This is Richard Wolff and I'm responding today to a question sent in via the AskProfWolff
operation for our
Patreon community.
I want to respond today to a question from Alex T,
a member of that community.
And Alex asks, as others of you have also done,
asks me to explain how it is that money is generally so scarce for the social programs
millions and millions the majority of Americans depend on one way or another
why getting money for them is always so difficult and complicated and slow.
Whereas the Federal Reserve in periods of crisis like the one we're in now with the coronavirus
can pump trillions of dollars into the economy
literally overnight.
What's going on? Why is that possible? What does it mean?
Let's begin with the basis of it.
The United States has become a financially dependent
economic system.
A kind of financialization it's called of capitalism.
The simplest way to describe it is to tell you that we now have a record level of government debt;
money that the government owes
to the public; both American and foreign, corporate and individual.
We also have corporations that are more heavily in debt than they have ever been.
Both financial corporations like banks and insurance companies,
but also non-financial corporations
like all of the companies that make the goods and services
that make our economy work.
And finally, the average family in America is also more deeply in debt than it has ever been.
Mortgage debt to live in your own home.
Automobile debt to own and operate your own car.
Credit card debt for literally daily needs starting with
a plastic bottle of water.
And finally student loans, an enormously important relatively newer form of credit.
What all this dependence on credit does
is basically make the credit system:
money, debts, things that are mostly the responsibility of banks;
they become more important, more crucial to the running of the economy.
More central to the way capitalism works.
Anything that might impede
the movement of money through the system
from borrowers to lenders, or lenders to borrowers,
and every corporation and virtually every household,
anything that impedes the credit system threatens the whole system with a shutdown.
At the same time the very importance of the credit system to everything else
means that we have an even more cozy relationship
between the supervisor of our banking system, that's the Federal Reserve
that special agency in charge of the American money supply.
We have a cozy relationship between the Federal Reserve and the major banks.
Banks is a highly concentrated business.
The monster banks at the top, you know their names:
Citibank, Bank of America, Wells Fargo, Chase Manhattan, and so on.
It's a very cozy relationship between the leaders of those monstrous banks and the government that has to
manage to keep what we call the credit market "liquid."
That is easily having enough money to service all of the players,
the borrowers and the lenders.
Any interruption, for example,
corporations in trouble so they can't repay their loans, that's the kind of situation we have right now.
Families unable to service their loans. Well, we saw what the crash was back in 2008 when
subprime mortgage owners could not pay and the whole system started to crumble.
Well as the coronavirus terror spreads through the United States
there will be more and more families losing their jobs, losing their incomes,
and the $1,200 check that Secretary of Finance Mnuchin
has been proposing is a laughably inadequate response.
As all of those failures to keep the system moving set in
there really is now only one recourse.
The Federal Reserve
pumps in new money and the way it does that is very simple.
It's not in the main anymore as it once was
to literally produce pieces of paper that say five, ten, fifty, and so on and get them into the economy.
It's now done with a stroke of an electronic key.
Basically what the Federal Reserve does is simply create
an account, usually for a big bank,
that is larger than what that bank had before.
So if the bank had, I don't know, three billion dollars in the account the Federal Reserve says well now
you have five billion...or ten billion...or thirty billion.
It really doesn't matter. And the bank that now has this enlarged account can start writing checks,
giving loans to companies if it can find them, to individuals to help them through a tough time, whatever.
It's a way for the Federal Reserve to keep the credit-dependent economy fluid with enough money
pumped in by the
agency that can simply create it out of thin air
to compensate for all the obstacles in the real world of Main Street
that are blocking people from keeping those channels of credit open.
And since the people who run this society,
the big corporations in bed with the big banks, are the ones sitting at the top of all of this
they are very eager for the Federal Reserve to give them the bailouts as and when they need them.
And they're much less eager to see money being created, if it were,
to help average people. Not that it couldn't be, it could be.
You could decide to oil
the credit system by giving everybody large sums of money
that they could then put in the bank and that they could then
be used by the banks to keep the credit system going. It could be done.
But given who runs a society, that's not how it works.
As usual, the problem isn't technical or economic. The problem is ultimately social and political.
Who runs the show, for whose benefit? If you let corporations, the people who produce
the goods and services we depend on, be run by a tiny group of people at the top...
the owners...the boards of directors...
who get into cozy relationships with the owners and boards of directors of the banks
they turn to, they will make this system work for them.
And that's why the bailouts from the Federal Reserve
put the money in their hands first and often only there.
And why the rest of us, who could oil the system by getting the money put in our accounts,
never see it. That's the answer
to your question.
Hoping this has been useful. This is
Richard Wolff for Democracy at Work
responding to an AskProfWolff question sent in from Alex T of our much appreciated
Patreon community.