banks.

Well, is this, that's interesting that you say that.

So which banks, first of all. And is this what you call, Ellen, when you talk about the silent liquidity squeeze, why banks aren't lending?

Is that what that is? Is that what you're referring to?

Yes.

So in a Sense.

I mean, I.

Somebody else who's a money reform person.

And he's a professor and I'm sure.

He said, well, they don't need liquidity.

They've got $1.6 trillion in excess reserves.

But they're sitting on the, those are.

The reserves that were.

They're sitting on the books of these bond dealers. Well, 600 billion of them anyway are.

Sitting on the books of bond dealers.

That are these foreign banks. They're not even US Banks.

Their branch is in the US and that's why they're part of that whole auction system.

So they're not letting it out of their tight little fist.

So you're saying that regular, maybe small to medium sized US banks, they don't have liquidity, they do have a credit crisis, if you will, where they don't have money to lend because people have been vilifying the banks for the last couple of years, last year and a half at least, saying that why aren't they lending? Why aren't they lending? The Fed is pumping money into the system and the banks aren't lending it, they're just holding on to it. And that is really causing a problem, especially for small businesses in the real estate market. Do they not have the money?

Is that what you're saying?

Well, that's the problem.

There are banks and there are banks. The big Wall street banks are flush.

And they're doing fine, but they're not.

Using their money to make loans to local businesses.

They have much more lucrative things they can do with it. Now that they can get this money at 0.2%.

And they buy Treasuries.

Right?

Well, that's one thing they can do. And they can just keep the, it's like 2 or 3%. They just keep the spread and it's absolutely risk free money. Or they can use it to speculate commodities, et cetera, or do spreads and all kinds of derivative things.

They can use it for collateral. Even though it's still sitting on their books. They use this money for collateral for their speculative investment.

So the local banks are the ones.

That are suffering and they're the ones.

That have the arrangements with the local businesses. So that's if you want to get into what my particular solution is or the thing we're working on is state owned banks. There's one state in the country, whole country, that does not have this problem.

North Dakota. Is that, is that North Dakota? Yeah. Tell us about that.

Yeah, it's the only state that owns its own bank.

They've owned it since 1919.

And the bank, the state owned bank, provides the liquidity for the local banks.

They share the local bank deals with the customer.

So the bank of North Dakota does.

Not compete with the local bank. They just help them out. But they're like big Brother to the local banks.

So they provide liquidity, they provide guarantees.

So they help them out with their capital requirements.

They have a credit line directly to the government. So if North Dakota itself goes over.

Budget, they can just tap up their.

Credit line with their own bank. They have credit lines with the individual cities.

They do things like disaster relief. Like when they had a big flood, they just stepped in and they didn't need fema, they didn't need to wait for fema. They just stepped right in with their own money. And we've talked to the. Well, I'm now president of the Public Banking Institute. So we've been just spreading information on this alternative, which just seems to me like a no brainer. I mean, it's worked out so well for bank of North Dakota.

Yeah, but the question is, who does that? There are entrenched power structures, of course, and entrenched people who are benefiting and entities that are benefiting from the system as it is. I mean, who loses in that play? That's who won't let it happen.

Right.

It's a no brainer for us. But you're right, they're big forces that.

We have to deal with. So that's why I think it's important for people to understand the basic concepts here. Otherwise, I mean, if we don't, we need the people power. In fact, even I'm from California and.

We'Ve heard it rumored, I don't know.

This for a fact, that Jerry Brown would be in favor if he had a groundswell of popular support. Well, you're not going to get the groundswell until people understand what we're talking about here. Because their first reaction is, oh, what do we need another bank for? Or I don't trust banks.

Or you know, it's not the type.

Of thing where you could go into a supermarket and set up a table and get signatures on a, you know, on a ballot or something. So that's what we're working on.

But anyway, so we're.

So we have 14 states that have.

Bills of various sorts pending, like either bills for an actual, actual bank or.

For a feasibility study to look into the possibilities, et cetera. So we actually made quite a bit of progress considering we're totally a volunteer organization.

Yeah, that's great. I want to circle Back to that subject of inflation and deflation. And you talked about how when we look at the credit supply contracting, but the money supply increasing. But yes, of course the credit supply is the money supply. So I understand that. I'm just trying to segment the two. You said that what, $5 trillion was missing from the size of the money.

Supply, then it shrunk by that much.

Right, right.

Okay.

So one of the things that the.

Deflationists say, and I think it's a ridiculous statement, but they say it, they say things like, well, there is so much deleveraging that the government can't print enough money to offset that and cause inflation. And I think that statement is just completely stupid on its face because the amount of money they can create and print is an old fashioned term. Of course they don't print all the money anymore. But you know, that's kind of just a metaphor, I guess. They can create as much money as they want. There's absolutely no limit to that whatsoever. I mean, look at Hungary, look at the Weimar Republic, look at Zimbabwe. Money creation is completely infinite and unlimited in every way.

You're thoughts on that?

Yeah, well, in terms of the physical.

Process, you could, you don't need to.

Print, you just write it into an account, which is what the Fed does with most of the money they create.

It's a couple clicks of a mouse.

Yeah, well that's when they brought up, you know, QE1 was, they brought up toxic assets and there was an npr, there were two Fed employees were interviewed on how they did it and they.

Said, yeah, it was quite remote.

Well, they just, that's what they did, a click of a mouse and they.

They created money to buy all these properties.

They just found the properties they wanted and clicked, click, click and they had them. But what I like for an idea is that the trillion dollar coin idea, I mean just, you may bark at this, but the government itself is authorized to issue coins. I mean it's in the constitution. The government shall have power, coin money and rich the value thereof.

So it doesn't say how big these coins are. So you could have like 15 one trillion dollar coins and you'd have solved the federal debt problem. Now you may say, or most people.

Will think, well that would be inflationary.

But here's the thing, you're not actually.

Necessarily spending the coins, but let's just.

Say you put them in the Treasury's bank account. So now the treasury has the money.

And you're saying these are, these are physical coins. I'm trying to envision A trillion dollar coin.

Well, you do have a problem making change. I know, but you don't necessarily have to make change.

That's the thing.

You're, these are sort of like your.

It'S like your gold supply. And the theoretical gold supply in Fort Knox is what it is. Yeah, well, it's, it's a, it's a, it's a way to limit money cross creation. Monetary discipline. Right? Is that what you're talking about?

Well, if you use those coins to buy up all the, all the bonds.

That are out there, in other words, you pay off the debt, you would.

Not have increased the money supply because.

The bonds are actually part of the money supply. People, people, consider when, if you've got your money in bonds, how much money.

Do you think you have? Like, let's say you have $5,000 in bond bonds and some other money in.

Stocks and some other money in cash. And you look at your account, how.

Much money do you have?

You count those bonds as your money.

That's money that you have. I mean, it's no different from the.

Deposits that are counted, double counted when they become loans. So the fact that the government has borrowed that money, it's still your money.

It's still, you could cash that out at any time and you would have the money. So, you know, it's part of the liquidity of the money supply.

So if you turned it into cash.

So that we acknowledge that. What we're talking about here is it's not a debt when the government does it. It's not a debt when the government issues it.

It's the credit of the people. So these coins are just the same thing as a bond.

In other words, a bond is an iou. A Federal Reserve note is an iou. A bank note was a promissory note. It was the note of the bank.

Saying, we owe you.

We acknowledge that. You have $1,000 in the bank. We owe you $1,000.

So it's no different whether you call.

It a bond, which is an iou, or you call it a Federal Reserve note, which is an iou. It just makes everybody feel better instead of all this running around in panic.

Because how can we ever pay off.

A $15 trillion debt? Well, of course we can't pay it off. We don't need to pay it off.

We haven't paid it off since 1835.

And we've been doing well, you know.

As the debt grows, the money supply grows. The debt is the money supply. It's a misconception we should never have.

Called it debt in the first place. That was something that Andrew Jackson did.

Because they didn't have gold and nobody.

Would at that time.

Nobody believed in anything but gold. And so they faked it.

They made it look like they had gold they didn't have.

By taking the limited amount of gold.

That they had, they put it in the first US Bank. You know, they set up this bank.

Put their limited amount of gold in.

It, and then the bank started issuing.

Banknotes supposedly backed by gold.

So it was the same deal. They just multiplied their money by a.

Factor of 10 by making the gold.

Be a backing for this paper instead of the gold itself being the money. But what it meant was that now the government was in debt for its own money. Basically, it had to borrow these, borrow from the bank and owed money back to the bank.

So this debt just grows and grows and grows.

But what you could have done was.

Just call it money in the first place, which is what the American colonists did.

They just issued the money. They issued it as colonial scrip.

And it worked fine. I mean, it worked better some places than others. But properly.

Yeah, I hear what you're saying there, but in the more simplistic form, and I'm calling the reserve banking system and fractional reserve lending and so forth. I'm going to call that the more esoteric concept, but just in the more simplistic concept. I mean, we have at minimum a 6, 60 to $75 trillion, some say more obligation. The size of our economy is what, 12 trillion a year? We're in a pickle. I mean, we're in debt. When you look at it, simplistic debt, you don't think so?

I think we're misperceiving what money is.

I mean, what are those debts?

First of all, you're talking about Social Security.

That's years away when it comes, you.

Know, that 50%, well, 42% or something like that of the federal debt is owed to the federal government.

I mean, you could wipe out half.

The debt by just voiding out the half that we owe to ourselves. That includes Social Security.

Everybody says, well, the government already spent the money.

Well, of course they did.

That's what you do with bonds.

I mean, you lend it to somebody else to use the money.

But the government can always pay that money back. Because the government is, or it should be, the issuer of money.

It's a sovereign government.

And money is just a representation of an obligation owed. You know, it's just a unit of value. Basically, we're saying everybody who retires is guaranteed X amount of money when they retire.

And so when they do retire, just give them the money. I mean, you can borrow it then you don't need to be. Right now those bonds are drawing what, at best they're drawing 2% interest. They're drawing very little.

So just spend that money, void out.

The bonds, void out the 50% of the debt that we owe to ourselves.

And then when it comes due, then create the money or borrow it if you feel more comfortable borrowing, but you're still just borrowing it against yourself.

And the idea model is in, I would say is in Japan. Everybody thinks Japan is doing so poorly, but Japan is actually doing very well because they owe that debt to themselves.

They owe it largely to their own central bank, which is totally interest free. And they owe it to the Japan Post bank, which is also a government owned bank. It's the largest depository bank in the world now. And the Japanese, Japanese people are the savers who have their money in the Japan Post Bank. So again, they owe interest to their own bank.

So their own bank is not going to worry about credit ratings and do all these things that will drive the interest rate up and make them very vulnerable.

They know that they have this very.

Low interest that they have to pay on this debt. Even though their debt is 240% of their GDP, they're still getting along fine.

So really, Ellen, this is kind of shocking for me to hear this. I just want to make sure I'm clear on this. So people talk about Japan's lost decade, which is really almost two decades now. Do you think that, that, I mean.

You disagree with that?

When you look at Japan's real estate market, you look at its situation, I think it's largely caused by demographics and the fact that, you know, Japan, Japanese people just aren't having kids. But that's sort of another issue I just want to talk about from a monetary and fiscal standpoint. And you know, in terms of their markets and economy and prosperity, you think they're okay, really?

Well, in 1988, they were the world's largest creditors.

Their banks were taking over and they.

Were our largest creditors. And that's when the bank for International.

Settlement imposed Basel 1, which is the first capital requirement.

And it was done specifically. I mean, I wrote an article on this, I quoted sources.

That was apparently done to get the.

Japanese banks to bring them down to size. So the capital requirement was raised to.

8% and the Japanese banks were thinly capitalized. And this broke the banks and that the banks went bankrupt.

They were Nationalized, even though they didn't call it that. The stock market broke and collapsed. We were also responsible for that. We talked them into setting it up the way they did.

But anyway, so that all happened, and.

It was the external banking system that was responsible for that.

So the Japanese just laid low after that.

First of all, they're not aiming for growth.

I mean, they're a small country. They're aiming for lifestyle.

So they have a very good Social Security system. They have very good educational system.

They have all these things that make for a secure life. And as Hazel Henderson argues, we don't value gdp.

Right. We only count GDP in gdp, things that you sell, and we don't count the things that the government makes. Well, the things that the government makes are like. I mean, the government pays for Social.

Security and health care, a lot of healthcare.

I think they pay for health care there. I'm not really sure what their health care situation is. But anyway, all these benefits that the government pays for aren't caught in a gdp, but they should be, because they're definitely something that improves our quality of life. We count in GDP weapons, weapons that we sell abroad. I mean, really horrible things that improve our quality of life at all.

As long as it's a sale, it counts.

Ellen, I gotta tell you, that is a fascinating perspective. It really is.

I see what you're saying. The part where maybe I take issue.

With you and I just kind of want to understand where you're coming from, is that, personally, I'm just not a fan of government. I don't think the government really makes much of anything. I know we need it, but I'd like to keep it real small and real lean. And I just look at the government as something that sucks money out of the private economy, takes a giant handling fee and gives a little bit of it back.

Do you disagree with that?

You probably do. It sounds like.

Yeah, I probably do. Well, I mean, there's government and there's, you know, there's government.

The government we have, it's corrupt. I mean, it's been taken over by big banks and big corporations.

Sure. Clearly, it's a question. Corporatocracy.

It's.

It's fascist in a way. People on the right keep talking about socialism, and I definitely see their point, but it's more like corporate fascism in a way. You know, and it's big corporate fascism because the. The people on the left, they're okay with big government. The people on the right are okay with big business. But I think they're both Wrong. I'm not okay with either one.

But that's not properly set up. A government could be very good and useful. I mean, here in Switzerland, for example, they have public banks, publicly owned banks. They have.

Or say France. I mean, I actually think France has.

A very nice lifestyle. They have a lot more days off than we do.

They have very good health care provided by the government.

I mean, there are ways to work it so that it's quite, quite good. And I think the Japanese do it well. I know there's a lot of.

I mean, it's sort of a patriarchal.

Well, it's patriarchal. It's totally insular. I mean, try and come and be an outsider in Japan and do business there, it's impossible. I mean, it's a very. It's just a very different society over there. And I love, you know, I've been to Japan only one time, but I love my visit there. I mean, the people are so polite.

It's.

It's a really nice place, but it's. It's very insular. I mean, that's, that's the way word I would really give it. It's cut off from the outside world in a lot of ways.

Yeah. Well, going back to North Dakota, which.

I think is a little like Japan.

They take care of their own.

You know, we had contact with. We have some people on our. They're consultants for the Public Banking Institute who work for the bank of North Dakota.

And we were just.

We had had a conference call last.

Week and the man we were talking to, he was just talking about. We said, well, where did they get the money to fund this infrastructure and stuff?

And he says, well, you know, there are a lot of funds that have money sitting around. So we just borrow from those funds, you know, like rainy day funds or whatever.

I mean, he's not even thinking about.

It would be so difficult to do that in California. You'd have to pass laws. And everybody would say, no, no, that was for the forestry, whatever.

Right. And all the special interests would come in. Yeah, right, I agree.

But they just.

It's one big family. I'm like, well, look, we got the money.

It's sitting over here.

It's not doing anything, so let's use that. And so they have this separate entity in the government that its business is.

To fund infrastructure, I think. And he said, of course, you know.

It'S really only two guys and they're in the bank of North Dakota. I mean, they're in the building in the bank of North Dakota.

So they're all sitting there walking across the hall and supporting each other.

You know, like we need a guarantee so that we don't have to deal with capital requirements. Sure, we'll do that for you. So I don't think they even realize.

How very common sense their approach is. I mean, they don't realize what they.

How good the thing is that they have because they don't realize how bad it is everywhere else.

Yeah, very interesting. No, the North Dakota model is of great interest to me. I don't know that much about it, but I think it's fascinating what they do. One more thing I'd like to just ask you, Ellen, before we go. And I appreciate you talking to us from such long distance. You probably have some opinions about Glass Steagall and I just wanted to get your take on that before we go, if I could. If you have any thoughts about Glass Steagall.

Well, they should reinstate it if they could.

What would that do for us?

It's been through all this stuff in.

The 30s and they set up rules.

The, to prevent all the disasters that now we're going through again because we got rid of the.

I mean we've already done this once.

We're repeating history. In 1937, you know, they did it went into all this deficit reduction and.

Then that caused another depression.

We're doing the very same thing they.

Did in the 30s.

Hopefully we won't have to have World.

War 3 in order to get out of it.

Ellen, give the listeners your websites.

You've got two different websites, I think Web of Debt, which is the title of your book that I originally knew you for and then about the public banking. Give out those two websites if you would.

Okay.

Webofdebt.com and that's my book, Web of Debt.

And I actually have 11 books but that's the one that's most relevant right now. And publicbankinginstitute.org publicbankinginstitute.org so you can find.

Out what Ellen's up to there. And thanks so much for being on the show today, Ellen. We'll talk to you soon.

Okay, bye.

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