| Ban Ki-moon, Secretary General of the United | | | | lends them to the government and to commercial |
| Nations, stated in an October 15, 2007 address, | | | | banks. |
| "Climate change is a defining issue of our time. The | | | | The process by which banks create money is |
| science is clear. . . . We know what we have to do. | | | | inherently inflationary, because they lend only the |
| We have affordable measures and technologies to | | | | principal, not the interest necessary to pay their loans |
| do it." What we don't have is the money - at least, | | | | off. To come up with the interest, new loans must |
| we don't have it under the current system of | | | | be taken out, continually inflating the money supply |
| bank-created credit. | | | | with new loan-money. And since the money is going |
| We also don't have time. Ban Ki-moon went on: | | | | to the creditors rather than into producing new |
| "Traveling in Chad recently, I saw first-hand the | | | | goods and services, demand (money) is increasing |
| humanitarian toll of climate change. An estimated 20 | | | | without increasing supply, producing price inflation. If |
| million people depend on a lake and river system that | | | | credit were extended by governments interest-free, |
| has shrunk to a tenth of its original size over the | | | | inflation might actually be reduced, by reducing the |
| past 30 years. In Africa right now, the worst rains in | | | | need to continually take out new loans to find the |
| memory are washing hundreds of thousands of | | | | elusive interest to service old loans. |
| people from their homes. These are signs of what is | | | | HISTORICAL PRECEDENTS |
| to come. The problems our generation faces will be | | | | Government-issued money to fund public projects is |
| worse for our children, particularly if we do not act. . . | | | | not a new idea but has a long and successful history. |
| . We must engage the private sector, stimulate | | | | Among other notable examples: |
| economic activity, use new financing and | | | | In the early eighteenth century, the colony of |
| market-based approaches, develop and transfer | | | | Pennsylvania issued money that was both lent and |
| know-how, and create jobs." | | | | spent by the local government into the economy, |
| In the fall of 2007, the United Nations Development | | | | producing an unprecedented period of prosperity. |
| Program (UNDP) sought ideas for a debate to be | | | | This was done not without producing price inflation |
| held in Bali in December 2007, involving innovative | | | | and without taxing the people. |
| ways to fund the costs of adapting to climate | | | | When Abraham Lincoln needed money to fund the |
| change in the developing world. My submission was | | | | American Civil War, rather than paying 25 to 36 |
| not adopted, but I think it would work. It is below. | | | | percent interest charges, he avoided going into debt |
| (For footnotes, see | | | | by printing Greenback dollars that were "legal tender" |
| FUNDING PUBLIC PROJECTS WITH | | | | in themselves. Again, historians of the period attest |
| PUBLICLY-ISSUED MONEY | | | | that this issue of Greenbacks was not responsible for |
| Governments have the sovereign right to create and | | | | price inflation. |
| lend money. The United Nations could assume that | | | | The island state of Guernsey, located in the Channel |
| right as well, just as the International Monetary Fund | | | | Islands, has been funding infrastructure with |
| has assumed the right to issue credit in the form of | | | | government-issued money for over 200 years, |
| "Special Drawing Rights" that are convertible into | | | | without price inflation and without government debt. |
| national currencies. As will be shown here, | | | | During the First World War, when private banks were |
| government-issued or U.N.-issued money could be | | | | demanding 6 percent interest, Australia's |
| used for sustainable energy projects without causing | | | | publicly-owned Commonwealth Bank financed the |
| inflation, and this could be profitably done even by | | | | Australian government's war effort at an interest |
| impoverished governments with weak legal | | | | rate of a fraction of 1 percent, saving Australians |
| structures and immature government accountability | | | | some $12 million in bank charges. After the First |
| mechanisms. | | | | World War, the bank's governor used the bank's |
| Credit created by governments or the United Nations | | | | credit power to save Australians from the depression |
| would have the advantage that it could be issued | | | | conditions prevailing in other countries, by financing |
| interest-free. Eliminating the cost of interest could cut | | | | production and home-building and lending funds to |
| production costs dramatically. Interest composes as | | | | local governments for the construction of roads, |
| much as 77% of the cost of capital-intensive goods | | | | tramways, harbors, gasworks, and electric power |
| and services such as public housing. The average is | | | | plants. The bank's profits were paid back to the |
| brought down by labor-intensive services such as | | | | national government. |
| garbage collection, for which interest makes up only | | | | A successful infrastructure program funded with |
| about 12% of the cost; but the overall average cost | | | | interest-free "national credit" was also instituted in |
| of interest has been estimated at about half of | | | | New Zealand after it elected its first Labor |
| everything we buy. If money for alternative energy | | | | government in the 1930s. Credit issued by its |
| projects were issued interest-free, projects that | | | | nationalized central bank allowed New Zealand to |
| have been considered unsustainable because of the | | | | thrive at a time when the rest of the world was |
| burden of interest could become not only | | | | struggling with poverty and lack of productivity. |
| self-sustaining but highly profitable for the funding | | | | According to a book titled State Housing in New |
| governments. | | | | Zealand published by the Ministry of Works in 1949: |
| In "The Modern Universal Paradigm" (2007), Rodney | | | | "To finance its comprehensive proposals, the |
| Shakespeare gives the example of the Humber | | | | Government adopted the somewhat unusual course |
| Bridge, which was built in the UK at a cost of 98 | | | | of using Reserve Bank credit, thus recognizing that |
| million. Every year since the bridge opened in 1981, it | | | | the most important factor in housing costs is the |
| has turned an operating profit; that is, its running | | | | price of money - interest is the heaviest portion in |
| costs (basically repair, maintenance and staff salaries) | | | | the composition of rent. . . . This action showed . . . it |
| have been exceeded by the fees it receives from | | | | was possible for the State to use the country's |
| travelers crossing the river Humber. But by the time | | | | credit in creating new assets for the country." |
| the bridge opened in 1981, interest charges had | | | | Stan Fitchett, writing in the New Zealand Guardian |
| driven its cost up to 151 million; and by 1992, only 10 | | | | Political Review in 2004, explored whether this |
| years later, the debt had shot up to a breath-taking | | | | approach would create price inflation today. He |
| 439 million. The UK government was forced to | | | | confirmed with bank officials that 97 percent of the |
| intervene with sizeable grants and writeoffs to save | | | | New Zealand money supply is now created by |
| the local residents from bearing the brunt of these | | | | commercial banks when they make loans. The year |
| costs. If the bridge had been financed with | | | | he was writing, the money supply increased by |
| interest-free, government-issued money, these costs | | | | 18,527 million New Zealand dollars, or 16.8 percent; |
| could have been avoided and the bridge could have | | | | and 97 percent of this increase came from |
| funded itself. | | | | commercial bank lending. Fitchett confirmed with |
| THE INFLATION OBJECTION | | | | banking experts that if the Reserve Bank had |
| The argument against governments issuing and | | | | created 100 million New Zealand dollars for new |
| lending money for development projects is that it | | | | houses in New Zealand, the sum would have had no |
| would be inflationary, but this need not be the case. | | | | noticeable impact on inflation, since it was only |
| Price inflation results when "demand" (money) | | | | one-half of one percent of what was already being |
| increases faster than "supply" (goods and services). | | | | added to the money supply annually by private |
| As economist John Maynard Keynes pointed out, | | | | commercial banks. Similar figures apply in the United |
| when the national currency is expanded to fund | | | | States and other countries. |
| productive projects, supply goes up along with | | | | IMPLICATIONS FOR THE CURRENT CLIMATE |
| demand, leaving consumer prices unaffected. | | | | CRISIS |
| Moreover, private banks themselves create the | | | | Development loans have become debt traps for |
| money they lend. Many authorities have confirmed | | | | many Third World countries, as interest has |
| this fact, including the Federal Reserve itself. The | | | | compounded annually on loans of money created by |
| Chicago Federal Reserve exposed the mechanics of | | | | commercial banks with accounting entries. If |
| money creation in a publication called "Modern Money | | | | governments or the United Nations would take over |
| Mechanics," in which it said: | | | | that function and advance credit created with |
| "Of course, they [commercial banks] do not really | | | | accounting entries themselves, the crippling expense |
| pay out loans from the money they receive as | | | | of compound interest could be eliminated. |
| deposits. If they did this, no additional money would | | | | Interest-free loans could help ease the current crises |
| be created. What they do when they make loans is | | | | not only of climate change but of housing, energy, |
| to accept promissory notes in exchange for credits | | | | infrastructure, food, and health care. |
| to the borrowers' transaction accounts." | | | | Funds for public development could be advanced as |
| See also "Money Facts," published in 1964 by | | | | "contingent grants." If the projects were profitable, |
| Congressman Wright Patman, Chairman of the | | | | the money would be returned to the government |
| Subcommittee on Domestic Finance of the Banking | | | | from profits. Private contractors could be hired to do |
| and Currency Committee. Responding to the question | | | | the work, but the projects would remain public |
| "Do private banks issue money today?", he wrote: | | | | assets that continued to produce profits for the |
| "Yes. Although banks no longer have the right to | | | | benefit of the government and the people. To |
| issue bank notes, they can create money in the form | | | | prevent abuse, the money would not simply be given |
| of bank deposits when they lend money to | | | | away but would have to be repaid on a regular |
| businesses, or buy securities. . . . The important thing | | | | payment schedule, just as private loans are now. The |
| to remember is that when banks lend money they | | | | only difference would be that the credits would be |
| don't necessarily take it from anyone else to lend. | | | | advanced by the government or the United Nations |
| Thus they "create" it." | | | | rather than by private commercial banks, and they |
| During the recent bank credit crisis in August 2007, | | | | would not be burdened with interest. |
| the central banks of the United States, Europe, | | | | Interest-free credit could turn alternative energy |
| Canada, Australia and Japan collectively extended a | | | | proposals that would have been priced out of the |
| $315 billion credit line to commercial banks. This credit | | | | private credit market into profitable ventures, even |
| was created out of nothing (something central banks | | | | for poor countries lacking financial and other |
| assume the right to do as "lenders of last resort"), | | | | resources. Among many interesting possibilities for |
| and the sums advanced were huge. For comparative | | | | local energy production is this one drawn by Rodney |
| purposes, a mere $188 billion would have been | | | | Shakespeare from the bio-fuel field: |
| enough to repair all of the 74,000 U.S. bridges known | | | | "[W]hile traditional crops have yields of around 50-150 |
| to be defective, preventing another disaster like that | | | | gallons of bio-diesel per acre per year, it is today |
| in Minnesota in July 2007. The Carbon Trust, a | | | | being claimed that algae can yield 5,000-20,000 gallons |
| well-known UK company dedicated to cutting carbon | | | | per acre per year. . . . The algae are grown in |
| emissions, is responsible for reducing emissions by | | | | "solaroof" (plastic greenhouse-type) structures using |
| nearly 2 million tons per year on a 2007 budget of | | | | a new, simple technology . . . [I]t is being claimed that |
| only £115.9 million (about $240 million U.S.). If | | | | the algae processes are financially viable even under |
| central banks can create hundreds of billions of dollars | | | | the existing economic and financial system which |
| to save floundering private banks, governments can | | | | uses interest-bearing money. If that is true, then the |
| create comparable credits to adapt to climate | | | | world can be saved from global warming and, even it |
| change, an even more pressing problem. | | | | if it is not true, there is obviously still the clear |
| The sovereign right to issue money actually belongs | | | | possibility that the use of interest-free loans for algae |
| to governments, not to private banks; but few | | | | production . . . would be sufficient to make the |
| governments exercise that right today. The only | | | | outcome financially viable. Crucially, the localized |
| money the U.S. government issues are coins, which | | | | production of the algae would enable the localized |
| compose only about one one-thousandth of the U.S. | | | | production of electricity thereby eliminating the need |
| money supply (M3). All of the rest is created by | | | | for huge electricity distribution networks. . . . [T]he |
| private banking institutions when they make loans. | | | | new technological solutions are local and are part of a |
| This includes the privately-owned Federal Reserve, | | | | new attitude to life which can be summarized as |
| which creates Federal Reserve Notes (dollar bills) and | | | | sustainable living rather than sustainable development. |