QE for the People: Grillo's Populist Plan for Italy

   by Ellen Brown, Huffington Post, 2013

Comedian Beppe Grillo was surprised himself when his Five Star Movement got 8.7 million votes in the Italian general election of Feb. 24-25. His movement is now the biggest single party in the chamber of deputies, says The Guardian, which makes him "a kingmaker in a hung parliament."
Grillo's is the party of "no." In a candidacy based on satire, he organized an annual "V‑Day Celebration," the "V" standing for vaffanculo ("f--k off").  He rejects the status quo -- all the existing parties and their monopoly control of politics, jobs, and financing -- and seeks a referendum on all international treaties, including NATO membership, free trade agreements and the euro.
"If we get into parliament," says Grillo, "we would bring the old system down, not because we would enjoy doing so but because the system is rotten." Critics fear, and supporters hope, that if his party succeeds, it could break the euro system.
But being against everything, says Mike Whitney in Counterpunch, is not a platform:

"To govern, one needs ideas and a strategy for implementing those ideas. Grillo's team has neither. They are defined more in terms of the things they are against than things they are for. It's fine to want to 'throw the bums out,' but that won't put people back to work or boost growth or end the slump. Without a coherent plan to govern, M5S could end up in the political trash heap, along with their right-wing predecessors, the Tea Party."

Steven Colatrella, who lives in Italy and also has an article in Counterpunch on the Grillo phenomenon, has a different take on the surprise win. He says Grillo does have a platform of positive proposals. Besides rejecting all the existing parties and treaties, Grillo's program includes the following:

• unilateral default on the public debt;


• nationalization of the banks; and


• a guaranteed "citizenship" income of 1000 euros a month.

It is a platform that could actually work. Austerity has been tested for a decade in the Eurozone and has failed, while the proposals in Grillo's plan have been tested in other countries and have succeeded.
Default: Lessons from Iceland and South America
Default on the public debt has been pulled off quite successfully in Iceland, Argentina, Ecuador, and Russia, among other countries. Whitney cites a clip from Grillo's blog suggesting that this is also the way out for Italy:

"The public debt has not been growing in recent years because of too much expenditure... Between 1980 and 2011, spending was lower than the tax revenue by 484 billion (thus we have been really virtuous) but the interest payments (on the debt of 2,141 billion) that we had to pay in that period have made us poor. In the last 20 years, GDP has been growing slowly, while the debt has exploded. ... [S]peculators... are contributing to price falls so as to bring about higher interest rates. It's the usurer's technique. Thus the debt becomes an opportunity to maximize earnings in the market at the expense of the nation... If financial powerbrokers use speculation to increase their earnings and force governments to pay the highest possible interest rates, the result is recession for the State that's in debt as well as their loss of sovereignty.
... There are alternatives. These are being put into effect by some countries in South America and by Iceland... The risk is that we are going to reach default in any case with the devaluation of the debt, and the Nation impoverished and on its knees." [Beppe Grillo blog]

Bank Nationalization:  China Shows What Can Be Done
Grillo's second proposal, nationalizing the banks, has also been tested and proven elsewhere, most notably in China. In an April 2012 article in The American Conservative titled "China's Rise, America's Fall," Ron Unz observes:

"During the three decades to 2010, China achieved perhaps the most rapid sustained rate of economic development in the history of the human species, with its real economy growing almost 40-fold between 1978 and 2010. In 1978, America's economy was 15 times larger, but according to most international estimates, China is now set to surpass America's total economic output within just another few years."

According to Eamonn Fingleton in In The Jaws of the Dragon (2009), the fountain that feeds this tide is a strong public banking sector:

"Capitalism's triumph in China has been proclaimed in countless books in recent years...  But... the higher reaches of its economy remain comprehensively controlled in a way that is the antithesis of everything we associate with Western capitalism.
The key to this control is the Chinese banking system... [which is] not only state-owned but, as in other East Asian miracle economies, functions overtly as a major tool of the central government's industrial policy."

Guaranteed Basic Income -- Not Just Welfare
Grillo's third proposal, a guaranteed basic income, is not just an off-the-wall, utopian idea either. A national dividend has been urged by the "Social Credit" school of monetary reform for nearly a century, and the U.S. Basic Income Guarantee Network has held a dozen annual conferences. They feel that a guaranteed basic income is the key to keeping modern, highly productive economies humming.
In Europe, the proposal is being pursued not just by Grillo's southern European party but by the sober Swiss of the north. An initiative to establish a new federal law for an unconditional basic income was formally introduced in Switzerland in April 2012. The idea consists of giving to all citizens a monthly income that is neither means-tested nor work-related. Under the Swiss referendum system of direct democracy, if the initiative gathers more than 100,000 signatures before October 2013, the Federal Assembly is required to look into it.
Colatrella does not say where Grillo plans to get the money for Italy's guaranteed basic income, but in Social Credit theory, it would simply be issued outright by the government; and Grillo, who has an accounting background, evidently agrees with that approach to funding. He said in a presentation available on YouTube:

"The Bank of Italy a private join-stock company, ownership comprises 10 insurance companies, 10 foundations, and 10 banks, that are all joint-stock companies... They issue the money out of thin air and lend it to us. It's the State who is supposed to issue it. We need money to work. The State should say: "There's scarcity of money? I'll issue some and put it into circulation. Money is plentiful? I'll withdraw and burn some of it." ... Money is needed to keep prices stable and to let us work."

The Key to a Thriving Economy
Major C.H. Douglas, the thought leader of the Social Credit movement, argued that the economy routinely produces more goods and services than consumers have the money to purchase, because workers collectively do not get paid enough to cover the cost of the things they make. This is true because of external costs such as interest paid to banks, and because some portion of the national income is stashed in savings accounts, investment accounts, and under mattresses rather than spent on the GDP.
To fill what Social Crediters call "the gap," so that "demand" rises to meet "supply," additional money needs to be gotten into the circulating money supply. Douglas recommended doing it with a national dividend for everyone, an entitlement by "grace" rather than "works," something that was necessary just to raise purchasing power enough to cover the products on the market.
In the 1930s and 1940s, critics of Social Credit called it "funny money" and said it would merely inflate the money supply. The critics prevailed, and the Social Credit solution has not had much chance to be tested. But the possibilities were demonstrated in New Zealand during the Great Depression, when a state housing project was funded with credit issued by the Reserve Bank of New Zealand, the nationalized central bank. According to New Zealand commentator Kerry Bolton, this one measure was sufficient to resolve 75 percent of unemployment in the midst of the Great Depression.
Bolton notes that this was achieved without causing inflation. When new money is used to create new goods and services, supply rises along with demand and prices remain stable; but the "demand" has to come first. No business owner will invest in more capacity or production without first seeing a demand. No demand, no new jobs and no economic expansion.
The Need to Restore Economic Sovereignty
The money for a guaranteed basic income could be created by a nationalized central bank in the same way that the Reserve Bank of New Zealand did it, and that central bank "quantitative easing" (QE) is created out of nothing on a computer screen today. The problem with today's QE is that it has not gotten money into the pockets of consumers. The money has gotten -- and can get -- no further than the reserve accounts of banks, as explained here and here. A dividend paid directly to consumers would be "quantitative easing" for the people.
A basic income guarantee paid for with central bank credit would not be "welfare" but would eliminate the need for welfare. It would be social security for all, replacing social security payments, unemployment insurance, and welfare taxes. It could also replace much of the consumer debt that is choking the private economy, growing exponentially at usurious compound interest rates.
As Grillo points out, it is not the cost of government but the cost of money itself that has bankrupted Italy. If the country wishes to free itself from the shackles of debt and restore the prosperity it once had, it will need to take back its monetary sovereignty and issue its own money, either directly or through its own nationalized central bank. If Grillo's party comes to power and follows through with his platform, those shackles on the Italian economy might actually be released.

Diagnosing the Economic Body Politic

 

Posted on Thursday, January 22nd, 2009 at 1:32 pm by Hazel Henderson /Ref :  Chelsea Green

Mainstream media in 2008 were replete with diagnoses of the sickness of the US economy. Central bankers, politicians and their economic advisors sought to explain the economy’s swoon in medical terms. The economic patient was described as having a heart attack, a seizure, a collapse, a loss of animal spirits, loss of confidence. Our body economic was described as being in shock, needing liquidity injections, going to the emergency room, on life support, on the operating table, responding to the medicine and, hopefully, in the recovery room.
Let’s look at all this body imagery conjured up by the economic experts and see if there may be some more realistic medical appraisals. Since it seems self-evident that our economy needs restructuring, let’s look at how deformed and misshapen it became over the past quarter century. We know that our economic body suffers from cancerous growth of its financial sector which metastasized to over 20% of its GDP. A normally efficient financial sector, likened to the body’s blood supply and circulatory system, need be no larger than 10% of GDP.
So, let’s flesh out the diagnosis in broader medical terms: The body economic suffers from:
• An enlarged heart and circulatory system. Unlike the earlier medical remedies of blood-letting, today’s economic doctors seem intent on increasing the body’s blood supply, creating hematomas in the banking sector. Injecting liquidity has led to edemas with pools and clotting in various organs and sectors. Bypass surgery may be the answer to downsizing bloated, “too big to fail” Wall Street firms, banks and “insurance” companies while re-directing the transfusions to homeowners, Main Street businesses, students, state budgets, extending unemployment benefits, food stamps, schools, healthcare, human services and charitable foundations.
• Immune system malfunctions where the regulatory functions of their watchdog cells, liver, kidneys and other vital organs were compromised, causing growth of strange, toxic organisms such as CDOs, SIVs, CDSs and a menagerie of unrecognized foreign invaders. Here immunity-boosting antibodies, whistleblowers, investigative journalists and bloggers are the remedies needed. Other prescriptions must include flushing out toxic waste “assets” from banks, hedge funds and insurance companies by simply writing them off and permitting reckless companies to fail and go bankrupt.
• Skeletal and muscular atrophy as the productive sectors were dismantled and backbone manufacturing, infrastructure, plants, equipment and goods production went to cheaper labor in other, less-regulated countries. The economy’s spine suffered deterioration as levees, sewage treatment, water mains, bridges, dams, roads and railroads fell into disrepair. Remedies are obvious in bringing new blood transfusions into circulation to oxygenate and restore tissues, bones and sinews.
• Overweight and accumulation of fatty deposits in tissues due to over-investment in automobiles for transportation while starving mass transit and hampering cycling, walking and other fitness-maintaining parks in cities and infrastructure. Remedies are at hand for stimulating urban revitalization, retrofitting city infrastructure with pedestrian malls, mass transit and reversing sprawl.
• Overgrown dysfunctional medical-industrial complex gobbling 16% of GDP and military-industrial complex, a back-breaking “charley horse” of $500 billion per year. Healing these conditions calls for shifting to preventive, universal, single-payer holistic healthcare and wellness programs while shifting weapons budgets to diplomacy, better information and intelligence services.
• Brain and nervous system atrophy due to mind-numbing mainstream media. Advertising induces impulse buying, low self-esteem and consumerist waste while obfuscating public understanding of the need to shift from fossil fuels to clean, green renewable energy and efficient resource use. Remedies include expansion of public broadcasting, ethical standards for advertising, publicly funded political campaigns, restoring the fairness doctrine, equal time provision of the FCC while rebuilding crumbling schools, revising outdated curricula and paying teachers adequately. Re-training programs will be needed for re-deploying the oversupply of economists, lawyers, MBAs, options traders, quants and financial engineers to perform useful tasks, including real engineering, retrofitting buildings, restoring parks and playgrounds, volunteering at food banks, well-baby clinics and teaching reading skills to our 20% of illiterates.
• Constipation and accumulation of toxic wastes in bodily organs, colon, liver and kidneys, leading to an inability to flush toxic assets from balance sheets by the appropriate write-downs and bankruptcies. Build up of pollution due to lack of regulatory oversight, enforcement and elimination of toxics. Prescriptions include restricting lobbying and political contributions, vigorous law enforcement and re-regulation of higher environmental, public health and safety standards. The downsizing of the financial sector must include breaking up oversized banks, banning credit default swaps, and other murky derivatives, reinstating the Glass-Steagall Act to separate banking from brokerage, investment banking and insurance while banning naked short selling, bringing back the uptick rule and the small tax on all transactions.
• Psychosomatic disorders including narcissism, feelings of entitlement, unwarranted fears, addiction to oil, over-use of patent medicines and an inability to reality-test or recognize new global conditions. Remedies include tough love from some of the other economies in the human family that lend us some $3 billion per day to sustain our over-consumption habit, including China, Japan and the OPEC nations. Another key prescription is a small tax on daily currency trading of over $2 trillion, 90% of which is speculation. This would stabilize currency turbulence and provide billions to meet the UN Millennium Goals of providing health and education to all members of the human family and reducing poverty. Tax avoidance and money-laundering can be more closely monitored and prosecuted while transfers offshore to financial brothels can be cauterized and shut down.
Can the US body economic be healed? Yes! Rejuvenation and reforms are on the agenda of the new Obama administration, as well as plans to perform re-constructive surgery on the economy, toward a new base on solar, wind, geothermal and more efficient infrastructure. As the rest of the world relies less on the US dollar, US consumers will kick many old addictions and producers will grow more sustainable local economies. Bloated industries will downsize while inefficient firms will go bust. The old dreams of Wall Street “masters of the universe” and old boys’ military adventures and empire can quietly fade away.

The hype has never been hotter for the Internet's No. 1 virtual currency. Is this the beginning of the end?

Ref Salon                        

                                                 

                      

Enlarge (Credit: ppart via Shutterstock/Salon)

 

What’s not to like about Bitcoin, every libertarian’s favorite crypto-currency?
For starters, Bitcoins are as cyberpunk as William Gibson’s wildest dream: a form of monetary exchange invented in 2009 by a mysterious character who called himself “Satoshi Nakamoto” but then disappeared from view after unleashing his virtual currency upon the world. Bitcoins are undeniably cool: marvelously “mined” from the ore of computer processing power and electricity; more ready for prime time than any previous experiment in purely digital money. And Bitcoins, increasingly, are a success. At a Thursday afternoon all-time-high valuation of $72 per Bitcoin, there were around $700 million worth of Bitcoins in circulation. People are using Bitcoins to buy real goods and services, to hedge against European financial calamity, and to score drugs. That’s money.
Over the years, Bitcoin has experienced ups and downs; the currency has been targeted by hackers and thieves and botnets and been victim to more than one embarrassing software glitch. But it has persevered, and this week, one can fairly say that Bitcoin came of age. On Monday, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released its first “guidance” as to how “de-centralized virtual currencies” should fit into the larger regulatory regime under which currencies of all kinds are required to operate. The word “Bitcoin” is never mentioned in FinCEN’s release, but that’s just a technicality. Everyone in the Bitcoin community knew who the guidance was aimed at. Bitcoin is a big boy now. The State is paying attention.

But while some observers have applauded FinCEN’s guidance as acknowledgment that Bitcoin isn’t illegal or considered a “threat” by the government, not everyone is cheering the news. Because there’s a problem here. Bitcoin isn’t just an elegant way to create money using peer-to-peer networks and cryptography. Bitcoin is a currency with an ideology. From the beginning, Bitcoin was envisioned as a form of monetary exchange that didn’t need third-party financial institutions or central banks or even governments to validate it or back it up. Bitcoin is the fulfillment of a libertarian dream, a currency created out of the workings of the free market, unaffiliated with any state authority, respectful and protective of user privacy and anonymity, and designed to resist inflationary pressures. By its very nature, Bitcoin is made for people who don’t want other people to know what they are doing.
“Bitcoin,” says financial pundit Max Keiser, “is the currency of resistance.”
That’s all fine and dandy, but then here comes the government with its strong suggestion that any organization that facilitates the exchange of Bitcoins into other non-virtual currencies needs to register with the proper authorities and start keeping a lot of bureaucratic paperwork. How does that fit in with the idea of “resistance”?
Not very well, as we can learn from one Redditor who chastised his fellow Bitcoin fans for celebrating the legitimacy conferred upon Bitcoin by FinCEN’s guidance.

From this situation to total government tracking of money flows and zero possibility to escape their theft, it is but a small step. The tax farmers have co-opted all of you into even more total servitude. But you celebrate that. How servile.
Sigh. Slave-minded idiots, nearly all of you, naively happy because the eye of Sauron has finally locked its sight on you, celebrating defeat as if it was a victory, cheering like mad cows as your farmers line all of you up at the slaughterhouse. May you get the cages you foolishly cheered for.

Mr. Eye of Sauron might be a little overheated, but there’s a nugget of sense buried in his rage. There’s a contradiction at the heart of Bitcoin. The more popular Bitcoin gets, whether as a symbol of resistance or a perceived safe haven in financially troubled times, the more government attention it will inevitably draw, and the more inexorably it will be sucked into existing regulatory structures. Incomes denominated in Bitcoins will be taxed. Efforts at money laundering will be cracked down upon. It’s the price of success. Resistance is futile.

* * *

The Bitcoin moment is right now. Two weeks ago, at the very end of a SXSW presentation on 3-D gun printing, Defense Distributed founder Cody Wilson encouraged his audience to take a look at what was happening with Bitcoin. Just in the last two weeks, he said, Bitcoin had “exploded.”
And it’s true, over the last four weeks, Bitcoin has repeatedly broken its all time record in terms of how much a single Bitcoin can be exchanged for another currency. Some observers have attributed this to the growing number of vendors — including WordPress and Reddit — that are willing to take payments in Bitcoins. Others point to the financial distress in Cyprus: Bitcoins are the new gold — a hedge against inflation and government appropriation. Others see what’s happening as little more than a classic bubble in the making, and are scrambling to get out before it pops.
Whatever the explanation, Bitcoin’s profile has never been higher, and the overheated rhetoric is keeping pace.

Cody Wilson, who reportedly raised $17,000 in Bitcoins to help fund his organization’s purchase of a high-end 3-D printer, was clearly delighted at Bitcoin’s surge when he spoke at SXSW. For him, there’s an obvious synergy between the virtual, non-government affiliated currency and his own plans to undermine the power of the state everywhere and enact practical anarchy in the world by distributing the power to 3-D print your own assault weapons. In one of his most recent over-the-top promotional videos, Wilson declares that to realize his organization’s goals, “we’ll need the Bitcoin. These days holding dollars is a political choice.” Elsewhere, he has described his vision as “a future of federal communities and slowly disintegrating and reactionary states. It is imperative to begin using cryptocurrencies and private commerce to starve these beasts.”
You won’t find a more explicit call to see Bitcoin as a technology for liberation than Wilson’s. You would imagine, then, that he would be disappointed to hear about FinCEN’s “guidance” suggesting that all Bitcoin entities that exchange Bitcoins for non-virtual currencies must register with the government. So much for starving the beast — a few more steps down that trail, and Bitcoin will be in the belly of the beast!
But Wilson’s faith in the free market and the Internet is so profound that he shrugs off any accommodation that Bitcoin might make with the government by expressing his faith that “when the currency becomes captive to regulatory interests, a competing currency and genesis code will take the lead.” Just as the Internet’s structure makes it impossible to stop the sharing of code or music or 3-D gun printing designs, so too will it enable the endless upwelling of alternative currencies.
But that view seems to miss something fundamental about what makes a currency work. Enough people have to buy into it, so to speak, that people and entities will accept it in exchange for goods and services, or convert it into other forms of legal tender, or employ it as an investment vehicle. It has to be useful, in other words, and true usefulness requires scale.
But scale inevitably attracts attention. Like it or not, the state will not sit idly by if vast sums of drug money start getting money laundered through Bitcoins, or if a significant enough stream of tax dollars starts getting diverted into the Bitcoin ether. Just try to avoid paying taxes on the proceeds of those 3-D-printed guns you are selling to all and sundry. The Eye of Sauron will come looking. In fact, it already has, as proven by FinCEN’s Monday release.  Welcome to the real world, Bitcoin.

by Andrew Leonard

      

United States Notes, and the Greenbacks

 

 

It is claimed that Abraham Lincoln issued Greenbacks which were United State Notes that largely financed the success of the American Civil War rather than relying on borrowing from banks, and similiar sources . RS

 

 

 

 

 

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Large-sized Series of 1880 United States Notes; the $20 note displays Alexander Hamilton and a red scalloped seal, and the $10 Daniel Webster and a large red spiked seal

A United States Note, also known as a Legal Tender Note, is a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for over 100 years, they were issued for longer than any other form of U.S. paper money. They were known popularly as "greenbacks" in their heyday, a name inherited from the Demand Notes that they replaced in 1862. Often called Legal Tender Notes, they were called United States Notes by the First Legal Tender Act, which authorized them as a form of fiat currency. During the 1860s the so-called second obligation on the reverse of the notes stated:^[1]
This Note is Legal Tender for All Debts Public and Private Except Duties On Imports And Interest On The Public Debt; And Is Redeemable In Payment Of All Loans Made To The United States.
They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.
United States Notes that were issued in the large-size format, before 1929, differ dramatically in appearance when compared to modern American currency, but those issued in the small-size format, starting in 1929, are very similar to contemporary Federal Reserve Notes with the highly visible distinction of having red U.S. Treasury Seals and serial numbers in place of green ones.
Existing United States Notes remain valid currency in the United States. However, since no United States Notes have been issued since January 1971, they are vanishingly rare in circulation.

Contents  [hide]  1 History 1.1 Demand Notes 1.2 The Legal Tender Acts 1.3 Post Civil War 2 Comparison to Federal Reserve Notes 3 Characteristics 4 Public Debt of the United States 5 Politics and controversy 6 See also 7 Footnotes 8 Further reading 9 External links

[edit] History

See also: Union (American Civil War)#Economy

[edit] Demand Notes

Comparison of a $5 Demand Note (upper image) and an 1862 issue $5 United States Note (lower image). Note the removal of the words "On Demand" and of the phrase "Receivable in Payment of All Public Dues". Also note the Treasury Seal added to the United States Note.

During 1861, the opening year of the American Civil War, the expenses incurred by the Union Government far outstripped its limited revenues from taxation, and borrowing was the main vehicle for financing the war. The Act of July 17, 1861^[2] authorized Secretary of the Treasury Salmon P. Chase to raise money via the issuance of $50,000,000 in Treasury Notes payable on demand.^[3] These Demand Notes were paid out to creditors directly and used to meet the payroll of soldiers in the field. While issued within the legal framework of Treasury Note Debt, the Demand Notes were intended to circulate as currency and were of the same size as and, in appearance, closely resembled banknotes.^[4] In December 1861, economic conditions deteriorated and a suspension of specie payment led the government to cease redeeming the Demand Notes in coin.

[edit] The Legal Tender Acts

The beginning of 1862 found the Union's expenses mounting, and the government was having trouble funding the escalating war. U.S. Demand Notes—which were used, among other things, to pay Union soldiers—were unredeemable, and the value of the notes began to deteriorate. On January 16, 1862, in a private meeting with President Lincoln, Edmund Dick Taylor advised him to issue greenbacks as legal tender.^[5][6] Congressman and Buffalo banker Elbridge G. Spaulding prepared a bill, based on the Free Banking Law of New York, that eventually became the National Banking Act of 1863.^[7] Recognizing, however, that his proposal would take many months to pass Congress, in early February Spaulding introduced another bill to permit the U.S. Treasury to issue $150 million in notes as legal tender.^[8] This caused tremendous controversy in Congress, as hitherto the Constitution had been interpreted as not granting the government the power to issue a paper currency. "The bill before us is a war measure, a measure of necessity, and not of choice," Spaulding argued before the House, adding, "These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government, and preserve our nationality." Spaulding justified the action as a "necessary means of carrying into execution the powers granted in the Constitution 'to raise and support armies,' and 'to provide and maintain a navy.'”^[9] Despite strong opposition, President Lincoln signed the First Legal Tender Act,^[10] enacted February 25, 1862, into law, authorizing the issuance of United States Notes as a legal tender—the paper currency soon to be known as "greenbacks".
Initially, the emission was limited to $150,000,000 total face value between the new Legal Tender Notes and the existing Demand Notes. The Act also called for the new notes to be used to replace the Demand Notes as soon as practical. The Demand Notes had been issued in denominations of $5, $10, and $20, and these were replaced by United States Notes nearly identical in appearance on the obverse. In addition, notes of entirely new design were introduced in denominations of $50, $100, $500 and $1000. The Demand Notes' printed promise of payment "On Demand" was removed and the statement "This Note is a Legal Tender" was added.

A political cartoon from the 1864 election depicting Secretary Fessenden of the Lincoln administration running "Chase's Mill" at left to flood the country with Greenbacks

Legal tender status guaranteed that creditors would have to accept the notes despite the fact that they were not backed by gold, bank deposits, or government reserves, and bore no interest. However, the First Legal Tender Act did not make the notes an unlimited legal tender as they could not be used by merchants to pay customs duties on imports and could not be used by the government to pay interest on its bonds. The Act did provide that the notes be receivable by the government for short term deposits at 5% interest, and for the purchase of 6% interest 20-year bonds at par. The rationale for these terms was that the Union government would preserve its credit-worthiness by supporting the value of its bonds by paying their interest in gold. Early in the war, customs duties were a large part of government tax revenue and by making these payable in gold, the government would generate the coin necessary to make the interest payments on the bonds. Lastly, by making the bonds available for purchase at par in United States Notes, the value of the latter would be supported as well.^[3] The limitations to the legal tender status were quite controversial. Thaddeus Stevens, the Chairman of the House of Representatives Committee of Ways and Means, which had authored an earlier version of the Legal Tender Act that would have made United States Notes a legal tender for all debts, denounced the exceptions, calling the new bill "mischievous" because it made United States Notes an intentionally depreciated currency for the masses, while the banks who loaned to the government got "sound money" in gold. This controversy would continue until the removal of the exceptions in 1933.
In the First Legal Tender Act, Congress limited the Treasury's emission of United States Notes to $150,000,000; however, by 1863, the Second Legal Tender Act,^[11] enacted July 11, 1862, a Joint Resolution of Congress,^[12] and the Third Legal Tender Act,^[13] enacted March 3, 1863, had expanded the limit to $450,000,000, the option to exchange the notes for United States bonds at par had been revoked, and notes of $1 and $2 denominations had been introduced as the appearance of fiat currency had driven even silver coinage out of circulation. As a result of this inflation, the greenback went on to trade at a substantial discount from gold, which prompted Congress to pass the short-lived Anti-gold futures act of 1864, which was soon repealed after it seemed to accelerate the decline of the greenback.
The largest amount of greenbacks outstanding at any one time was calculated as $447,300,203.10.^[14] The Union's reliance on expanding the circulation of greenbacks eventually ended with the emission of Interest Bearing and Compound Interest Treasury Notes, and the passage of the National Banking Act. However, the end of the war found the greenbacks trading for only roughly half of their nominal value in gold.^[3]

[edit] Post Civil War

At the end of the Civil War, some economists, such as Henry Charles Carey, argued for building on the precedent of non-debt-based fiat money and making the greenback system permanent.^[15] However, Secretary of the Treasury McCulloch argued that the Legal Tender Acts had been war measures, and that the United States should soon reverse them and return to the gold standard. The House of Representatives voted overwhelmingly to endorse the Secretary's view.^[16] With an eventual return to gold convertibility in mind, the Funding Act of April 12, 1866^[17] was passed, authorizing McCulloch to retire $10 million of the Greenbacks within six months and up to $4 million per month thereafter. This he proceeded to do until only $356,000,000 were outstanding in February 1868. By this point, the wartime economic boom was over, the crop harvest was poor, and a panic in Great Britain caused a recession and a sharp drop in prices in the United States.^[18] The contraction of the money supply was blamed for the deflationary effects, and led debtors to successfully agitate for a halt to the notes' retirement.^[19]
In the early 1870s, Treasury Secretaries George S. Boutwell and William Adams Richardson maintained that, though Congress had mandated $356,000,000 as the minimum Greenback circulation, the old Civil War statutes still authorized a maximum of $400,000,000^[20] - and thus they had at their discretion a "reserve" of $44,000,000. While the Senate Finance Committee under John Sherman disagreed, being of the opinion that the $356,000,000 was a maximum as well as a minimum, no legislation was passed to assert the Committee's opinion. Starting in 1872, Boutwell and Richardson used the "reserve" to counteract seasonal demands for currency, and eventually expanded the circulation of the Greenbacks to $382,000,000 in response to the Panic of 1873.^[21]
In June 1874, Congress officially capped the Greenback circulation at $382,000,000, and in January 1875, passed the Specie Payment Resumption Act, which authorized a contraction in the circulation of Greenbacks towards a revised limit of $300,000,000, and required the government to redeem them for gold, on demand, after 1 January 1879. As a result, the currency strengthened and by April 1876, the notes were on par with silver coins which then began to re-emerge into circulation.^[22] On May 31, 1878, the contraction in the circulation was halted at $346,681,016 - a level which would be maintained for almost 100 years afterwards.^[23] While $346,681,016 was a significant figure at the time, it is now a very small fraction of the total currency in circulation in the United States. The year 1879 found Sherman, now Secretary of the Treasury, in possession of sufficient specie to redeem notes as requested, but as this brought the value of the greenbacks into parity with gold for the first time since the Specie Suspension of December 1861, the public voluntarily accepted the greenbacks as part of the circulating medium.^[16]

Series of 1901 $10 Legal Tender depicting military explorers Meriwether Lewis, William Clark, and an American bison.

While the United States Notes had been used as a form of debt issuance during the Civil War, afterwards they were used as a way of moderately influencing the money supply by the federal government - such as through the actions of Boutwell and Richardson. During the Panic of 1907, President Theodore Roosevelt attempted to increase liquidity in the markets by authorizing the Treasury to issue more Greenbacks, but the Aldrich-Vreeland Act provided for the needed flexibility in the National Bank Note supply instead. Eventually, the perceived need for an elastic currency was addressed with the Federal Reserve Notes authorized by the Federal Reserve Act, and pressure to alter the circulating quantity of United States Notes subsided.
Soon after private ownership of gold was banned in 1933, all of the remaining types of circulating currency, silver certificates, Federal Reserve Notes, and United States Notes, were redeemable by individuals only for silver. Eventually, even silver redemption stopped in 1965-68, during a time in which all U.S. currency (both coins and paper currency) was changed to fiat currency. At this point for the general public, there was little to distinguish United States Notes from Federal Reserve Notes. As a result, the public circulation of United States Notes, which was then mainly in the form of $5 bills, was replaced with $5 Federal Reserve Notes, and the stock of United States Notes was mostly converted into $100 bills, which spent most of their time in bank vaults. No more United States Notes were put into circulation after January 21, 1971.^[24] In September 1994 the Riegle Improvement Act released the Treasury from its long-standing obligation to keep the notes in circulation and finally, in 1996, the Treasury announced that its stock of $100 United States Notes had been destroyed.^[25]

[edit] Comparison to Federal Reserve Notes

The United States Note was a national currency whereas Federal Reserve Notes are issued by the quasi-federal Federal Reserve System.^[26] Both have been legal tender since the gold recall of 1933. Both have been used in circulation as money in the same way. However, the issuing authority for them came from different statutes.^[24] United States Notes were created as fiat currency, in that the government has never categorically guaranteed to redeem them for precious metal - even though at times, such as after the specie resumption of 1879, federal officials were authorized to do so if requested. The difference between a United States Note and a Federal Reserve Note is that a United States Note represented a "bill of credit" and was inserted by the Treasury directly into circulation free of interest. Federal Reserve Notes are backed by debt purchased by the Federal Reserve, and thus generate seigniorage, or interest, for the Federal Reserve System, which serves as a lending parent to the Treasury and the public.
As the debt purchased by the Federal Reserve System to back its notes consists primarily of Treasury and Government-sponsored enterprise debt,^[27] and because the seigniorage is largely remitted back to the Treasury as "interest on Federal Reserve Notes", the economics to the Treasury are comparable to issuing United States Notes. This stands in contrast to National Bank Notes which allowed the issuing banks to privately retain the seigniorage as profit.

[edit] Characteristics

The first small size $1 United States Note issued (Smithsonian Institution).

The first small size $2 United States Note issued (Smithsonian Institution).

The first small size $5 United States Note issued (Smithsonian Institution).

Like all U.S. currency, United States Notes were produced in a large sized format until 1929, at which point the notes' sizes were reduced to the small-size format of the present day.
The original large-sized Civil War issues were dated 1862 and 1863, and issued in denominations of $1, $2, $5, $10, $20, $50, $100, $500 and $1000.^[28] The United States Notes were dramatically redesigned for the Series of 1869, the so-called Rainbow Notes. The notes were again redesigned in the Series of 1874, 1875 and 1878. The Series of 1878 included, for the first and last time, notes of $5,000 and $10,000 denominations. The final across-the-board redesign of the large-sized notes was the Series of 1880. Individual denominations were redesigned in 1901, 1907, 1917 and 1923.
On small-sized United States Notes, the U.S. Treasury Seal and the serial numbers are printed in red (contrasting with Federal Reserve Notes, where they usually appear in green). By the time the small-size format was adopted, the Federal Reserve System was already in place and there was limited need for United States Notes. They were mainly issued in $2 and $5 denominations in the Series years of 1928, 1953, and 1963. There was a limited issue of $1 notes in the Series of 1928, and an issue of $100 notes in the Series year of 1966, mainly to satisfy legacy legal requirements of maintaining the mandated quantity in circulation.
Section 5119(b)(2) of Title 31, United States Code, was amended by the Riegle Community Development and Regulatory Improvement Act of 1994 (Public Law 103-325) to read as follows: "The Secretary shall not be required to reissue United States currency notes upon redemption." This does not change the legal tender status of United States Notes nor does it require a recall of those notes already in circulation. This provision means that United States Notes are to be cancelled and destroyed but not reissued. This will eventually result in a decrease in the amount of these notes outstanding.^[29]

[edit] Public Debt of the United States

As of December 2012^[update], the U.S. Treasury calculates that $239 million in United States notes are in circulation, and excludes this amount from the statutory debt limit of the United States. This amount excludes $25 million in United States Notes issued prior to July 1, 1929, determined pursuant to Act of June 30, 1961, 31 U.S.C. 5119, to have been destroyed or irretrievably lost.^[30]

[edit] Politics and controversy

The concept of replacing precious metals with fiat paper as the medium of exchange was contentious and attracted attention.
The United States Congress had enacted the Legal Tender Acts during the U.S. Civil War when southern Democrats were absent from the Congress, and thus their Jacksonian hard money views were underrepresented. After the war, the Supreme Court ruled on the Legal Tender Cases to determine the constitutionality of the use of greenbacks. The 1870 case Hepburn v. Griswold found unconstitutional the use of greenbacks when applied to debts established prior to the First Legal Tender Act as the five Democrats on the Court, Nelson, Grier, Clifford, Field, and Chase, ruled against the Civil War legislation in a 5-3 decision. Secretary Chase had become Chief Justice of the United States and a Democrat, and spearheaded the decision invalidating his own actions during the war. However, Grier retired from the Court, and President Grant appointed two new Republicans, Strong and Bradley, who joined the three sitting Republicans, Swayne, Miller, and Davis, to reverse Hepburn, 5-4, in the 1871 cases Knox v. Lee and Parker v. Davis. In 1884, the Court, controlled 8-1 by Republicans, granted the federal government very broad power to issue Legal Tender paper through the case Juilliard v. Greenman, with only the lone remaining Democrat, Field, dissenting.^[21]
The states in the far west stayed loyal to the Union, but also had hard money sympathies. During the specie suspension from 1862 to 1878 western states used the gold dollar as a unit of account whenever possible and accepted greenbacks at a discount wherever they could.^[3] The preferred forms of paper money were gold certificates and National Gold Bank Notes, the latter having been created specifically to address the desire for hard money in California.
During the 1870s and 1880s, the Greenback Party existed for the primary purpose of advocating an increased circulation of United States Notes as a way of creating inflation according to the quantity theory of money. However, as the 1870s unfolded, the market price of silver fell with respect to gold, and inflationists found a new cause in the Free Silver movement. Opposition to the resumption of specie convertibility of the Greenbacks in 1879 was accordingly muted.

[edit] See also

Numismatics portal

• History of central banking in the United States

[edit] Footnotes

1. ^ Friedberg, Arthur L. and Ira S., 2006, Paper Money of the United States, 18th Edition, Clifton, NJ, The Coin & Currency Institute, Inc. ISBN 0-87184-518-0
2. ^ United States Congress. Act of July, 17 1861 Chapter Ⅴ. Washington D.C.: 1861
3. ^ ^{a b c d} Mitchell, Wesley Clair, "A History of the Greenbacks With Special Reference To the Economic Consequences of Their Issue 1862-65", University of Chicago, Chicago, 1903.
4. ^ Chittenden, L.E., Recollections of President Lincoln and His Administration, Harper & Brothers, New York, 1891.
5. ^ Congressional Serial Set, Issue 2599, Volume 2. Report No. 380, U.S. G.P.O., 1888.
6. ^ Abraham Lincoln's pen and voice, p. 404. Abraham Lincoln, George Mandeville Van Buren, 1890.
7. ^ Heidler, D.S. & Heidler, J.T. (2000). Encyclopedia of the American Civil War: a political, social, and military history (p. 1168). New York, NY: W.W. Norton.
8. ^ McPherson, J.M. (1988). Battle cry of freedom: the Civil War era (p.445). New York, NY: Oxford University Press.
9. ^ Spaulding, E.G. (1869). History of the legal tender paper money issued during the great rebellion (p.29). Buffalo, NY: Express Printing.
10. ^ ch. 33, 12 Stat. 345
11. ^ ch. 142, 12 Stat. 532
12. ^ United States Congress. Resolution of January 17, 1863, No. 9. Washington D.C.: 1863
13. ^ ch. 73, 12 Stat. 709
14. ^ Backus, Charles K., "The Contraction of the Currency", The Honest Money League of the Northwest, Chicago, Ill., 1878.
15. ^ Carey, Henry Charles (March 1865) The Way to Outdo England Without Fighting Her
16. ^ ^{a b} United States Notes, John Joseph Lalor, "Cyclopaedia of Political Science, Political Economy, and of the Political History of the United States", Rand McNally & Co, Chicago, 1881.
17. ^ United States Congress. Act of April 12, 1866 Chapter XXXIII. Washington D.C.: 1866
18. ^ Studenski, Paul; Krooss, Hermand Edward (1952). Financial History of the United States, New York, NY: McGraw-Hill. ISBN 1-58798-175-0.
19. ^ The Greenback Question. Retrieved May 30, 2009.
20. ^ While the three Legal Tender Acts had authorized $450,000,000 of notes, the Second Legal Tender Act, in taking the total from $150,000,000 to $300,000,000 had reserved $50,000,000 of the increase for the purpose of redeeming balances in a temporary deposit program. The Act of June 30, 1864, reiterated this limitation, and as the temporary loan program had ceased to exist, only $400,000,000 of the $450,000,000 ceiling were available.
21. ^ ^{a b} Timberlake, Richard H.(1993). Monetary Policy in the United States: An Intellectual and Institutional History, Chicago, IL: University of Chicago Press. ISBN 978-0-226-80384-5.
22. ^ Bowers, Q. David; David Sundman (2006). 100 GREATEST AMERICAN CURRENCY NOTES, Atlanta, Georgia: Whitman Publishing. ISBN 0-7948-2006-9.
23. ^ The National Balance Sheet; It Includes $71,000,000 of Debits Which Might Well Be Dropped New York Times May 24, 1903, Sunday
24. ^ ^{a b} U.S. Treasury - FAQ: Legal Tender Status
25. ^ Hessler, Gene and Chambliss, Carlson (2006). The Comprehensive Catalog of U.S. Paper Money, 7th edition, Port Clinton, Ohio: BNR Press ISBN 0-931960-66-5.
26. ^ "President John F.Kennedy, The Federal Reserve, and Executive Order 11110". The Final Call 15 (6). January 17, 1996. http://www.john-f-kennedy.net/executiveorder11110.htm.
27. ^ Board of Governors of the Federal Reserve System, Financial Statements of the Federal Reserve System, Combined Federal Reserve Banks as of December 31, 2011
28. ^ Chronology of Large-Size Notes Retrieved June 6, 2009.
29. ^ http://www.bep.treas.gov/historicallegislation.html
30. ^ "Monthly Statement of the Public Debt of the United States". United States Treasury Department. 2012-12-31. http://www.treasurydirect.gov/govt/reports/pd/mspd/2012/opdm122012.pdf. Retrieved 2013-01-08.

[edit] Further reading

• Wesley Clair Mitchell, A History of the Greenbacks: With Special Reference to the Economic Consequences of Their Issue, 1862-65. Chicago: University of Chicago Press, 1903.
• Irwin Unger, The Greenback Era: A Social and Political History of American Finance, 1865-1879. (1965)
• Henry George, "On Greenbacks, Free Silver, and Free Banking," The Standard, December 14, 1889.

[edit] External links

• U.S. Treasury Dept. information about United States Notes
• Six Kinds of United States Paper Currency

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