Alternative Currencies: The Solution to the Economic Crisis?


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"What is now being called the 'Great Recession' shows no sign of ending either in the U.S. or elsewhere in the world. What then should be done? In many locations people are increasingly turning to creation of alternative currencies. But can these really be effective?

This and many other questions will be addressed by Richard C. Cook, author and retired U.S. Treasury analyst."

As a resident of Roanoke and director of the Peace Spiritual Center, Richard brings a wealth of information and an open-eyed critique of the most discussed solutions as well as examples from both ancient and recent history.

Published in: Economy & Finance, Business

Alternative Currencies: The Solution to the Economic Crisis?

  1. 1. Alternative Currencies:The Solution to the Economic Crisis? Howery Mezzanine, Roanoke Main Library January 23, 2011, 6:30 p.m. by Richard C. Cook 1
  2. 2. About the Author• Retired after 32 years working as an analyst for the federal government, including the Carter White House, NASA, and 21 years with the U.S. Treasury Department.• Author of several books, including We Hold These Truths: the Hope of Monetary Reform.• Resident of Roanoke, VA, co-founder with wife Karen of Peace Spiritual Center, and speaker at Lifestream Center and other venues.• September 2011: Keynote speaker at annual convention of the International Reciprocal Trade Association, Riviera Maya, Mexico.• Featured in November 2011 issue of Valley Business Front. 2
  3. 3. 2012 and the World Economic Crisis• We are in the midst of the “Great Recession”• Economic stagnation in the world’s largest economy: the U.S.• Failure to recover from the crash of the housing bubble• Massive debt worldwide: entire nations going bankrupt• Personal debt slavery a reality for millions of people: average U.S. family of four owes over $600,000 in all types of debt including government• Unprecedented inequalities of wealth• Increasing worldwide unemployment• Dominant political power in the West remains the financial sector 3
  4. 4. Facts About Government Debt#1 During fiscal year 2011, the U.S. governmentspent 3.7 trillion dollars but it only brought in 2.4 trillion dollars.#2 When Ronald Reagan took office, the U.S. national debt was less than1 trillion dollars. Today, the U.S. national debt is over 15.2 trillion dollars.#3 During 2011, U.S. debt surpassed 100 percent of GDP for the first time ever.#4 The U.S. government spent over 454 billion dollars just on intereston the national debt during fiscal 2011.#5 During the Obama administration, the U.S. government has accumulatedmore debt than it did from the time that George Washington took officeto the time that Bill Clinton took office.#6 If you divide up the national debt equally among all U.S. taxpayers,each taxpayer would owe approximately $134,685. 4
  5. 5. Solutions?Progressives and conservatives offer contradictory solutions:• Raise taxes vs. cut taxes• Increase federal spending vs. reduce federal spending• Restore the gold standard vs. more fiat currency• More bank regulation vs. less bank regulation• Free trade vs. protectionism There is no real confidence or consensus that any of these will work. 5
  6. 6. No solutions in sight except “austerity” But austerity for whom? 6
  7. 7. Roadblocks• In industry after industry the need for workers has plummeted due to increasing automation, greater productivity, global competition, and collapse of “demand.”• Economic growth requires capitalization, but capital is being used in a limited way due to hoarding and conversion to long-term assets.• Competition for resources may be ending the industrial age, requiring that economic growth be based on innovation; thus a business climate that fosters innovation is essential.• Bank lending at interest is not a viable substitute for stagnant consumer income or shortage of capital investment. Anyway, banks are not lending.• The financial volatility of the past 20 years has created an atmosphere of risk aversion. 7
  8. 8. The “Gap”In a modern industrial economy the ability of the economy to produce goods andservices vastly the income paid to workers that is available to purchase the output.This gap may amount to 25 percent of GDP and results from corporate and individualsavings (including hoarding and hedging against risk).Keynesian economics was invented 80 years ago to reduce the gap throughgovernment borrowing.Today, with government debt out of control, the gap is made up for by borrowing frombanks for consumption. This solution is unsustainable and is why society is everdeeper in debt.The housing bubble was an attempt to close the gap by inflating housing prices.It worked…..for while. Then the bubble burst. 8
  9. 9. Bubbles Always BurstThe housing bubble exposed the fatal flaw in modern economics:• From the early 1980s to the present the U.S. has been shipping its manufacturing jobs overseas and trying to make up for it through an increasingly dominant and manipulative financial sector.• After the “Dot-Com” bubble burst in December 2000, the Federal Reserve and the Bush administration were facing U.S. bankruptcy.• To finance the tax cuts for the rich and the wars in Afghanistan and Iraq they created the housing bubble; housing prices skyrocketed.• By 2005 half the growth in the U.S. economy was in the housing sector but by 2007 the bubble was starting to burst.• The economy crashed in the autumn of 2008 causing the government to step in with the multi-trillion dollar bank bailout.• Housing prices plummeted, have never recovered, and never will.• The U.S. economy has not recovered and has dragged down the rest of the world with it. This is the genesis of the “Great Recession.”• The bursting of the housing bubble may someday be viewed on a par 9 with the stock market crash of 1929.
  10. 10. The Housing Bubble was Created Deliberately; Its Effects Were DisastrousTruthout reported on Jan. 16, 2012:“Today, an estimated 29 percent of all homes with mortgages are underwater.In addition, at least one respected analyst estimates that a total of 14 million homeswill be foreclosed on from 2007 to the end of the crisis.This represents a hard-to-imagine one in every four mortgages. With foreclosuresincreasing, there is now such a looming imbalance of supply and demand that,as the Fed notes, further decreases in home prices are likely.Some believe home price reductions of another 20 percent are likely. This would,in all likelihood, have disastrous consequences on at least three fronts —and ripple effects that are impossible to predict.”The three fronts are 1) negative impact on consumers; 2) chaos in the mortgagefinancial markets; and 3) more social unrest.Truthout, “The Foreclosure Crisis: A Government in Denial,” by Bruce Judson 10
  11. 11. How Could Such aThing Have happened?“…the Fed had become the government’s maintool for pumping bubbles. There wasnothing else up the sleeve; it was all there was sofar as a government strategy for growth. It was thetried and true method developed under President Clinton. And it worked. Until it didn’t.And won’t any more. Unfortunately, neither President Obama nor the likely Republicancandidate, ex-governor Romney have anything up their sleeves, either.And the US economy will not recover until housing recovers. And housing will not recoveruntil the Banksters are shut down. Because they’ve got all the dogs in the hunt—theycannot recognize the real estate losses because their exposure is too big.It’s the biggest Catch 22 the world has ever seen. The big banks must beresolved—shut down—to relieve the pressure on homeowners, but that cannothappen because the big banks are too big to be shut down.”L. Randall Wray, “Mortgage Fraud Revisited: Why Did the Fed Pump and Dump U.S.Real Estate Markets?” 11
  12. 12. Revolution? 12
  13. 13. War? 13
  14. 14. Or Renewal? 14
  15. 15. Demystifying MoneyThere is no topic less understood by the general public than that of money.Money is viewed as sacred, arcane, mysterious, hard to get and keep, an objectof lust and temptation, etc.If you find this hard to believe, read a famous book: The Secrets of the Temple:How the Federal Reserve Runs the Country by William Greider. Explains how thebanking system controls the money supply which in turn controls everything else. 15
  16. 16. So Where DoesMoney Come From? The Bank?In the U.S. and other modern nations,the banking system, internationalin scope, has gradually taken overeconomic and political systems.But, the U.S. once had a mixed monetary system of gold and silver currency, notesIssued by both state-owned and private banks, government-issued Greenbacks,barter, and scrip. The private banking system took over through a series of stepsincluding the National Banking Acts of 1863-4 and the Federal Reserve Act of 1913.The Federal Reserve System is owned by private banks.Under the New Deal the banking system was tightly controlled by the RooseveltAdministration. Since the 1950s the power of the biggest banks, centered in Wall Street,has grown to their dominant position today, particularly during and since theReagan years. They show no sign of relinquishing this control. 16
  17. 17. Putting the Banks In Their PlaceModern banks are licensed to create money out of thin air through the fractional-reservesystem that was invented during the Renaissance and institutionalized through the Bankof England, founded in 1694. Operating under a public charter and using public credit ascapitalization means that credit should be treated as a public utility and a public trust.The banks abuse this privilege through excessive profits due to interest (once called usury)and control of the economy through issuance of money. They do this through fractional-reserve book-entry lending.Not only should banks be more highly-regulated but debt-forgiveness should belegislated when it becomes excessive. Bankruptcy does this but with too many restrictions.Many types of debt can never be forgiven, including taxes, alimony, and student loans.Through other types of monetary reform people would not have to borrow as muchand banks could be restored to the servant of society and not the master. 17
  18. 18. In reality money is anythingthat can conveniently serve asa) a medium of exchangeand/or b) a storeof value. Anything! 18
  19. 19. A Small Sampling of Money in HistoryYap Island Stones Precious Metals Livestock Fiat Coinage Tobacco Bank Notes Wampum Securities Heroin Cocoa Beans Bytes 19 People
  20. 20. Medium of Exchange: How Important Is It?• It’s the most important concept in economics; yet how often do you hear it discussed as something society can and should control for public benefit?• It’s literally the life-blood of the economy. Without it an economy dies.• It’s the duty of every government at every level to assure a sufficient quantity of a medium of exchange to move the production and trade society has available, including all available labor.• When is the last time you heard your political leaders talk about approaching economic problems from the point of view of providing a satisfactory and sufficient medium of exchange? 20
  21. 21. Out-of-the-Box Solutions To the Crisis• Change the system of money-creation at the federal level• Consumer pooling of financial resources: e.g., credit unions• Charitable giving for start-up capital• New and creative niche enterprises• Worker-owned businesses and worker/consumer co-ops• Alternative or complementary currencies 21
  22. 22. National Emergency Employment Defense Act of 2011Dennis Kucinich’s NEED ActProposed to Congress as H.R. 2990.Based on American Monetary Actof American Monetary Institute.Federal government would create money by spending it intocirculation for infrastructure improvements.Federal Reserve would become an agency of the U.S. Treasury Departmentwhile a separate Monetary Authority would make monetary policy for thegovernment .National debt would be paid off by government-created money as the debtbecame due.Private banking system would be removed from control of the economy. 22
  23. 23. Programs like theWestern North Carolina Fibershed Initiativeaim to create new local economic engines. Within 100 miles of Asheville, NC, there are: · 405 fiber art professionals Program is sponsored by · 2500 fiber art hobbyists · 80 galleries with fiber art Handmade in America and · 83 textile-related retail shops powered by the · 51 yarn shops Internet. · 462 fiber animal farms · 5000+ fiber animals · 21 cotton farms · 7 schools & colleges teaching fiber arts · 12 textile mills, both large and small 23
  24. 24. Worker-Owned Co-ops: Mondragon• Founded in Basque region of Spain in late 1940s by a Catholic priest.• First institution was a technical school; first business was a stove factory.• Based on spiritual ideals of cooperation, self-help, community-based decision-making and lifetime employment.• Run by a Congress which every employee belongs to and has an equal voice.• Financial resources and earnings are pooled and managed by a cooperative bank—no outside financing; they take no loans from any commercial bank and sell no public shares.• Fully competitive in modern global economy; not only runs its own businesses internationally but builds factories for other businesses. 24
  25. 25. Basic Income Guarantee MovementU.S. Basic Income Guarantee Network(BIG); comparable movementinternationally called BIEN1960s proposals by Milton Friedman,Daniel Patrick Moynihan, Dr. MartinLuther King, Jr., and President Richard NixonEarned Income Tax CreditAlaska Permanent FundThe Gaia PlanWhat would have happened in 2008-9 had the government bailed outthe people instead of the banks and given away $10,000 per capita? 25
  26. 26. Social Credit/ National Dividend• Worldwide movement of monetary reform started by British engineer C.H. Douglas of Great Britain in 1920s.• Argued that everyone in society should benefit from ongoing appreciation of industrial productivity.• Measured the gap between national production and consumer income and showed how the difference should be issued to individuals through a regular national dividend.• Competed with Keynesian economics as a solution to the Great Depression until WW II wiped out debate.• Continues to have a wide following in the U.K., New Zealand, Canada, and 26 Australia.
  27. 27. International Barter Movement• According to the WTO, over 20% of the entire world economy is barter.• Most modern barter is done business-to-business through sophisticated on-line systems that monetize surplus business capacity.• More than 90 countries in the world have adopted barter trade policies.• More than 350 of Fortune 500 companies engage in some form of barter.• There are approximately 500 commercial and corporate barter companies in the United States.• Approximately 500,000 businesses are members/clients of these barter organizations.• According to IRTA, its member companies earn an estimated $12 billion dollars per year by using barter.• IRTA estimates that 15% of a company’s revenues could/should be in barter. 27
  28. 28. Time Banks• The simplest form of alternative currency allows for exchange of labor hours by participants.• Uses debit/credit recording system which can be paper or on-line.• Measures in “time dollars”; all services have equivalent value within system.• IRS has ruled that Time Bank systems are not taxable.• Recognizes and encourages community service, resists inflation, and enables trade and cooperation among participants.• Roanoke Valley Time Bank website is at 28
  29. 29. Scrip• Scrip is any type of paper currency issued with a promise to pay in goods or services. It is denominated in units equivalent to national currency.• Scrip was issued by thousands of businesses in the U.S. during the 1800s and saw a major revival during the Great Depression.• Scrip got a bad name when issued as pay by coal companies in Appalachia when it could only be spent at the “company store.”• Scrip has made a comeback worldwide in the last 20 years of economic instability.• Two states currently prohibit use of scrip: Arkansas and Virginia. But laws can be changed! 29
  30. 30. Community Currencies• Like scrip a paper currency but directly convertible into national currency at discounted rates.• Bought and sold at local banks. Keeps money circulating within the locality.• Legally equivalent to gift certificates so not subject to legislative prohibitions.• Uses consumer discounts as incentives to purchase.• BerkShares in Western Massachusetts the most famous current example of community currency. 30
  31. 31. Local Exchange Trading Systems (LETS)• Local people set up an organization to trade among themselves, often paying a small membership fee to cover costs.• Members maintain a directory of offers and wants to help facilitate trades.• Upon trading, members pay each other with printed notes, log the transaction in log books or online, or write checks which are later cleared by the system.• Members whose balances exceed specified limits (positive or negative) are obliged to move their balance back towards zero by spending or earning.• LETS is a full-fledged monetary or exchange system. LETS members are able to earn credits from any member and spend them with anyone else in the system. 31
  32. 32. Ithaca HoursThe most famous modern alternative currency is Ithaca Hoursfrom Ithaca, NY.• “In 1991, Ithaca Hours began developing a legal currency for our town.Today, there are over $100,000 worth of Hours in circulation. It’s moneyfor you. You can earn it. You can spend it.”• “Unlike dollars, it is money that stays in our community. You spend it, butyou spend it with your neighbors. It stays here, for you to earn back.Meanwhile, you’re building our local economy. “The Ithaca Hours system includes lines-of-credit, loans, andgrants to community organizations. 32
  33. 33. More Examples of Local CurrenciesFourth Corner Exchange – Bellingham, WARiver Hours—Columbia River Gorge, WA/ORPotomacs—Washington, D.C.High Desert Dollars—Prescott, AZBerkeley Bread—Berkeley, CAAsheville Dollars—Asheville, NC AndPLENTY—Pittsville, NCBrooklyn Greenbacks—Brooklyn, NY DozensBuffalo Hours—Buffalo, NY More!Middletown Cash—Middletown, CTAtlanta Hours—Atlanta, GAAnacostia Hours—Mt. Ranier, MDBay Area Bucks—Traverse City, MI 33
  34. 34. The Tax IssueWhile alternative currencies are legal, earnings denominated in alternativecurrencies are taxable, but taxes must be paid in national legal tender. IMHO thispolicy violates constitutional provisions for equal protection of the laws.The single greatest economic reform would be to require the government to acceptany currency in payment of taxes if earnings in that currency are taxed.By taxing an alternative currency the government is saying it is real money.Upon receipt, it would be simple for the U.S. Treasury to convert thesetaxes into national currency and thereby increase the national moneysupply. 34
  35. 35. In Times of Crisis……There have been times in history whenwhole nations or civilizations have savedthemselves through alternative currency systems:• Dark Ages—reversion to barter• Medieval trading fairs using self-generated promissory notes• Colonial America’s indigenous paper currencies• Civil War Greenbacks• Swiss WIR system has given Swiss small business financial independence• Russian collapse of the 1990s resulted in widespread barter• Argentina collapse of the early 2000s saw barter clubs rise up• Greece today using labor exchanges 35
  36. 36. Next Steps? 36
  37. 37. It’s Really aSpiritual/EthicalChoiceEconomics should not be just trying to makea profit or saving one’s skin.Economics should be the community workingtogether for the benefit of all. 37
  38. 38. So Claim Your Rights“We hold these truths to beself-evident, that all men arecreated equal, that theyare endowed by their Creator with certain unalienablerights, that among these are Life, Liberty and thepursuit of Happiness.” In economic terms this should also include the free right of exchange. 38
  39. 39. Emergency Planning• Does your city/town, business, neighborhood, family have an emergency preparedness plan?• Does it include provisions for alternative currencies if the banking/financial system breaks down?• Will gold certificates do you any good in a real crisis?What do you have to exchange? Examples: Toilet paper, soap,food, tools, lumber, treated water, firewood, liquor….or your own labor and skills…. 39
  40. 40. For information, contact or go to the webpage at program: The 2012 Prophecies: Fact or Fiction? Lifestream Center, 12:30-3:30 p.m., Saturday, February 25, 2012. $10. Call to register.
  41. 41. Thank You 41