Brown Web of Debt The Shocking Truth about our Money System (3rd ed)

Chapter 23 - Freeing the Yellow Winkies

communications, railroads, and other infrastructure; and America provided scientific and technological know-how to help Russia industrialize. In 1862, Russia established a uniform national currency, a national tax levy system, and a state-owned central bank.4 By the beginning of World War I, the Russian State Bank had become one of the most influential lending institutions in Europe. It had vast gold reserves, actively granted credit to aid industry and trade, and was the chief source of funds for Russia’s war effort.5

A group of Russian entrepreneurs fought to copy the American system advanced by Carey and his faction, but they faced stiff opposition from the landed nobility, who were backed by international banking interests. Although the Tsar had liberated the peasants, the nobility forced such onerous conditions on their freedom that they remained exploited and oppressed. The peasants had to pay huge “redemption fees” to their former masters, and they were given insufficient land to support themselves. World War I imposed further burdens. Most of the working men were taken to fight the war, and those who remained had to work grueling hours in serf-like conditions. The people were forced off the land into overcrowded cities, where famine broke out. Although the peasants did not actually initiate the Russian Revolution, when the match was lit, they provided the tinder to set it ablaze.

Overthrowing the Revolution

There were actually two Russian revolutions. The first, called the February Revolution, was a largely bloodless transfer of power from the Tsar to a regime of liberals and socialists led by Alexander Kerensky, who intended to instigate political reform along democratic lines. The far bloodier October Revolution was essentially a coup, in which Kerensky was overthrown by Vladimir Lenin with the support of Leon Trotsky and some 300 supporters who came with him from New York. Born Lev Bronstein, Trotsky was a Bolshevik revolutionary who had gone to New York after being expelled from France in 1916. He and his band of supporters returned to Russia in 1917 with substantial funding from a mystery Wall Street donor, widely thought to be Jacob Schiff of Kuhn Loeb. Trotsky’s New York recruits later adopted Russian names and made up the bulk of the Communist Party leadership.6

Why was a second Russian revolution necessary? The reasons are no doubt complex, but in The Creature from Jekyll Island, Ed Griffin

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suggests one that is not found in standard history texts. He observes that Trotsky and the Bolsheviks received strong support from the highest financial and political power centers in the United States, men who were supposedly “capitalists” and should have strongly opposed socialism and communism. Griffin maintains that Lenin, Trotsky and their supporters were not sent to Russia to overthrow the Tsar. Rather, “Their assignment from Wall Street was to overthrow the revolution.” In support, he quotes Eugene Lyons, a correspondent for United Press who was in Russia during the Revolution. Lyons wrote:

Lenin, Trotsky and their cohorts did not overthrow the monarchy. They overthrew the first democratic society in Russian history, set up through a truly popular revolution in March, 1917. . . .

They represented the smallest of the Russian radical movements.

. . . But theirs was a movement that scoffed at numbers and frankly mistrusted multitudes. . . . Lenin always sneered at the obsession of competing socialist groups with their “mass base.” “Give us an organization of professional revolutionaries,” he used to say, “and we will turn Russia upside down.”

. . . Within a few months after they attained power, most of the tsarist practices the Leninists had condemned were revived, usually in more ominous forms: political prisoners, convictions without trial and without the formality of charges, savage persecution of dissenting views, death penalties for more varieties of crime than any other modern nation.7

Lenin, Trotsky and their supporters kept Russia in the hands of a small group of elite called the Communist Party, who were largely foreign imports. The Party kept Russian commerce open to “free trade,” and it kept the banking system open to private manipulation. In 1917, the country’s banking system was nationalized as the People’s Bank of the Russian Republic; but this system was dissolved in 1920, as contradicting the Communist idea of a “moneyless economy.”8 Griffin writes:

In 1922, the Soviets formed their first international bank. It was not owned and run by the state as would be dictated by Communist theory but was put together by a syndicate of private bankers. These included not only former Tsarist bankers, but representatives of German, Swedish, and American banks. Most of the foreign capital came from England, including the British government itself. The man appointed as Director of the Foreign Division of

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the new bank was Max May, Vice President of Morgan’s Guaranty Trust Company in New York.

. . . In the years immediately following the October Revolution, there was a steady stream of large and lucrative (read noncompetitive) contracts issued by the Soviets to British and American businesses . . . U.S., British, and German wolves soon found a bonanza of profit selling to the new Soviet regime.9

The Cold War

If these arrangements were so lucrative for Anglo-American business interests, why did the United States target Soviet Russia as the enemy in the Cold War following World War II? The plans of the international bankers evidently went awry after Lenin died in 1924. Trotsky was in line to become the new Soviet leader; but he got sick at the wrong time, and Stalin grabbed the reins of power. For the Trotskyites and their Wall Street backers, Stalinist Communism then became the enemy. Trotsky was expelled from Soviet Russia in 1928 and returned for a time to New York, meeting his death in Mexico in 1940 at the hands of a Soviet agent. Through most of the rest of the twentieth century, the banking cartel fought to regain its turf in Russia. The “Neocons” (or “New Conservatives”), the group most associated with the Cold War, have been traced to the Trotskyites of the 1930s.10

Srdja Trifkovic is a journalist who calls himself a “paleoconservative” (the “Old Right” as opposed to the “New Right”). He writes that the Neocons moved “from the paranoid left to the paranoid right” after emerging from the anti-Stalinist far left in the late 1930s and early 1940s.11 They had discovered that capitalism suited their aims better than socialism, but they remained consistent in those aims, which were to prevail over the Russian regime and dominate the world economically and militarily. They succeeded on the Russian front when the Soviet economy finally collapsed in 1989. The Central Bank of the Russian Federation was added to the league of central banks operating independently of federal and local governments in 1991.12

The economic destruction of Russia and its satellites followed. Jude Wanniski, the Reagan-era insider quoted earlier, said that “shock therapy” was imposed on the Soviet countries after 1989 as an intentional continuation of the Cold War by other means. In a February

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2005 interview shortly before he died, Wanniski acknowledged that he was at one time a Neocon himself; but he said that he had had to break with Neocon policies after the Iron Curtain came down. He revealed:

We were all Cold Warriors, united in a very hard line against Communism in Moscow and in Beijing. [We] fought the Cold War together and we were proud at being successful in that Cold War without having a nuclear exchange. But when the Cold War ended . . . the Russians invited me to Moscow to try and help them turn their communist system into a market economy; and I was glad to do that, for free . . . but I had to break with my old friends because they said we didn’t beat these guys enough, we have to smash them into the ground, we want to feed them bad economic advice, “shock therapy,” so that they will fall apart.13

“Shock therapy” consisted of “austerity measures” imposed in return for financial assistance from the International Monetary Fund and its sister agency the World Bank. Also called “structural readjustment,” these belt-tightening measures included eliminating food program subsidies, reducing wages, increasing corporate profits, and privatizing public industry. According to Canadian writer Wayne Ellwood, structural adjustment is “a code word for economic globalization and privatization – a formula which aims both to shrink the role of the state and soften the market for private investors.”14

Mark Weisbrot, co-director of the Center for Economic and Policy Research, testified before Congress in 1998 that Russia’s steep decline after 1989 was a direct result of the harsh policies of the IMF, which were used as tools for “subordinating the domestic economies of ‘emerging market’ countries to the whims of international financial markets.” He told Congress:

The IMF has presided over one of the worst economic declines in modern history. Russian output has declined by more than 40% since 1992 -- a catastrophe worse than our own Great Depression. Millions of workers are denied wages owed to them, a total of more than $12 billion. . . . These are the results of “shock therapy,” a program introduced by the International Monetary Fund in 1992. . . . First there was an immediate decontrol of prices. . . . [I]nflation soared 520% in the first three months. Millions of people saw their savings and pensions reduced to crumbs.15

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The IMF blamed the Russian hyperinflation on deficit spending by the government, but Weisbrot said it wasn’t true. The real culprit was the IMF’s insistence on “tight money”:

[F]or the first four years of “shock therapy,” the government mostly stayed within the Fund’s target range. [But] as the economic collapse continued, tax collection became increasingly difficult. . . . In addition, the necessary capital was not made available for the potentially “efficient” firms to modernize. . . .

Foreign direct investment was supposed to play a key role in providing capital, but this never materialized, given the instability of the economy. During the first two years of “shock therapy,” the outflow of capital exceeded inflow by two to four times. . . .

[T]he whole idea that Russian industry had to be destroyed, so that they could start from scratch on the basis of foreign investment, was wrong from the beginning.

Instead of providing capital to promote productivity, Weisbrot said, the IMF squandered $5 billion on trying to support the plunging ruble in a futile attempt to maintain the exchange rate at 6 rubles to the dollar. The result was to deliver $5 billion into the hands of speculators while setting off panic buying and a new round of inflation. What was the point of trying to maintain the convertibility of the domestic currency into dollars? “The IMF argues that it is essential to creating a climate in which foreign direct investment can be attracted,” Weisbrot said, “but that is clearly not worth the price in Russia, where the capital flows that were attracted were overwhelmingly speculative. This is another example of the IMF’s skewed priorities, which have now brought Russia to a state of economic and political chaos.”

Russia had succumbed to the same sort of “free trade” policy that allowed British financial interests to invade America in the nineteenth century. It had opened itself to dependence on money created by outsiders, money it could have created itself -- indeed had been creating itself, before the wolf got in the door in the form of IMF “shock therapy.”

The Soviet economic scheme had failed, but it was not because of its banking system. Economists blamed the Marxist theory that prices and employment must be determined by the State rather than left to market forces. The result was to stifle individual initiative and eliminate the mechanisms for setting prices and allocating resources provided by the free market. This was very different from the “American system” prescribed by Henry Carey and the American nationalists, who encouraged free markets and individual initiative under a collective

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infrastructure that helped the people to rise together. The seeds of the American system just had not had a chance to grow properly in Russia. In other fields abroad, they took better root . . . .

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Chapter 24

SNEERING AT DOOM: GERMANY FINANCES A WAR WITHOUT MONEY

“Frightened? You are talking to a man who has laughed in the face of death, sneered at doom, and chuckled at catastrophe. I was petrified. Then suddenly the wind changed, and the balloon floated down into this noble city, where I was instantly proclaimed the First Wizard Deluxe. Times being what they were, I accepted the job, retaining my balloon for a quick getaway.”

– The Wizard of Oz ( MGM film)

If anyone had sneered at doom, it was the Germans after World War I. The bold wizardry by which they pulled themselves out of bankruptcy to challenge the world in a second world war rivaled the audacity of the Kansas balloonist who mesmerized Oz. The Treaty of Versailles had imposed crushing reparations payments on Germany. The German people were expected to reimburse the costs of the war for all participants -- costs totaling three times the value of all the property in the country. Speculation in the German mark had caused it to plummet, precipitating one of the worst runaway inflations in modern times. At its peak, a wheelbarrow full of 100 billion-mark banknotes could not buy a loaf of bread. The national treasury was completely broke, and huge numbers of homes and farms had been lost to the banks and speculators. People were living in hovels and starving. Nothing like it had ever happened before – the total destruction of the national currency, wiping out people’s sav-

ings, their businesses, and the economy generally.

What to do? The German government followed the lead of the American Greenbackers and issued its own fiat money. Hjalmar Schacht, then head of the German central bank, is quoted in a bit of

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wit that sums up the German version of the “Greenback” miracle. An American banker had commented, “Dr. Schacht, you should come to America. We’ve lots of money and that’s real banking.” Schacht replied, “You should come to Berlin. We don’t have money. That’s real banking.”1

The German people were in such desperate straits that they relinquished control of the country to a dictator, and in this they obviously deviated from the “American system,” which presupposed a democratically-governed Commonwealth. But autocratic authority did give Adolf Hitler something the American Greenbackers could only dream about – total control of the economy. He was able to test their theories, and he proved that they worked. Like for Lincoln, Hitler’s choices were to either submit to total debt slavery or create his own fiat money; and like Lincoln, he chose the fiat solution. He implemented a plan of public works along the lines proposed by Jacob Coxey and the Greenbackers in the 1890s. Projects earmarked for funding included flood control, repair of public buildings and private residences, and construction of new buildings, roads, bridges, canals, and port facilities. The projected cost of the various programs was fixed at one billion units of the national currency. One billion noninflationary bills of exchange, called Labor Treasury Certificates, were then issued against this cost. Millions of people were put to work on these projects, and the workers were paid with the Treasury Certificates. The workers then spent the certificates on goods and services, creating more jobs for more people. The certificates were also referred to as MEFO bills, or sometimes as “Feder money.” They were not actually debt-free; they were issued as bonds, and the government paid interest on them. But they circulated as money and were renewable indefinitely, and they avoided the need to borrow from international lenders or to pay off international debts.2

Within two years, the unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare. Germany even managed to restore foreign trade, although it was denied foreign credit and was faced with an economic boycott abroad. It did this by using a barter system: equipment and commodities were exchanged directly with other countries, circumventing the international banks. This system of direct exchange occurred without debt and without trade deficits. Germany’s economic experiment, like Lincoln’s, was short-lived; but it left some lasting

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monuments to its success, including the famous Autobahn, the world’s first extensive superhighway.3

According to Stephen Zarlenga in The Lost Science of Money, Hitler was exposed to the fiat-money solution when he was assigned by German Army intelligence to watch the German Workers Party after World War I. He attended a meeting that made a deep impression on him, at which the views of Gottfried Feder were propounded:

The basis of Feder’s ideas was that the state should create and control its money supply through a nationalized central bank rather than have it created by privately owned banks, to whom interest would have to be paid. From this view derived the conclusion that finance had enslaved the population by usurping the nation’s control of money.4

Zarlenga traces the idea that the state should create its own money to German theorists who had apparently studied the earlier American Greenback movement. Where Feder and Hitler diverged from the American Greenbackers was in equating the financiers who had enslaved the population with the ethnic race of the prominent bankers of the day. The result was to encourage a wave of anti-semitism that darkened Germany and blackened its leader’s name. The nineteenth century Greenbackers saw more clearly what the true enemy was – not an ethnic group but a financial scheme, one that transferred the power to create money from the collective body of the people to a private banking elite. The terrible human rights violations Germany fell into could have been avoided by a stricter adherence to the “American system,” keeping the reins of power with the people themselves.

While Hitler clearly deserved the opprobrium heaped on him for his later military and racial aggressions, he was enormously popular with the German people, at least for a time. Zarlenga suggests that this was because he temporarily rescued Germany from English economic theory – the theory that money must be borrowed against the gold reserves of a private banking cartel rather than issued outright by the government. Again, the reasons for war are complex; but Zarlenga postulates one that is not found in the history books:

Perhaps [Germany] was expected to borrow gold internationally, and that would have meant external control over her domestic policies. Her decision to use alternatives to gold, would mean that the international financiers would be unable to exercise this control through the international gold standard, . . . and this may have led to controlling Germany through warfare instead.5

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