Emergency Program of Monetary Reform for the US


Richard Moore

Although there is little hope for the reforms proposed here, under our current 
political regimes, the article is very good in terms of understanding how our 
dysfunctional economic system operates.


Original source URL:

An Emergency Program of Monetary Reform for the United States

By Richard C. Cook

Global Research, April 26, 2007

        The author of this independent report worked for the Carter
        White House and NASA, then spent 21 years with the U.S.
        Treasury Department. In the report, he explains that the
        U.S. financial system headed by the Federal Reserve System
        has failed and that only an emergency program of monetary
        reform can address conditions which may be leading to a
        catastrophe like the Great Depression or worse. Such an
        assessment has become increasingly familiar as economic
        storm clouds continue to gather. But the analysis and
        recommendations contained in the report may be surprising,
        even to many progressives.


The mass media show attractive images of the comfortable lifestyles of the upper
income earners who benefit from the cash-rich global economy. Which luxury car 
to drive, which championship golf course to frequent, which hedge funds to 
invest in, which stock brokers to consult‹good questions if you¹ve got the 
money! But behind this attractive scenery, debt, bankruptcy, and poverty are a 
tsunami that is overwhelming much of the world¹s population, including growing 
numbers in the U.S.

Following close on the heels of these calamities is a worldwide breakdown in law
and order. Drug dealing, money laundering, gangsterism, white collar crime, 
political corruption, weapons trafficking, human slavery, terrorism, and endemic
warfare are the dark side of a global financial system where everything has a 
price, the rich seem above the law, and individual security is almost impossible
to attain.

Behind the fences of our gated communities, we fancy ourselves the ³good guys² 
in this scenario. We¹ve learned to blame the victim, failing to see that it¹s a 
world the U.S. and the other Western powers have fashioned through our 
centuries-long march to own or control everything that can have a price tag 
attached to it.

Meanwhile, ³dollar hegemony² has flooded the world with U.S. currency, loans, or
debt instruments to support our fiscal and trade deficits, pay for our 
extraordinary level of resource utilization, induce foreign governments to 
purchase our armaments, ensure the allegiance of their governing elites, and 
maintain their economies in subservience through World Trade Organization and 
International Monetary Fund trade and lending policies.

Today we are engaged in the outright military conquest of the Middle East. Our 
political leaders tell us that if we don¹t fight the ³terrorists² in Bagdad we 
will have to fight them on our own shores. But India, which has become our 
largest armaments customer, has seen a soaring number of suicides among bankrupt
farmers left out of that nation¹s economy. The illegal immigrants who have 
flooded the U.S. from Mexico have watched NAFTA destroy their own family farms, 
where 600 Mexican farmers a day are forced off the land.

But now our pigeons are coming home to roost. The CEO of one of our leading 
brokerage houses received over $53 million in bonuses in 2006. Not far from his 
plush Wall Street office, veterans of two Iraq wars sleep in homeless shelters.

While U.S. corporations, including the financial industry, are reaping enormous 
profits, our domestic economic problems are growing, including an enormous load 
of cumulative societal debt, a continuing decline of real family income, and 
increasing wealth and income gaps between the rich and the rest. Despite the 
reports in the mainstream press about the economy¹s ³soft landing² and the 
continued record-setting performance of the stock market, the financial markets 
have been shaken by the bursting of the housing bubble and soaring home 
foreclosures. Meanwhile, the relentless decline of our domestic manufacturing 
sector continues.

But one thing is connected to another. A good investigator always asks, ³Who 
benefits?² The most salient feature of our financial system is that the creation
of new purchasing power through credit‹loans, mortgages, credit cards, etc.‹is 
controlled by private financial institutions and, though regulated, works 
principally for their profit. Because we are never taught about alternative 
economic structures, we take this system for granted, though earlier generations
had profound fears of becoming what President Martin Van Buren prophetically 
called a ³bank-ridden society.²

The private control of credit has given vast wealth and ironclad political 
dominance to what Van Buren and his 19th century contemporaries warned about‹the
Money Power, even though our Constitution gave Congress authority over our 
monetary system. This authority had been compromised through the system of 
state-chartered banks before the Civil War. But with the National Banking Acts 
of 1863-4 and the Federal Reserve Act of 1913, Congress largely ceded its powers
over money to the private banking industry.

Today, high finance rules our economy and most of the violence-wracked world. 
The system came into existence in order to provide the capital for economic 
growth during the industrial revolution, but those who ran it figured out how to
do so in ways that vastly increased their own wealth and power. They rule the 
world today.

But the system is man-made, with functions and effects that can be measured and 
analyzed. The system was created by historical forces, but if we want to, we can
identify these forces and change the system. What we have lacked is the 
understanding of our possible choices, along with the discernment and moral 
courage to act on our understanding.

The direction in which change must be sought is that of greater economic 
democracy; that is, a higher degree of sharing of the bounty of the earth by 
more people. Though our economics textbooks don¹t mention it, a reform movement 
began in Great Britain in the 1920s called Social Credit, which showed how a 
financial system in a modern economy can be so structured as to serve democracy 
and freedom, not erode them. This knowledge has had a profound influence in 
parts of the British Commonwealth but has rarely been discussed in the U.S. This
report explains how the Social Credit system could apply to the U.S. economy, 
along with other monetary proposals that have been put forth by U.S. reformers 
from the 19th century until today.

The report provides a unique diagnosis of the underlying financial issues by 
applying new concepts to familiar data. It criticizes finance capitalism but 
without going to the other extreme of proposing a collectivist solution. It 
affirms the value of ³democratic capitalism,² combined with a shift to more 
public control of credit, and it offers a new approach to achieving worldwide 
prosperity, starting with economic recovery in the U.S. This can be done through
measures that could be implemented today by inspired political leadership.

Most economic reform programs nibble around the edges. Many proposals address 
symptoms, not causes, such as suggestions to use tax or trade policy to bring 
exports and imports back into balance. Other observers would destroy society‹or,
more accurately, watch it destroy itself‹before building something new. Another 
line of reasoning says we can only look forward to decades of a lower standard 
of living before we work our way out of the present crisis.

Monetary reform accepts none of these scenarios. It takes life as we live it on 
the individual level in a technological age as basically positive. It embraces 
the enormous productivity of modern industrial methods with approval and hope. 
But it identifies factors in the nature of industrial production at the level of
the corporation as creating a chronic state of instability. These factors, which
are explained later in this report, create an economy in a state of continuous 
crisis and disintegration to which governments react in all the wrong ways

One way is to permit the misuse of debt-financing to bridge an ongoing gap 
between the value of production and the purchasing power available to the 
community to absorb it. Another is to attempt to overcome instability by 
fostering continuous economic growth merely through inflationary bubbles where 
financial transactions can be taxed as though they produced real, tangible, 
value. Another is through an aggressive foreign policy based on trade and 
monetary dominance. Obviously, if all developed nations pursue such policies‹as 
they inevitably do‹wars must result. It is thus no coincidence that the last 100
years of incredible progress in science and technology have witnessed almost 
constant warfare.

The most surprising thing that monetary reformers declare is that our problems 
stem not from a failure to manage fairly the limited resources found in a world 
of scarcity but from our inability to manage a world of almost unlimited 
abundance and prosperity. The first thing monetary reform would do would be to 
change the underlying financial structure from one that confines this abundance 
to the privileged few‹whether nations or individuals‹to one that would provide 
it to everyone on earth. The measures which are available have been discussed 
among reformers for many years and could begin to have a positive effect within 
weeks of implementation. This is the direction in which economic stability can 
and should be sought, rather than the terminal out-of-control configuration of 
global corporatism, finance capitalism, and military aggression that has brought
us to the brink of catastrophe.

For the glory of God and the love of man, we now owe it to humanity to make 
these epochal changes. In the meantime, it would be foolish for people to wait 
and do nothing while the system continues to crumble. The report closes with 
suggestions for immediate action by concerned people.


Ever since mankind began to invent machines to do our work, we began to look 
forward to a ³leisure dividend.² Products could now be manufactured with far 
less human effort. Every new wave of mechanization, from the harnessing of steam
power in the late 1700s to the cybernetic revolution of today, has held out the 
promise of less work and more enjoyment of the good things of life.

We¹ve seen tremendous gains for the workforce. We enjoy a forty-hour workweek, a
cornucopia of new consumer products, universal public education, longer life 
spans, revolutions in communications, medicine, entertainment, and 
transportation, a whole new world of interesting things to do, to know, to 

The world is so much happier and better off than in the days when our ancestors 
worked all day and half the night just to survive, right?

Well, wrong.

Today, the quality of life in the U.S. seems to be moving backwards. While the 
shelves of the big-box stores are crammed with products, most of them are made 
overseas by low-paid laborers from countries like China and Indonesia. The 
people who work in the stores earn wages that hover around the poverty level.

Not long ago, in the 1950s, a single wage-earner, usually the husband, could 
support a family while the wife stayed home and looked after the children. Yet 
they could buy a house, a car, and household appliances, go away on vacation, 
and send the kids to college.

Today both husband and wife must work, often at more than one job, to make ends 
meet. Inflation has been rampant in big ticket items such as the cost of a home,
health care, utilities, insurance, and higher education, and is now affecting 
the cost of food.

The costs of petroleum products are soaring again. Over forty-seven million 
people don¹t have health insurance, poverty is on the rise after a generational 
decline, and thirty-five million don¹t have enough food to eat. Good jobs are 
scarce, and stress-related illness has become an epidemic.

Meanwhile, public assets like electricity have been privatized at an alarming 
rate. Public infrastructure such as roads, bridges, school buildings, levees, 
and water systems are often crumbling, with state and local governments unable 
to make improvements without budget cuts elsewhere or stiff tax increases to pay
the costs of borrowing.

While the recent weakening of the dollar has improved the U.S. export position 
slightly and created a few more jobs, the official unemployment rate of less 
than five percent does not include people no longer looking for work, nor does 
it take into account the huge number of jobs that are low-paying and without 

In fact the real purchasing power of the American workforce is on a steady 
downward trajectory, while the average pay of employees at Wall Street brokerage
firms is more than $250,000 a year, and the CEOs of some U.S. companies earn 
thousands of dollars an hour.

But is the problem really that those at the top of the heap earn so much more 
than the rest of us? If so, the solution would be simple. We should do some of 
the things many reformers advocate, such as restore a truly progressive income 
tax, close corporate tax loopholes, implement universal health insurance, and 
make borrowing for college a little less expensive.

But while economic policies that are fairer may be desirable, they would fail to
address major underlying structural issues, especially financial ones. The main 
problem with the U.S. economy today has to do with earnings and prices. People 
simply do not earn anywhere near enough to buy what the economy produces.


In 2006, our Gross Domestic Product was about $12.98 trillion, with the enormous
trade deficit of $726 billion figured in. Our total national income was $10.23 
trillion, including wages, salaries, interest, dividends, personal business 
earnings, and capital gains. Of this amount, at least 10 percent, or $1.02 
trillion, would have been reinvested either at home or abroad, including 
retirement savings, leaving total available purchasing power of $9.21 trillion.

The $12.98 trillion GDP minus $9.21 trillion of purchasing power equals $3.77 
trillion. That¹s what the figures indicate was the shortfall that would have 
been needed to consume the entire GDP.

Thus we do not earn enough to buy what we produce. What does this mean, and who,
or what, is to blame?

Despite the high CEO compensation, the huge Wall Street salaries and bonuses, 
and the wealth and income disparities between high and low earners, we should 
not blame the ³capitalists²; i.e., the business owners, for the entire problem. 
Business profit taken as dividends is only about 7 percent of GDP.

Besides, the ³capitalists² are us! Forty-five million Americans have some 
measure of stock ownership, including a multitude of tax-deferred retirement 
plans and mutual funds. This is one of the strengths of our economy‹the 
³ownership society²‹for which we deserve a pat on the back. Also, the dividends 
we earn are mostly spent, so most of it finds its way back into the economy.

Let¹s look at the situation from a slightly different standpoint, starting with 
the $12.98 trillion GDP. It¹s said that the U.S. economy is the most powerful 
and productive in the history of the world. This is true, even with our trade 
deficit and our decline in manufacturing due to relocating so much of our 
factory production abroad. So we should be dancing in the streets. There should 
be festivals, celebrations! Obviously that¹s not happening. Why not?

It¹s not happening because of how we define the $3.77 trillion gap between GDP 
and earnings. Since we produce the value of our entire GDP with such low labor 
costs, the $3.77 trillion differential really should be viewed as the total 
societal dividend, right?

But it¹s not defined as a dividend. Rather it¹s defined as a shortfall. This is 
because it still appears in prices. And with the stagnation of wages and 
salaries, combined with the current slowdown in appreciation of housing values 
which is resulting in lower capital gains, the shortfall is growing.

Obviously, those goods and services still have to be paid for‹the entire $12.98 
trillion. The way they are paid for is through debt. You, the consumer must go 
out and borrow to cover the $3.77 trillion gap between GDP and purchasing power.
This is how much our debt increased in 2006‹the amount of new debt less what we 
paid off. This new debt was 29 percent of GDP last year.

Note that this analysis deals with gross numbers, so does not dwell on the major
social problem that income disparities are growing within the U.S., with a 
higher proportion of income each year going to the wealthiest segments of 
society. Conversely, the debt burden which fills the gap between GDP and income 
falls disproportionately on the lower income brackets.

But the point is undeniable. Our ability to produce our incredible GDP with 
relatively little labor means that, under the existing system, we have to borrow
money from financial institutions and pay with interest to enjoy what really 
should be the leisure dividend mentioned at the start of this report. Remember 
this point, because we¹ll be coming back to it.

Finally, these numbers shouldn¹t surprise anyone. Every responsible analyst has 
made the point that ours is a consumer-based economy and that consumer borrowing
keeps it afloat. It¹s why economists and politicians keep such a close eye on 
the ³consumer confidence² polls. It¹s why President George W. Bush, after the 
9-11 tragedy, told us to ³go shopping.²


Again, what should have been a total societal dividend from our fantastic 
producing economy somehow became a debt. How did that happen? Let¹s focus on the
debt for now.

Obviously, the $3.77 trillion we borrowed‹the debt we just discovered where a 
dividend might have been expected‹included a little fun‹vacations, 
entertainment, wide-screen TVs, etc. But there¹s not a lot of frivolous 
expenditure in the average family¹s budget. Most of what we buy we need just to 
live. Many families even charge groceries on their credit cards. At the end of 
2006, total debt in the U.S., including households, businesses, and all levels 
of government, was $48.3 trillion. This is 50 percent higher than the sum of all
personal wealth held by the entire U.S. population and 38 percent higher than 
the value of all publicly-traded U.S. companies!

That¹s $161,000 per U.S. resident, or $564,000 for a family of four, payable 
with interest. Again, it includes personal debt, business debt that is reflected
in the prices we pay, and federal, state, and local debt for which we, the 
taxpayers, are accountable. And the debt has been building up from year to year.
It¹s increasing, not going down.

During the year 2005-2006, debt grew five times faster than the GDP. The Federal
Reserve has calculated that total debt today is 460 percent of the national 
income vs.186 percent in 1957. Credit card debt was $9,300 per household in 2004
and is more now, three years later. A typical family pays $1,200 a year in 
credit card interest charges alone. In 2004, students graduating from college 
had an average debt of $21,899. Many end up owing $80,000 or more, especially if
they attend law or medical school. Under the 2005 bankruptcy ³reform² 
legislation, student loan debt can never be written off.

One result of skyrocketing debt is that the financial industry, which today 
includes much more than just banks, is the fastest growing sector in the 
economy, with capitalization increasing from less than five percent of the 
Standard and Poor¹s total in 1980 to twenty-two percent today. The financial 
industry now generates thirty percent of all U.S. corporate profits. These 
profits result from account and transaction fees, commissions, interest charges,
foreclosures, penalties, and late fees.

Much of the profits‹which totaled about $545 billion in 2006‹are the financial 
industry¹s windfall, resulting from an economy that substitutes debt for earned 
purchasing power. These profits would have paid the entire 2006 Department of 
Defense budget with $126 billion left over and were larger than the GDP of 92 
percent of the world¹s nations. While some of the profits support consumption 
through payment of salaries, dividends, and bonuses to financial industry 
executives, employees, and shareholders, much is plowed back into new lending. 
This contributes to further erosion of total societal purchasing power.

The data on financial industry profits also call into question the national 
rollback of usury regulation which started in the 1980s. Few realize that 
interest rates in the range of 6.5-7.5 percent, which are viewed today as ³low,²
are actually higher than in times past. The average mortgage interest rate in 
1960, for example, was 5.25 percent.

A working definition of ³usury² has long been any interest rate higher than what
can be justified by the lender¹s risk. This has been forgotten in the face of 
contentions by the Federal Reserve that raising interest rates is a monetary 
tool to control ³inflation.² The contentions are disproved by the fact that 
inflation was low in the 1950s and 1960s, when interest rates were below today¹s
levels, but much higher since the 1970s. Thus the data suggest that high 
interest rates are actually a cause of inflation rather than a result.

A large portion of society¹s debt is incurred by the federal government, with 
the taxpayer eventually having to pay. Currently the national debt is over $8.84

James Turk wrote in an report titled ³Economic Suicide² in The Freemarket Gold 
and Money Report, March 2006: ³ŠThe dire financial straits the federal 
government is facing, its financial position, is even worse than it appearsŠ.In 
the 2005 Financial Report of the U.S. Government, U.S. Comptroller General David
Walker reported that, ŒThe federal government¹s fiscal exposures now total more 
than $46 trillion, up from $20 trillion in 2000.¹ Yes, it¹s insane. But it¹s 
even more insane that people buy the U.S. government¹s T-Bonds and T-Bills, 
thinking that they are a safe, low-risk investment.²

In fiscal year 2000, 1.1 percent of the federal government¹s cash flow came from
new debt. This soared to 20.4 percent in 2005. During that period, total federal
debt grew 40.5 percent. Higher interest rates will produce a 9.3 percent 
increase in interest on the national debt in the 2008 federal budget that will 
lead to cuts in social services, education, and health care.

There is pressure from budget belt-tighteners to reduce the government¹s $46 
trillion exposure by slashing future retirement benefits like Social Security or
entitlement programs like Medicare, Medicaid, veterans¹ benefits, food stamps, 
etc. Thus the most vulnerable members of society are expected to pay for 
structural financial problems that have left the federal government, according 
to competent observers associated with the Federal Reserve, functionally 

Federal debt is only one element of spending by all levels of 
government‹federal, state, and local‹which has become a major drag on the U.S. 
economy. Not only must U.S. wage and salary earners pay for the debt that 
supports their spending, they must also pay a cumulative tax burden equal to a 
third of their total income.

We pay as much in taxes as for housing, food, and transportation combined. 
Governments also take advantage of housing inflation by taxing newly assessed 
values to the point where people whose incomes don¹t keep up, and who may even 
own their homes outright, are forced to sell and move away.

Our inability to support our economy through earnings also results in the fact 
that the U.S. supports much of its enormous fiscal and trade deficits by selling
securities to foreigners, who own 13 percent of U.S. stocks, 24 percent of 
corporate bonds, and 44 percent of Treasury bonds. It was estimated almost a 
decade ago that two-thirds of U.S. currency was in foreign hands. When 
foreigners bring their dollars into U.S. markets they drive up prices, 
especially of real estate.

As indicated earlier, another aspect of the problem is that the growing debt 
affects different economic classes in different ways.

According to the Congressional Budget Office, the top one percent of U.S. 
households owns 57 percent of all income, capital gains, dividends, interest, 
and rents. These super-rich, along with the upper middle class, are debt-free or
are able to leverage debt profitably, and are often the owners and executives of
the financial institutions to which the rest of us owe money.

The middle-class, declining as a proportion of the population, is under 
increasing pressure as debt eats up more of the family income. For them, debt is
often a source of intense personal stress, the more so as family savings have 
plummeted, Many families have cashed in the equity in their homes for spending 
money, but the remaining equity is now at an all-time low proportionate to 
assessed value‹55 percent in 2003 vs. 85 percent in 1950.

The working class or those in poverty or without jobs are being crushed. A low 
unemployment rate due to the creation of more ³service economy² jobs may prevent
mass starvation, but that¹s about all. According to The Nation, there is no 
longer any place in America where a person earning a minimum wage can afford 
even a one-bedroom apartment.

These people, living in the ³fringe economy² and relying on payday loans, group 
housing, check cashing stores, and rent-to-own stores, are the prey of a growing
industry of usurious lenders often backed by corporate financial giants. Perhaps
a third of Americans, including tens of millions of the ³working poor,² are in 
this category, with their ranks growing daily.

Finally, there are the homeless, abandoned by the most abundant economy in the 
world, approaching a million in number nationwide.

What is the Bush administration, Congress, or the Federal Reserve doing to 
address the potential for financial catastrophe due to skyrocketing debt? The 
answer is, ³nothing,² unless you call making it more difficult for families to 
qualify for mortgages ³doing something.²

The one thing that is certain is that they don¹t have an answer.

The answer is not tighter regulation and more restrictions on lending, which may
protect financial institutions from exposure, but do little to help consumers. 
Nothing is solved for the economy at large by forcing consumers to pay high 
rents instead of mortgage payments, postpone buying needed cars or other major 
household items, or get a low-paying job instead of going to college.

The answer is not for the Federal Reserve to cut interest rates, though it might
help consumers a little in the short run. But too much damage has been done in 
the past with interest rate cuts that ignored economic fundamentals, such as the
2001-3 cuts that led to the housing bubble which is now deflating with drastic 
consequences. Besides, cuts are likely to cause the foreign investors to pull 
out of our investment markets, leaving us unable to service our gigantic 
existing debt load.

The answer is not to cut the costs of production. Employee benefits would be 
further decimated, more jobs would be eliminated or outsourced overseas, tax 
revenues would fall, and ³fiscal austerity² would lead to more reductions in 
government social services.

The answer is not harder work or productivity increases. This may lead to more 
or cheaper goods, but since wages and salaries never keep up with productivity 
growth, the gap between consumption and production also grows. In fact, the more
we automate, the harder we work, and the more efficient we become, the worse off
we are financially! Again, it¹s because purchasing power never keeps up with 

As indicated at the beginning of this report, higher taxation of the upper 
brackets and closing corporate loopholes would be more fair and would allow some
degree of recovery of income derived from financial profiteering, but even this 
would not be nearly enough to cover the gap between GDP and purchasing power.

It is this gap, currently filled through debt, which is taken for granted and 
has never been properly investigated or explained by any official body. The debt
taken out to fill the gap is the 600-pound gorilla in the room that the 
politicians and pundits have agreed to ignore.

It¹s a bleak picture, but not a new one.

President Franklin D. Roosevelt addressed the problem half-consciously with the 
massive spending programs of the New Deal. This was an attempt to overcome the 
shortage in purchasing power through a large federal deficit and a steeply 
progressive income tax, rather than placing the entire burden on middle and 
lower income citizens as the U.S. is doing today. The U.S. was finally able to 
work its way out of this crisis through spending on World War II and a large 
balance of payments surplus which continued into the 1960s. But with today¹s 
huge trade deficit, that solution is not available and, with monetary reform, 
would not be necessary.

But the situation still points to problems monetary reformers have been writing 
about for over a century. Unfortunately, for the last fifty years, since the New
Deal faded into memory, our political leaders, the mainstream media, the 
establishment economists, and the financial and corporate vested interests, all 
of whom are free-market fundamentalists who believe government is helpless to 
remedy the situation, have ignored what the reformers have been saying.

For all of them, ³growth² is the only answer to whatever problem may arise. But 
when growth in GDP falters, or is not matched by purchasing power, not only does
it not improve conditions, it makes them worse. This is the underlying flaw in 
the system that cries out for an answer.


In 1918, Scottish industrial engineer Major C.H. Douglas published a book titled
³Economic Democracy,² where he wrote that several major factors associated with 
modern mechanized production resulted in a gap between the value of manufactured
goods and purchasing power distributed through wages, salaries, and dividends. 
That is, he addressed the exact problem the U.S. and other developed economies 
were facing both then and now.

In a 1932 publication, The Old and the New Economics, Douglas listed several 
systemic causes ³of a deficiency of purchasing power as compared with collective
prices of goods for sale.² These included business profits not distributed as 
dividends (retained earnings); individual savings, i.e., ³mere abstention from 
buying²; ³investment of savings in new works, which create a new cost without 
fresh purchasing power²; accounting factors, where costs previously incurred are
carried over into current prices; and ³deflation², i.e., ³sale of securities by 
banks and recall of loans.²

Other elements not mentioned by Douglas include insurance, which is costly in 
the U.S., maintenance of unused plant capacity, which is extensive due to the 
decline of U.S. manufacturing output, employer retirement contributions, and the
cumulative sum of retained earnings and other cost factors when businesses buy 
from each other.

These factors all show up in the prices of goods and services but are not paid 
as earnings to individuals. A simple way to understand what happens is that 
prices that a business charges must not only pay for labor costs but must also 
cover all non-labor costs, as well as equip the firm to perform in the future.

Also, while the financial and accounting systems force consumers to pay for the 
costs of capital depreciation, they do not give them credit for appreciation of 
the value of the business that will appear through future capital gains. This 
applies particularly to technology-intensive companies where high R&D costs must
be recovered in prices but do not show up proportionately in employees¹ 
immediate take-home pay.

Taken together, the impact of all these factors is devastating to consumers and 
the economy at-large, because we never earn enough to compensate for what the 
tax and accounting systems label as costs.

Douglas¹s analysis had solved the main financial problem of the industrial age, 
one which puzzled most of his contemporaries, including Winston Churchill, who 
said in a 1930 speech at Oxford: ³Who would have thought that it would be easier
to produce by toil and skill all the most necessary or desirable commodities 
than it is to find consumers for them? Who would have thought that cheap and 
abundant supplies of all the basic commodities would find the science and 
civilization of the world unable to utilize them? Have all our triumphs of 
research and organization bequeathed us only a new punishment: the Curse of 
Plenty? Are we really to believe that no better adjustment can be made between 
supply and demand? Yet the fact remains that every attempt has failed. Many 
various attempts have been made, from the extremes of Communism in Russia to the
extremes of Capitalism in the United States. They include every form of fiscal 
policy and currency policy. But all have failed, and we have advanced little 
further in this quest than in barbaric times.²

Churchill was speaking at the start of the Great Depression, which, with unsold 
milk being poured in the farm fields, was the classic case of society¹s failure 
to distribute what industry and agriculture were perfectly capable of producing.
³Poverty in the midst of plenty,² became the hallmark of the modern age and 
continues to roar down the world¹s highways with a murderous vengeance today.

But Douglas showed how to solve the problem by an analysis of the concept of 
³credit.² He pointed out that there are really two forms of credit. One is ³real
credit,² which equates to the total ability of a nation to produce goods and 
services through increasingly efficient use of science and technology. Another 
way to define ³real credit² is to view it as ³productive potential.² The second 
is ³financial credit² issued as loans by the banks.

Douglas made it clear that in a system where the banks have a monopoly on the 
issuance of credit, as ours does, they are the most powerful entity in the 
economy and therefore will be the most powerful politically as well. They will 
enhance their power, and their profits, by keeping financial credit scarce, so 
the amount they issue will never approach the amount of ³real credit² that 
ultimately should derive from the bounty of the producing economy.

Even in a country like the U.S., where claims are made that credit is cheap and 
abundant, there are strings attached, simply because the limited amount of 
credit that financial institutions choose to make available obviously must be 
repaid and repaid with interest. Also, today¹s ³low² interest rates are still 
higher than in the 1950s and 60s. And when the inevitable credit contraction 
comes at the downside of every business cycle, the wealth of society gradually 
but remorselessly fall into the creditors¹ hands.

Further, people don¹t realize how much events on the national and international 
scale are connected in ways that are not evident on the surface. Monetary 
decisions, for example, have more to do with determining the course of a 
nation¹s economy than any other factor. Similarly, it is the state of its 
economy that determines a nation¹s foreign policy.

The usual recourse taken by a society whose economy is strapped for purchasing 
power, Douglas said, is to try to export more than it imports to make up for the
credit shortfall through a positive balance of payments. Because this leads to 
tremendous competition among nations for foreign markets as a matter of sheer 
financial survival, wars must result.

We can see that because the U.S. today has such a large trade deficit, even more
of the production/consumption gap must be filled by bank-issued credit or by the
conquests of war. This seems to be the case with the war on Iraq, whose real 
cause appears to be the desire for corporate profits through control of oil.

Douglas and his followers pointed out that war or mobilization for war also has 
the ³benefit² of destroying or idling large quantities of production (bombs, 
missiles, tanks, airplanes, etc.), which otherwise society is unable to consume.

The war economy also props up the employment numbers. It was World War II that 
finally pulled the U.S. out of the Depression, and it is the huge quantity of 
deficit spending on the military-industrial complex which continues to anchor 
the U.S. economy today. This has happened in accordance with the Douglas model 
of a debt-based economy where people do not earn enough to buy what industry 
must produce to create jobs.

Critics may ask why, if Douglas¹s analysis is correct, is it not generally 
recognized and accepted? The answer is that it IS recognized and accepted, but 
only by the monetary reformers on the one hand and the financiers on the other. 
But the financiers, who own the mass media, are not telling the rest of us, 
because it¹s what makes them so rich and powerful. This is why William Greider 
titled his 1987 book on the subject, Secrets of the Temple: How the Federal 
Reserve Runs the Country. We are dealing here with the deepest secrets of the 
financial control of the world.

One final point about Douglas is to observe that late in his career he made 
remarks that have been interpreted as anti-Semitic when he pointed out that, 
historically, certain Jewish customs allowed them to take advantage of non-Jews 
in business dealings. He also pointed out, as have others, that many of the 
financiers engaged in the banking business have been Jews. Douglas attributed 
their success to a high degree of organizational skill and their ability to 
excel and take control in business matters.

But the Social Credit movement itself is not and has never been anti-Semitic. 
Nor is the author of this report, and neither is the worldwide monetary reform 
movement. In calling for change, we are talking about a new system, a new 
philosophy, and new laws based on principles of justice and democracy that are 
accepted everywhere, though often embattled.

The Jewish people are not responsible for the present crisis and did not create 
it. It¹s simply the way the Western economic system evolved. Finance capitalism 
came out of the Italian city-states. At various times it furthered 
industrialization by making credit available, but any system can be abused. Any 
system outlives its usefulness and eventually has to be changed.


The way out of the monetary dilemma, said Douglas, was not to opt for Marxism or
socialism, because economic democracy cannot be achieved by another collectivist
³-ism² to replace finance capitalism. Also, Marxism, like finance capitalism, 
assumes an economy of scarcity. It simply says that workers have a greater right
to the limited supply of manufactured products than do business owners.

Douglas, by contrast, saw things through the eyes of an engineer. He saw that 
technology created a possibility of virtually unlimited abundance. He saw that 
workers¹ wages would fade away as a source of societal purchasing power as 
machines took over more of their work. But he also saw that this abundance could
be distributed to those who needed and deserved it only if society took back its
rightful prerogative of credit creation from the banks and made that credit 
available without hindrance to individuals.

Finally, Douglas saw that the distribution of credit could not be tied solely to
work because many jobs would cease to exist through advancing automation. These 
were revolutionary ideas and remain so today. Enough people understood what 
Douglas was talking about that his ideas became a significant political force in
Great Britain, New Zealand, Australia, and Canada. The Social Credit movement he
founded still exists in those countries.

The primary method this system would use to implement public creation of credit 
would be through a cash stipend paid to all citizens known as a National 
Dividend. Because the dividend would be an expression of the sum total of the 
producing potential expressed as the ³real credit² of the nation, it would be 
distributed as a book entry on a government ledger, not as a budget expenditure 
paid for by tax revenues. And the right to the dividend would not be tied to 
whether or not a person had a job.

Going back to the discussion at the beginning of this report of the $12.98 
trillion 2006 GDP vs. the $9.21 trillion in purchasing power generated through 
wages, salaries, dividends, etc., recall that the $3.77 ³gap² that should have 
been viewed as an overall dividend to society instead had to be financed by 

Now we¹ve come full circle. It¹s the National Dividend of the Social Credit 
system that explains the gap and would in fact provide it to the residents of 
the nation as their rightful benefit from creating, operating, and maintaining 
our wondrous economy. It¹s society as a whole which created our economy, and we 
are the ones who should benefit from it.

A Social Credit system would be implemented through simple bookkeeping. The 
funding of the National Dividend would be drawn from a national credit account 
which would include all factors which give rise to production costs and create 
new capital assets.

The national credit account could also be used for price subsidies. Prices in 
the U.S. are generally too high, leading manufacturers to cut costs by shipping 
jobs overseas. But it is simply wrong that the hard work we do for our standard 
of living should turn against us and end up taking away our jobs. A program of 
price subsidies would allow us to stop penalizing our workers for their high 
levels of productivity and could be funded as another element of the National 

You might ask at this point, is a National Dividend simply having the government
³give away² money created out of ³nothing²? If so, it¹s the same ³nothing² from 
which banks make loans under their ³fractional reserve² privileges, using as a 
base a small collateral of customer deposits and government securities. The 
difference is that bank loans must be repaid, while payments under a National 
Dividend system would not.

Thus the National Dividend would be real money, unlike Federal Reserve Notes. 
These are a substandard type of money, since each one is entered into 
circulation only through a debt payable to a bank with interest. But the 
National Dividend is not ³free² money. Rather it¹s the result of a powerful, 
productive, and scientific economic system that has developed over the course of
centuries and today is so strong that some of its benefits can and should be 
made available to everyone in society without their having to work as hard to 
enjoy them.

A National Dividend would represent the true wealth of the community, the bounty
of our incredible GDP and our amazing efficiency, of which all citizens should 
be the rightful beneficiaries once the business owners receive a reasonable 
profit. Again, it¹s important to realize that Social Credit is not a socialist 
system. Rather it is ³democratic capitalism,² in contrast to the ³finance 
capitalism² that has become so damaging.

We must realize too that while ³democratic capitalism² has been talked about, 
and is the basis of the idea of widespread stock ownership, it has never been 
implemented as the driving principle of a developed economy. Rather the cream is
always skimmed off the top by the financial elite through their control of 

Again, the heart of the Social Credit program is the fact that the collateral 
base of the government-managed National Dividend, as with all sources of 
legitimate currency, would be the productive capacity of the economy expressed 
as GDP. This is what already stands behind ³the full faith and credit of the 
United States.² This is the true ³credit² of the nation. It¹s what provides the 
real ³backing² of the currency.

Viewed from a philosophical level, the national credit, including that portion 
from which the National Dividend would be drawn, is the monetization of an 
intangible; i.e., the totality of the nation¹s real wealth as expressed by its 
laws, history, physical plant, land, resources, and the education, skills, and 
character of its people. Without all of these, the government could print 
dollars‹or the banks could lend them‹from here to eternity, and they would be 
totally useless.

Under a Social Credit system, banks would continue to function in limited ways, 
but they would not have the privilege of funding the entire shortfall in 
purchasing power of the nation.

Instead, if we¹d had a Social Credit system in place, the $3.77 trillion gap in 
the 2006 U.S. economy between production and earnings‹the bounty of our 
productive genius‹would have been bridged by a National Dividend averaging 
$12,600 for every man, woman, and child (legal resident or citizen) in the 

Looked at from another angle, this payment has some relationship to a ³basic 
income guarantee,² which has been advocated by many economists, politicians, and
reformers in the U.S. for decades, including Milton Friedman and Dr. Martin 
Luther King, Jr., and which is the idea behind the current citizens¹ dividend of
about $1,000 per resident under the Alaska Permanent Fund.

The difference between a National Dividend and a basic income guarantee is that 
the dividend is tied to production and consumption data and may vary from year 
to year. During years that the dividend fell below a designated threshold, the 
balance of a basic income guarantee could be provided from tax revenues. But in 
a highly-automated economy such as that of the U.S., the National Dividend would
normally be sufficient.

One use individuals would be likely to make of their dividend would be to pay 
down personal, household, or student debt, though some of that debt should be 
written off by restoration of a more reasonable‹i.e., pre-2005‹federal 
bankruptcy law. Further, if the dividend were reduced to an average of $10,000, 
the additional $2,600 could be used to pay down the principle on the $8.84 
trillion national debt as well. The entire debt could be retired in eleven 
years, with interest being funded from tax revenues as it is today.


Bankers and their apologists have always argued that any program of 
publicly-generated credit would cause inflation. This is nothing but propaganda.

Because a National Dividend would replace bank-credit of the same amount, it 
would bring the total monetary supply of the nation only up to the level of the 
GDP. It would not result in ³more dollars chasing the same amount of goods,² but
would simply bridge the gap. Not only would the National Dividend be 
non-inflationary, it could even be counter-inflationary by liquidating previous 
financial costs without creating new ones.

Besides, what is truly inflationary is the Federal Reserve¹s policy of creating,
then deflating, asset bubbles, the latest being the housing bubble. With such 
bubbles, prices inflate on the way up, but only level out on the way down. This 
can do irreversible structural damage to the economy.

Inflation due to the housing bubble has affected not only home prices‹it has 
also escalated rents and business leases, made it harder for people to start 
small businesses, and difficult for young people even to find a rented room. 
Meanwhile, home and property ownership is becoming a high-priced commodity 
available only to the rich.

This type of inflation has an immense ripple effect. What it means is that the 
dollars people earn can purchase less throughout the economy, because every 
business must operate in a building and on a parcel of land which now costs much

The housing bubble has been a catastrophe to democracy. With the Federal Reserve
at the helm and the private banking industry in charge of credit, the dollar has
lost almost 90 percent of its value since 1960. Since the early 1970s, virtually
every period of economic growth has been a Federal Reserve-created bubble, with 
the Treasury Department helping out in the early 1990s with a strong-dollar 
policy that contributed to the dot.com bubble. With every cycle, more and more 
assets fall into the hands of the wealthy, including both U.S. and foreign 

Also, bank interest by itself is inflationary, because it adds to the cost of 
doing business at many points in the production-consumption stream. The Federal 
Reserve claims it is fighting inflation when it raises interest rates, but what 
it actually does is slow down economic activity by suppressing wages and 
salaries or throwing people out of work. The higher interest itself pulls in the
other direction by adding to costs. Thus inflation has continued even during 
periods of monetary contraction, as in the1979-83 recession when the consumer 
price index rose almost 20 percent.

Another point on inflation is that under our system of bank-created debt-based 
credit, businesses inflate their prices to make paying their debt cheaper, as 
does the federal government. A government like ours that is deeply in debt 
always wants to pay with dollars of less value, so it pursues inflationary 
policies in order to push taxpayers into higher tax brackets. This is yet 
another way a bank-centered monetary system distorts real economic values and 
hurts working people and families.

Management of a modern producing economy the way the Federal Reserve does by 
raising and lowering interest rates is a travesty. With no participation by any 
elected official, and with the most superficial explanations, the Federal 
Reserve can and does alter the value of all the money in the United States. The 
U.S. courts, were they willing to face down the financiers who are the de facto 
controllers of the Federal Reserve, could easily rule that this is an 
unconstitutional confiscation of property without due process. At times, as in 
the early 1980s, when the Federal Reserve devastated the economy with interest 
rates of more than 20 percent, its actions are simply a crime.

Such an event can have far-reaching and even catastrophic consequences. When the
Federal Reserve decided in 1979 to begin a radical escalation of interest rates 
to combat the inflation of the 1970s, it took the Carter administration by 
surprise. After President Ronald Reagan took office in 1981, the top echelons of
his administration reacted to the Federal Reserve¹s actions with dismay.

The economy was collapsing in the worst recession since the Great Depression. 
But instead of confronting the Federal Reserve and its financial controllers, 
the Reagan administration took a series of radical actions to slash tax rates 
for the upper income brackets, deregulate the banking system, add huge sums to 
the national debt by throwing deficit-produced dollars at the 
military-industrial complex, and commence a new era of low-scale proxy warfare 
in Afghanistan, Angola, El Salvador, Nicaragua, and elsewhere known as the 
³Reagan doctrine.²

President Reagan was so relieved when the Federal Reserve finally relented by 
lowering interest rates in 1983, he declared in his 1984 reelection campaign 
that it was ³morning in America.² But instead of facing up to and addressing the
monetary actions taken by the Federal Reserve which ended up damaging our 
industrial infrastructure and leaving us with today¹s anemic ³service economy,² 
the Reagan administration panicked and set in motion a complex series of 
compensating actions that ignored the underlying monetary issues.

As a current example of how the system works, in early 2006, the Federal Reserve
announced an interest rate hike after data came out which showed that U.S. 
workers were seeing their pay go up a tenth of a percentage point higher than 

As a result of these kinds of interest rate increases, hundreds of thousands of 
people pay higher rates on their adjustable rate mortgages, foreclosures of 
homes increase, tens of millions pay more interest on their credit card 
balances, and the loans that fuel the American economy, paying for everything 
from raw materials to inventory and transportation, cost more. Also, business 
and individual bankruptcies increase, workers and salaried employees are laid 
off, and, in the example cited above, the stock market took a hit, with hundreds
of millions of dollars of value lost in a single day, wealth that simply 

The correct term for such a system is ³monetary hell.²

Reducing the payment of interest to banks through monetary reform would lessen 
inflationary pressure and eliminate the policy whereby the Federal Reserve tries
to create ³price stability² on the backs of working people. Its policy, which is
the essence of so-called ³monetary targeting² or ³monetarism,² and which is 
fully supported by a Congress dominated by monetary conservatives from both 
political parties, is really one of class warfare. As U.S. billionaire investor 
Warren Buffett has said, "There¹s class warfare, all right, but it¹s my class, 
the rich class, that¹s making war, and we¹re winning."


The method by which the Federal Reserve attempts to manipulate the economy by 
adjusting interest rates is not only destructive and tends to further the 
long-term interests of the financiers to the detriment of society, it would be 
completely unnecessary under a National Dividend system.

Under a National Dividend system with periodic cash stipends, most people would 
work anyway, but they would not have to work so much, and if they wanted to take
some time off, stay home and care for children or the elderly, take lower-paid 
positions in education or the arts, or learn a new profession, they could do so.

At last there would be a leisure dividend. Of course this goes counter to many 
of our prejudices, including fundamentalist notions that man is meant to toil 
and suffer. In practice, of course, those who toil and suffer exclude the 
monetary controllers.

Another way to look at it is that a National Dividend could at last provide 
enough personal freedom that all our time and energy would not have to be spent 
just keeping our bodies fed, sheltered, and clothed. We would be free for more 
important cultural and spiritual pursuits. Who knows what forms society might 
take or what we might accomplish if the individual were liberated from the 
crushing demands of economic necessity?

Another prejudice to overcome is the idea that if we just ³give people money² 
they will waste or abuse it or become alcoholics or drug addicts. But people 
tend to respond positively to social benefits and make the most of opportunities
when presented. Slackers always must face their own consciences and generally 
find it easier to live up to community expectations than live as self-indulgent 

Also, neither Social Credit nor a basic income guarantee is a ³free money² 
program. A strong, functioning economy is required. Freedom must be earned. And 
it has been earned in our mature, highly-developed economy.

Besides, what really turns people into alcoholics or drug addicts is a 
pressure-cooker economy like we have today. Maybe this is why, according to a 
report that came out in March 2007 by the National Center on Addiction and 
Substance Abuse at Columbia University, forty percent of college students are 
binge drinkers and twenty-three percent meet the medical criteria for substance 

Part of the problem is likely that students are staring at a future of huge 
debts and few good jobs, where the rich rule the world and the rest struggle to 
survive. Financial conditions may be reflected in young peoples¹ attitudes, 
where, according to the Higher Education Research Institute, the proportion who 
say it is ³essential² or ³very important² to be ³very well-off financially² grew
from 41.9 percent in 1967 to 74.5 percent in 2005, and ³developing a meaningful 
philosophy of life² dropped in importance from 85.5 percent to 45 percent. 
According to a Gallup survey, 55 percent ³dream about getting rich,² though few 
ever will.

For now, let¹s leave it to the imagination of the reader to ponder further the 
social, political, and economic benefits of a national credit program, including
the effects on the lives, aspirations, and attitudes of our youth. As you do so,
realize that it could mitigate many of the economic causes of the drive toward 
war that are threatening to blow up the world in Iraq and elsewhere; i.e., 
competition among nations for markets and resources and use of war expenditures 
to create jobs and profits. It would also provide the first real opportunity in 
decades for economic decisions to be made on the basis of other considerations 
than financial profits‹such as what economic policies would benefit individuals,
families, or the environment.

This change could result in another dividend‹the elusive ³peace dividend,² where
tax money saved from no longer needing to conquer the world to prop up our 
collapsing debt-based financial structure could be used for such urgent 
priorities as environmental protection and clean-up, infrastructure maintenance,
and alternative energy R&D and conversion. A 50 percent cut in military 
expenditures would yield over $300 billion per year for these and other 
beneficial purposes.


Finally, a comprehensive monetary reform program could also shift a certain 
amount of credit creation through lending to the federal government, away from 
the private banking industry, which has held that monopoly in the U.S. most of 
the time since the creation of the Federal Reserve System. This would reflect 
the fact that credit should really be viewed as a publicly-regulated utility 
like water or electricity. Overall monetary targets could be overseen by a 
Monetary Control Board within the U.S. Treasury Department, as advocated by the 
American Monetary Institute in its model legislation, the American Monetary Act.

The logic of publicly-controlled credit is obvious. If government has the 
authority to charter banks to issue credit through loans against a small reserve
of deposits, it could just as easily issue credit itself against a reserve of 
tax receipts or even against the ³real credit² of the nation¹s GDP. Because 
government would not have to earn a profit on lending, it could offer credit at 
much lower rates of interest, only enough perhaps to cover administrative costs.

An example of how public credit can be used successfully was the Reconstruction 
Finance Corporation which provided the U.S. economy with billions of dollars in 
low-interest loans from 1932 to the early 1950s. Another example was the Home 
Owners Loan Corporation which took over the mortgage industry from Wall Street 
speculators during the New Deal and established secure home ownership through 
low-interest fixed-rate loans as the basis for middle class financial security. 
This system was eventually destroyed by the deregulation of the 1980s.

Efforts to create a new basis for public credit today could restore programs 
like the RFC or HOLC and lead to low or even zero-percent interest lending 
programs for state and local infrastructure projects through a self-capitalized 
federally-sponsored infrastructure bank. Funds could also be distributed from 
the national credit account as grants. Public credit for infrastructure 
investment could become a vehicle for shifting the U.S. economy back in the 
direction of heavy manufacturing and helping to restore our status as the 
world¹s leading industrial democracy.

Public credit could also be used to provide or subsidize inexpensive loans at 
the local level for consumers, students, and small businesses. These loans could
be made available at interest rates as low as one percent. Such a program could 
be implemented by having the federal government lend money at low interest to 
commercial banks from a national credit account. The banks would then use the 
money to fund consumer loans while charging only an additional administrative 
fee plus a reasonable business profit.

Through a National Dividend and publicly-regulated credit, rural and small-town 
America, as well as Native American communities, all of which have had the life 
sucked out of them by poverty and debt, would vastly benefit, as would our 
center cities. In fact, a rebirth of local culture and self-sustainability, 
which various half-hearted and heavily bureaucratized federal programs have 
tried unsuccessfully to address, could at last be possible.

The monetary reform program would address several of the biggest social and 
economic problems, including lack of income security. Without income security, 
we can¹t even start to solve many other problems, because we have to work so 
hard just to keep our heads above water. And more of us are going under all the 
time. There was a time in American life when the leaders of government and 
business calculated what people needed for a decent life and tried to provide 
for it. Those times are gone. People today have been tossed to the corporate and
financial wolves.

A broad-based program based on public control of credit-creation would replace a
financial system that benefits mainly the financial plutocracy with one that 
supports democratic values and local financial needs. It would give back control
over their own lives to individuals and communities. It would immediately 
relieve some of the most serious sources of economic and political tension that 
are driving the world toward more and bigger wars. And by facilitating 
self-sustaining local economies both at home and abroad, the program would 
reduce the pressure for the large and powerful nations of the West to prey on 
the rest of the world.


Finally, a point should be made that would take another lengthy report to 
elaborate, which is that our existing economy, where GDP cannot be purchased by 
the cumulative national income unless it is heavily augmented by debt, is an 
economy operating in a straightjacket. Even with a $13 trillion GDP, it is an 
underperforming economy, one which is not even close to its full potential. It 
is another secret of high finance that its overall effect under today¹s 
conditions is actually to throttle legitimate economic activity, not facilitate 

If the national credit were free to expand along with production, there is no 
reason why our GDP could not be much higher than what it is today, except that 
it would be distributed more democratically. This level of abundance need not be
environmentally damaging, because it would include the application of technology
to mitigate environmental hazards and develop new materials and processes.

The abundance would have the effect of raising the standard of living for 
everyone in society. The same methods could be applied in other developed and 
developing nations. The fact that we have not allowed science and technology to 
reach this level of potential is another manifestation of the misuse of 
financial credit to create an unnatural scarcity which benefits only the 
financial controllers.

Also, increased economic activity would not necessarily lead to out-of-control 
world population growth, as a society¹s birthrate tends to decrease through 
voluntary means as it becomes more prosperous and stable.


Viewed from the perspective of this report, world history over the last 100 
years is starkly simple. The aspiration of every nation, regardless of its 
economic habits and ideology, has been to maintain something resembling income 
security for its population. This is natural; above all, people want to live.

But science and industry have made it possible to satisfy human needs without 
full employment, leaving the gap between purchasing power and production which 
this report has explained. But instead of supplying its citizens with the needed
National Dividend, governments have tried to fill the gap through a welfare 
state based on income redistribution, through socialist state controls, through 
bank-furnished credit, or a combination.

No approach yet devised has resolved an inherently unstable economic situation 
that is endemic to a technological economy that refuses to operate on the basis 
of truly democratic principles.

The U.S., among nations, has had the most success in creating a measure of 
stability but has been able to do so only through economic domination of the 
rest of the world as a means of filling the production/consumption gap. This 
domination began with the massive loans to the European combatants during World 
War I, continued through the lend-lease program of World War II, and reached its
zenith through the economic recovery measures after the war, the aim of which 
was to maintain for the U.S. a positive trade balance. Thus was formed the basis
for U.S. prosperity during the 1950s and 1960s.

This trade domination began to expire with the Vietnam War and had evaporated by
the 1970s. After the fall of Saigon in 1975, the only way the U.S. saw to keep 
its economy afloat was through the policy of dollar hegemony, where use of the 
dollar was established for oil trading and as a worldwide reserve currency. With
the Reagan administration came the habitual resort to military power as the 
enforcer of U.S. financial prerogatives. This is what accounts for the period of
incessant low-key warfare that has controlled U.S. policy since the late 1970s, 
with the ³War on Terror² and the military invasions of Afghanistan and Iraq 
being only the latest phase.

Today, as U.S. dollar hegemony, along with our domestic economy, begin their 
collapse, through laws as immutable as those of physics, the threat of world war
has returned. But another world war would not produce economic stability. The 
only way to achieve that objective is through real economic democracy as 
described in this report and in similar writings by other monetary reformers. 
But the cost of doing so, as seen by the financial and political establishment, 
would be to give up their near-total control of society.

In conclusion, it should be clear that this report takes an optimistic view of 
mankind, its aspirations and potential. And it affirms the positive value of 
science and technology. Human beings were created in the image of God, and God 
does not want us to be miserable on a planet where all can be provided for.

Obviously it would take a book to describe a complete monetary reform program to
take us in this direction. This report has put forth some key concepts. For now 
it is enough to summarize the way out of our economic dilemmas by recommending 
that the federal government take the following steps:

1) Issue a $10,000 average dividend, created simply as an accounting book entry,
to every U.S. legal resident or citizen (to be determined), tax-free and without
reducing any other benefits currently being paid. A sensible ratio between 
adults and children would be calculated. A temporary system of price controls 
would be instituted to prevent profiteering.

2) Create a second dividend which totaled approximately $800 billion as a first 
installment on paying the principal on the national debt and freeze the purchase
of U.S. assets by foreign holders of U.S. debt instruments until currency 
exchange programs can be put into place. (The dividends paid to individuals and 
for repayment of the national debt would equal the gap between GDP and 
purchasing power for 2006.)

3) Continue to issue both dividends for each future year based on the calculated
gap between GDP and purchasing power.

4) Utilize the money saved from no longer having to maintain an aggressive 
military posture overseas to compensate for monetary problems by addressing 
urgent priorities such as alternative energy R&D and restore more progressive 
tax rates for the highest income brackets.

5) Create a self-capitalized national infrastructure bank to lend or provide 
grants to state and local governments for infrastructure maintenance and 
development with provisions for use of U.S.-made products.

6) Use federally-created credit or resources to subsidize local banks in 
providing low-cost credit to consumers, students, and small businesses.

7) Create a Monetary Control Board within the executive branch to regulate the 
U.S. monetary system, determine the amount of the National Dividend, assure the 
stable value of money, and oversee both private and public use of credit. (For 
additional provisions of the American Monetary Act, see the American Monetary 
Institute website at www.monetary.org.)

8) Return to the more forgiving pre-2005 bankruptcy laws and offer genuine debt 
relief to nations which owe money to banks and international lending agencies.

9) Move toward a national system of ³fair pricing² subsidies using national 
credit as a funding base.

10) Support the adoption of a similar monetary program for other nations of the 

To implement this program, Congress could pass a series of laws which would have
the effect of taking back the people¹s Constitutional prerogative over their 
monetary system and laying the basis for future prosperity. These laws could 
help to usher in a new age of humanity. In fact, the agony of degradation and 
violence the world is now going through may someday be seen as the birth throes 
of a new age of economic enlightenment. A key would be a democratic monetary 
system which opens the door to material abundance for all people.

We know that the financial industry which controls the economy and politics of 
the world might have to be persuaded to support these proposals. The chief 
argument may be this: Yes, you have become rich through your monopoly over 
credit. Yes, you preside over the economies of most of the world. But don¹t you 
see that you have bled the life out of the people who just want to live and 
work? Don¹t you see that it is their labor that is keeping you alive too? Don¹t 
you think that if society destroys itself from war, financial collapse, and 
pollution you might lose your own livelihood and ability to sustain yourselves?

So why don¹t you join us in making a better world, even if it means altering a 
financial system that has the momentum of centuries behind it but that today is 
choking the aspirations of humanity like a dead hand?

Shouldn¹t we make a start by addressing our economic problems rationally and 
democratically through a monetary reform program that benefits everyone, that 
properly rewards us for our miraculously productive economy, and that has a good
chance of success if we embrace it with determination and hope?

The only question at this late stage may be whether economic democracy will be 
achieved through a process of peaceful reform, or whether it will be built on 
the ashes of whatever is left of world society after the likely coming 


There is much that individuals, families, and groups can do right now to address
the effects of the economic crisis in their own lives. These measures exist on 
the material, mental, and spiritual levels. Following is a short list:

1 Don¹t borrow. What enslaves us to an economic system in a chronic state of 
collapse is, above all, our debts. Throw away credit cards. If it makes sense to
do so, rent instead of taking out a mortgage to pay the inflated prices of 
today¹s housing. Work for a year or two and save for college. If your debts are 
overwhelming, don¹t be afraid to declare bankruptcy or look for other options. 
If you have money, put it into tangible assets before its value is destroyed by 

2 Think for yourself. Search for reliable information about the economic and 
political situation and the true reasons for wars and other forms of organized 
violence. Read books and turn off the TV and video games. Discuss ideas and 
issues with your kids, family, and friends. Start a website which expresses 
responsible opinions and offers help and information to others.

3 Hone your skills. Do your own car and household repairs. Grow and cook your 
own food. Shop at thrift stores. If you can, raise farm animals. Take classes in
handicrafts. Start your own part-time business. Take a job doing manual labor. 
Demand that the local schools teach practical skills to young people.

4 Work with others on creating democratic intentional communities. Explore group
housing. Live near mass transit commuting lines. Set up barter groups and 
consider establishing local currency systems as many people did during the 19th 
century and the Great Depression. In the last two years there have been a number
of new communities being started in small towns or rural areas as people have 
seen the writing on the wall about what may be coming to an endangered American 

5 Become politically active. Register, vote, and demand honest elections. 
Support politicians who have integrity. Demand changes along the lines suggested
in this report, as well as consumer-friendly laws and regulations, including 
those that favor mass transit and affordable housing. Lobby locally for public 
space for farmers¹ markets and commitments by government agencies to buy from 
local small business. Don¹t allow government to drive people out of their homes 
with property tax increases or to seize private property on behalf of 

6 Work with schools and expect them to teach democratic ideals including 
economic reform. Honor those who speak truth to power and let the government 
know that the Bill of Rights means something to you. Demand local programs to 
help people avoid and get out of debt. Let the local media know that you want to
see reporting on real issues and more public interest programming. Boycott 
companies, retailers, and media outlets that oppose reform.

7 Remember that external circumstances have no power. We tend to be overwhelmed 
by the apparent strength of government, corporations, employers, banks, our 
credit rating, the economy, the media, armies, technology, our endangered 
possessions, etc. The power of these things is illusory and is based on the 
dualistic conceptions of the human carnal mind. In reality, God is the only 
source of power in the universe, and the more we realize God¹s presence, the 
less do we fear externals. Search for God within. Every person has a higher 
self, which is God, and which may be sought and found through prayer and 


We¹ll give the last word to Edward Kellogg (1790-1858), an American businessman 
who published his ideas about monetary reform in Labor and Other Capital in 
1849. Kellogg favored consumer lending at as little as one percent interest, as 
advocated earlier in this report. This lending would originate from a 
government-operated credit account he called a Safety Fund. Kellogg¹s ideas were
well-known among American progressives during the latter part of the 19th 
century and are drawing attention again today. The following excerpt is from A 
New Monetary System published posthumously in 1875.

³This money power is not only the most governing and influential, but it is also
the most unjust and deceitful of all earthly powers. It entails upon millions 
excessive toil, poverty and want, while it keeps them ignorant of the cause of 
their sufferings; for, with their tacit consent, it silently transfers a large 
share of their earnings into the hands of others, who have never lifted a finger
to perform any productive labor.

³The same power has grossly deceived our public teachers; for not being able 
rationally to account for the great inequalities of wealth and condition 
existing in society, and being expected to furnish a satisfactory explanation in
some way, they tell the people that these great wrongs are providential, that 
they are the mysterious workings of the providence of God, that all these evils 
are governed and controlled by His power and goodness.

³This method of accounting for the gross political wrongs in society has covered
up and hidden from view a multitude of heinous sins. Notwithstanding the number 
of those who now live in luxurious idleness, performing little, if any useful 
labor, and the great number of those who remain idle because the scarcity of 
money renders it impossible for them to obtain work, yet with all these 
impediments, there is generally enough produced each year in each nation to give
to every man, woman and child a comfortable living.

³Every person of common sense must see that God in his providence has 
bountifully provided for man and that there is some other power working against 
him, and diametrically opposed to the righteous distribution of his bounties. It
is the providence of the national laws, establishing this unjust power of money,
which robs the producing classes of their rights.

³As the bounties of God are abundant, so must the money for their distribution 
be abundant, or they can never be justly distributed.  If the scarcity of money 
or its centralizing power retard the production and the distribution of the 
products of labor, the power of the money is unjust and oppressive, and instead 
of being in unison with the providence of God, it is the most powerful opponent 
of his righteous laws, as well as the most powerful and bitter opponent of 
justice and beneficence among men.

³It would be as reasonable to expect sweet waters to flow from a bitter 
fountain, as to expect just distributions of property if the standard by which 
it is valued is unjust. We are not depicting an unknown evil. Legislators, 
financiers, and the producing classes all know that money is possessed of some 
mysterious evil power, which has never been clearly explained and defined.

³We have intended to remove this mystery concerning the nature and operations of
money, and to show what laws must be annulled, and we shall proceed to show what
other laws must be enacted, in order to establish money that will be endowed 
with an equitable power. The evil power of money has been politically 
established, and it must be politically annulled. It is a public wrong, and the 
public must administer the remedy.²

Richard C. Cook is the author of Challenger Revealed: An Insider¹s Account of 
How the Reagan Administration Caused the Greatest Tragedy of the Space Age. He 
is a Washington, D.C.-based writer and consultant who, in addition to NASA, 
taught history and worked in the U.S. Civil Service Commission, the Food and 
Drug Administration, the Carter White House and spent 21 years with the U.S. 
Treasury Department. His website is at www.richardccook.com.

Disclaimer: The views expressed in this article are the sole responsibility of 
the author and do not necessarily reflect those of the Centre for Research on 

To become a Member of Global Research

The CRG grants permission to cross-post original Global Research articles on 
community internet sites as long as the text & title are not modified. The 
source and the author's copyright must be displayed. For publication of Global 
Research articles in print or other forms including commercial internet sites, 
contact: •••@••.•••

www.globalresearch.ca contains copyrighted material the use of which has not 
always been specifically authorized by the copyright owner. We are making such 
material available to our readers under the provisions of "fair use" in an 
effort to advance a better understanding of political, economic and social 
issues. The material on this site is distributed without profit to those who 
have expressed a prior interest in receiving it for research and educational 
purposes. If you wish to use copyrighted material for purposes other than "fair 
use" you must request permission from the copyright owner.

For media inquiries: •••@••.•••

© Copyright Richard C. Cook, Global Research, 2007

© Copyright 2005 GlobalResearch.ca

Escaping the Matrix website:            http://escapingthematrix.org/
cyberjournal website:                       http://cyberjournal.org
Community Democracy Framework: http://cyberjournal.org/DemocracyFramework.html
Subscribe cyberjournal list:            •••@••.•••  (send 
blank message)
Posting archives:                               
cyberjournal blog (join in):            http://cyberjournal-rkm.blogspot.com/
Moderator:                                         •••@••.•••  (comments