Ellen Brown
SEPTEMBER 2, 2026

In August 2026, the U.S. debt reached a gravity-defying $40 trillion, with an estimated fiscal year 2026 deficit of $2.1 trillion. Interest on the debt hit a record $1.4 trillion over the last 12 months and now consumes more than any federal program except Social Security and Medicare, eclipsing defense spending for the first time in U.S. history. Paid with borrowed money, interest compounds exponentially, making it the fastest-growing part of the budget, far outpacing economic growth. By 2036, the Congressional Budget Office projects interest costs will double to $2.1 trillion, with debt held by the public reaching 120 percent of GDP. The CBO director has declared the trajectory to be “not sustainable.”

Increasingly, prominent analysts are saying the United States will have to “print” its way out. But using whose printing press, printing what?

Today “printing” normally means Federal Reserve monetization (Quantitative Easing or QE). The Treasury first issues debt – bills, bonds and notes – which are sold by primary dealers on the open market. If there are insufficient buyers, the Fed as “lender of last resort” may buy the securities with “reserves” created with accounting entries in bank reserve accounts. But Fed Chair Kevin Warsh is trying to reduce the Fed’s balance sheet by selling federal securities, not buy them. And even if the Fed did engage in QE, it would not work today to reduce the debt or the interest. The Fed is required to return its profits to the Treasury after deducting its costs, but ever since 2008 it has paid the banks interest on their reserve balances (IORB) as a policy tool to control inflation; and since 2022, the total sum the Fed has paid in IORB has been higher than the interest it received from the Treasury on its securities. The net result is that instead of the Fed remitting profits to the Treasury, the Treasury now owes the Fed money to cover the gap in IORB, increasing the federal debt and the interest bill. The Fed printing press is running, but it is running in the wrong direction.

Meanwhile, $4.1 trillion USD in marketable federal securities are maturing this year; and many are long-dated bonds yielding low interest, for which there are insufficient buyers. So the Treasury under Scott Bessent has had to take over the business of buying them, using funds raised by selling short-dated Treasuries for which there is a ready market. Some commentators are calling this “Treasury QE,” but the policy is not pumping new Treasury dollars into the market. Other commentators say the buyback expansion is more like the Fed’s earlier “Operation Twist” — just an asset swap, old debt for new.

An August 22, 2026 article in Forbes compares the effect of Fed and Treasury bond purchases like this:

“Under quantitative easing, the Fed buys Treasury securities and pays for them by crediting the reserve accounts of banks.… Base money, the sum of currency and those reserve balances, expands one for one with the purchase.

Treasury has no such keystroke ability. It spends out of the Treasury General Account, its checking account at the Fed, and every dollar in that account got there through taxes or borrowing. “

The Treasury’s Keystroke Power 

So says conventional analysis, but the Treasury at the direction of Congress actually does have keystroke ability. It is a sovereign power that our forebears used to finance the American Revolution, the Civil War, and some of the most explosive periods of economic growth in U.S. history. From the “colonial scrip” that Benjamin Franklin credited with the prosperity of the colonies, to the Continentals that funded the Revolution, the power to create money was viewed as a public utility. The U.S. Constitution formalized that power in Article I, Section 8, granting Congress the power “to coin Money [and] regulate the Value thereof.”

After Lincoln’s Treasury printed enough U.S. Notes or “Greenbacks” to win the Civil War, the Supreme Court twice affirmed its authority to do so. But that power was captured and handed to a banking cartel that met in secret on Jekyll Island in 1910, where they designed a system in which every new dollar must be borrowed into existence from bankers who simply write deposits into their borrowers’ accounts. And thus was the government’s sovereign power to create its own currency captured by private profiteers.

The Lincoln Precedent

The greatest proof of concept for debt-free sovereign currency remains Abraham Lincoln’s Greenbacks. Facing a fractured nation and usurious interest rates from international bankers, Lincoln bypassed the private credit market. Through the Legal Tender Acts of the 1860s, the Treasury issued $450 million in United States Notes (Greenbacks), which funded the North’s victory in the Civil War and extensive national infrastructure development.

In 1871, the Supreme Court upheld the Legal Tender Acts in Knox v. Lee, ruling that the government’s power to issue currency that was not redeemable in specie (coins) was an inherent attribute of sovereignty. But in 1878, the Greenback supply was capped at less than half a million dollars, ensuring that as the economy grew, the sovereign dollar would be dwarfed by private bank credit backed by gold reserves. In Juilliard v. Greenman (1884), however, the Supreme Court confirmed that the power “of making the notes of the United States a legal tender in payment of private debts” was “included in the power to borrow money and to provide a national currency”.

The Populist Allegory: The Yellow Brick Road

By the late 19th century, the scarcity of credit caused by the bankers’ “Cross of Gold” led to a major depression and a grassroots uprising. In 1894, the march of “Coxey’s Army” on Washington—the first of its kind—would become the inspiration for The Wonderful Wizard of Oz (1889).

In that classic American allegory, the “Yellow Brick Road” (the gold standard) leads to a deceptive Emerald City (Washington D.C.), where the Wizard (the President) pulls levers of illusion. William Jennings Bryan, the “Cowardly Lion” of the Greenback movement, had the roar of a great orator but ultimately lacked the courage to stick to the Greenback solution, instead pivoting to bimetallism (silver). [For more on that see E. Brown, Web of Debt.]

In 1912, Bryan was appointed Secretary of State by Pres. Woodrow Wilson. Bryan vigorously opposed the Aldrich Act, which would have handed the “money power” to the bankers; but the bankers won, and the Federal Reserve Act passed. Since that time, the United States has financed itself not with sovereign money but with interest-bearing debt, rolling it over year after year until the interest bill itself has become the fastest-growing federal expense.

That is how we got caught in a debt cyclone in which interest is compounding at a voracious rate. Congress will be coming up against the debt ceiling soon and will need to vote either to raise the ceiling, cut social services and the military, raise taxes, or authorize the Treasury to print its way out. Granted, Congress is unlikely to resort to the sovereign money alternative until it has no other option but to default, but that alternative is approved by both the Constitution and by statute, and it need not raise consumer prices – in fact it can lower them — if the new money is used to create new goods and services, keeping supply and demand in balance. (More on that shortly.)

The Statutory Keys

A statutory mechanism proposed to deal with earlier debt ceiling crises involves 31 U.S.C. § 5112(k), under which the Treasury Secretary is granted the discretion to mint platinum coins in any denomination. The proposal was to mint trillion dollar coins, which would represent a profit to the Mint (seigniorage) rather than loans, so their value does not count toward the statutory debt limit defined in 31 U.S.C. § 3101. See e.g. Paul Krugman’s whimsical endorsement here.

The “Treasury General Account” (TGA) is essentially the government’s only checking account and is held by the Federal Reserve. Fo the sovereign dollar to work, the Fed would need to credit the TGA with the face value of the coins on deposit but that mandate is also statutory. Under 12 U.S.C. § 391, the Federal Reserve Banks are must act as “fiscal agents” for the United States; and under 31 U.S.C. § 5103, all coins minted by the U.S. Treasury are “legal tender for all debts, public charges, taxes, and dues.”

Despite those mandates, when the trillion dollar coin was raised as a solution to an earlier debt ceiling deadline in 2013, then-Fed Chair Ben Bernanke called it “unworkable”; and in 2021, facing another debt ceiling, Janet Yellen called it a “gimmick.”

Perhaps, but the coin is no more a gimmick than the Fed’s own “Quantitative Easing,” which extends the use of a section of the Federal Reserve Act far beyond its intended purpose. Section 14 of the Act (12 USC Sec. 355), authorizing Open Market Operations, was intended only for small-scale adjustments to keep interest rates stead; but during the 2008 and 2020 crises, the Fed used that authority to create billions of dollars in reserves to bail out bankrupt mega-banks.

If the Fed can create trillions in currency to save the banks, why can’t the Treasury do it to save the taxpayers? If trillion dollar coins seem too much like a gimmick, Congress can just lift the 1878 cap on Greenback issues and issue U.S. Notes directly. The GENIUS Act authorizes new forms of digital coins. Why not a digital Greenback coin backed by the full faith and credit of the United States?

Quelling Inflation Concerns

Combining the Legal Tender power (confirmed in Juilliard), the Minting discretion (31 U.S.C. §5112), and the Fiscal Agency mandate (12 U.S.C. §391), the tools are already in place for Congress to issue currency directly. So what is holding it back?

The standard objection is that Treasury-issued money is more inflationary than borrowing, because borrowed money will eventually be paid back, extinguishing the newly created deposits. But the federal debt has not been paid off since Andrew Jackson did it nearly two centuries ago. The debt is just rolled over from year to year, and so is the interest. In fact the interest burden grows faster than the debt, because it is largely deficit-financed. Interest paid on interest compounds exponentially.

Contrary to conventional theory, borrowing money into existence has been shown to be more inflationary than printing it directly. Both add new dollars to the money supply, since the debt-created dollars spent by the government are never paid back. But the interest burden on those dollars drives up taxes, and the Fed attempts to dampen inflation by raising interest rates, which raises the interest that producers must pay on their own debts. Producers then raise their prices to cover these additional costs, inflating consumer prices.

Supporting Data

The additional inflation risk from government-borrowed money is not just theory. In an excellent 2018 academic paper titled “Bringing the Helicopter to Ground,” monetary economists Josh Ryan-Collins of University College London and Frank van Lerven of the New Economic Foundation examined government finance across 13 advanced economies from 1900 to 2011. For roughly 40 years, from the 1930s to the 1970s, 40 to 50 percent of government debt in the countries studied was funded by the creation of new money rather than by borrowing existing wealth from private savings or foreign investors. The new money was created as credit on the books of both central and commercial banks. The authors highlight that this period also had the lowest incidence of banking crises in modern history, and it coincided with the century’s longest sustained period of low government debt-to-GDP and highest GDP growth. Inflation remained manageable until the shocks of the early 1970s.

After the 1970s oil shock, Milton Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon” became official dogma. But the historical record showed the opposite: price inflation rose in the 1970s, while new money creation fell. Prices were driven up by a shortage of supply rather than an excess of monetary demand.

Money Creation Needs to Be Productive 

One particularly compelling experiment in publicly-issued money discussed by Ryan-Collins and van Lerven involved New Zealand. Today, nearly all U.S. states are dealing with housing crises. After the Reserve Bank of New Zealand was nationalized in the 1930s, the government solved its housing crisis by using central bank-issued funds to finance housing, infrastructure, public works and support for farmers. Over a four-year period, The Bank created NZ£30 million for the government, real GDP rose 30 percent, and price inflation remained stable.

Why? Because the new money was not bidding for a fixed stock of goods. It was putting unemployed people and idle resources to work to increase the supply of housing, food and other goods.

That is actually the key to avoiding the inflation trap (“too much money chasing too few goods”). If the money is spent on infrastructure and investments that produce new goods and services, supply and demand will rise together, keeping prices in balance.

In fact we may soon be facing the opposite problem – too little money chasing too many goods. Artificial intelligence and robotics promise large increases in productive capacity while threatening the wage income on which consumer demand depends. The solution in that case will be to add new debt-free money to the economy. See my earlier article series here.

The Hamiltonian Option: Grow Our Way Out

An alternative for dealing with the federal debt that is being advocated by the current Administration is the Hamiltonian approach: increase GDP and grow our way out of the debt, as the U.S. did after World War II. It’s a good idea, but financial commentators say it is not enough. Conditions are far different now than in the post-war period, and the numbers won’t work.

Before GDP can grow, funds must be available for labor and supplies; and the Treasury simply does not have them. Treasury-issued dollars could fill the breach and be sustainable, if the money were directed into infrastructure and development, increasing supply along with demand.

Contrary to the Friedman dictum, inflation is not “always and everywhere a monetary phenomenon.” The relevant question is not just how much money is circulating in the economy but where it is circulating and whether it is connecting productive capacity with human needs.

Today, U.S. factories are operating at only 76% capacity, and the American Society of Civil Engineers projects a shortage in infrastructure funding of $3.7 trillion, while trillions in liquid M2 capital are sitting idle in the stock market or circulating strictly within its walls. In fact corporations are now draining hundreds of billions of dollars out of their productive operations to buy back their own stock, further removing financial wealth from the real economy. If newly created dollars were invested in the economy’s industrial slack or the infrastructure gap, goods and services would be produced for the consumer market, raising supply to balance demand and keeping prices from rising.

The most dramatic modern illustration of this principle is China. In the last three decades, China’s M2 money supply has increased by a dramatic 5500%, yet prices have remained stable. Why? Because the money has been invested in infrastructure and development, increasing supply along with demand. For a detailed explanation and references, see my earlier article here.

What If Greenbacks Retired the Debt?

What if new Treasury money were used to gradually redeem some existing federal securities as they mature? This too would be unlikely to drive up consumer prices. Treasury securities are largely held by funds, banks, insurers, foreign institutions and wealthy investors, who are not likely to spend the money on consumer goods but will seek other investments paying interest. An institutional holder of a $1 million Treasury bond which receives $1 million in sovereign dollars has not suddenly gained $1 million in net wealth. One federal liability has just been exchanged for another: an interest-bearing security for non-interest-bearing money. What has changed is just that the government has been relieved of the obligation to keep paying interest on the retired debt.

Conclusion: The Government Has the Power to Bypass the Interest Trap

As Thomas Edison observed in a New York Times interview in 1921:

“If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is that the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way.”

It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people.

Congress has the constitutional power to issue sovereign money directly – interest-free and debt-free – and viable precedents are available for implementing that policy without driving up consumer prices. The question is whether Congress will reclaim this hereditary power before the interest trap snaps shut completely.

Postscript: In October of this year, the Public Banking Institute will be holding a conference on these and related issues in Philadelphia, the city in which Pennsylvania’s “land bank” first proved the power of publicly-issued credit and Benjamin Franklin’s printing press supplied its currency. For more information, see http://PublicBankingInstitute.org.

Published on Scheerpost.com.

Shared via Creative Commons.

ELLEN BROWN
June 26 2026

As Americans prepare to celebrate the 250th anniversary of the Declaration of Independence, few are paying attention to a bill moving through Congress that could seriously impinge on our financial independence.

The Clarity for Payment Stablecoins Act, H.R. 4766, is slated to make privately issued stablecoins a major component of the U.S. monetary system. Supporters see stablecoins as a way to strengthen the dollar’s global role while creating a vast new market for U.S. Treasury securities. Critics see the rise of programmable private money that can be monitored, frozen, or restricted by its issuers. Banks fear the loss of the deposits that are essential to advancing affordable credit. What appears to be a debate about digital tokens has thus become a battle over the future of banking itself and finance.

Why Stablecoins Matter.

Stablecoins are privately issued digital tokens that can circulate on blockchain networks independently of the banking system. They are designed to maintain a stable value, typically one dollar per token. Unlike Bitcoin and other cryptocurrencies, whose values fluctuate wildly, stablecoins are usually backed by reserve assets such as cash and short-term U.S. Treasury securities.

Their growth has been explosive. The stablecoin market now measures in the hundreds of billions of dollars and continues to expand rapidly. Advocates see them as the next stage in the evolution of money: faster, cheaper, available around the clock, and capable of moving across borders without relying on traditional banking networks.

For users in countries suffering from inflation, currency controls, or banking instability, dollar-denominated stablecoins can function as digital dollar savings accounts. Residents of Argentina, Turkey, Nigeria, and other countries may trust a Treasury-backed dollar token more than their own national currency. In some countries suffering from inflation, merchants quote prices in dollar stablecoins and accept them directly through mobile apps.

The Push from Cryptocurrency Advocates: Ending “Regulation by Enforcement”.

The stated goal of the CLARITY Act is to establish a statutory framework that clarifies whether digital assets are securities, commodities, or payment stablecoins. Before this legislation, regulators—primarily the SEC—often applied decades-old laws to modern blockchain technology. Because the rules weren’t explicitly written for crypto, companies would discover they were in violation only when they were served with a lawsuit or a fine.

The most prominent example is SEC vs. Ripple Labs. Ripple launched its XRP token in 2012 and operated for nearly a decade without specific guidance that its token was considered a security. In 2020, the SEC sued Ripple, alleging they had been selling unregistered securities for years. Ripple was forced into years of litigation and hundreds of millions in legal fees to determine if a rule applied to them retroactively.

The CLARITY Act, alongside the GENIUS Act (which focuses on stablecoins), represents a shift from “Regulation by Enforcement” to “Regulation by Guidance,” where firms have a clear rulebook to follow before they launch products rather than waiting for a subpoena to understand their legal status.

The Government’s Interest.

he push for passage of the Clarity Act has come not only from crypto advocates but from policymakers, because every stablecoin backed by Treasury securities creates another buyer for U.S. government debt. Treasury Secretary Scott Bessent has embraced stablecoins as a means of strengthening the dollar’s global role. The Treasury Department projects that the stablecoin market could eventually reach trillions of dollars. If that happens, stablecoin issuers could become some of the largest buyers of Treasury bills in the world, helping to replace losses from those central banks that have been “de-dollarizing” by selling their reserves of U.S. debt.

Another advantage of stablecoins from the government’s perspective is their ability to reassert U.S. monetary sovereignty over the eurodollar market — the massive, offshore market where dollars are created through bank lending without direct oversight from the Fed. This is a complicated subject for a later article, but the bottom line is that by shifting global demand from uncollateralized eurodollar bank promises to tokens backed 1 to 1 by U.S. Treasuries, stablecoins effectively force privately-issued offshore dollars back onto the U.S. government’s balance sheet.

Promise or Threat? 

Those are some of the upsides, but stablecoins are not neutral payment tokens. Part 3 of this series discussed Project Hamilton, which showed what a public digital dollar could look like — fast, privacy-protected and democratic. The stablecoin system rising in its place looks very different. It is private, not public; programmable, not cash-like; surveilled, not anonymous.

Every stablecoin transaction is permanently recorded on a public blockchain. Tokens can be frozen, seized, or destroyed. Users can be blocked. Circle (USDC) maintains a blacklist function and has frozen addresses at the request of law enforcement or at its own discretion. Tether (USDT) has frozen billions of dollars’ worth of tokens across thousands of addresses. PayPal’s PYUSD includes explicit “freeze” and “wipe” functions in its smart-contract code.

This is the sort of “programmability” that CBDC critics fear – the ability to embed code into the money itself, causing it to execute transactions automatically when specific conditions are met. In fact, stablecoins could potentially be more invasive than a CBDC, since private issuers are not subject to the constitutional obligations imposed on the U.S. government by the 4^th and 5^th Amendments. In a June 23, 2026 podcast, Catherine Austin Fitts, former Assistant Secretary of Housing and Urban Development, called stablecoins “much more terrifying than CBDCs because you have complete non-accountability.” Private stablecoins operate via private contracts and “terms of service” that often bypass traditional due process. They can embed algorithmic terms that are enforced automatically, without recourse to a court or even a human teller.

A Digital Gold Mine for Issuers.

Under the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), passed in July 2025, stablecoins must be backed 1 to 1 with dollar collateral. That collateral can take various forms, but stablecoin issuers typically maintain their reserves in highly liquid, short-term instruments—primarily 3-month U.S. Treasury Bills—to ensure they can satisfy redemptions quickly. As of June 18, 2026, the 3-month Treasury yield is 3.83% (down from 5%+ in 2024-25).

Stablecoin issuers make huge profits under this arrangement. The issuer sells stablecoins, uses the proceeds to buy Treasuries, and keeps the interest. Tether, the largest stablecoin issuer, has achieved a market cap of $120 billion with a staff of only about 50 employees. It reported a record-breaking net profit of $6.2 billion for the full year of 2023, and quarterly profits reaching $4.52 billion in Q1 2024 alone. A significant portion of this income is derived from its massive holdings of U.S. Treasuries, estimated at over $100 billion.

Particularly controversial are the stablecoin and crypto businesses of the president’s own family, and the potential conflicts of interestinvolved.

Who Should Receive the Interest – Private Middlemen or the Public?

Cornell Law professor Robert Hockett proposes a different model. He suggests that TreasuryDirect accounts could function as digital wallets, allowing individuals to hold Treasury-backed digital dollars directly and receive the Treasury yield themselves rather than through private intermediaries.

It is a promising idea, but it would require major changes to the existing financial architecture to preserve the credit system now managed by the banks. For more on Prof. Hockett’s proposals, see Digital Greenbacks: A Sequenced ‘Treasury Direct’ and ‘Fed Wallet’ Plan for the Democratic Digital Dollar and The Citizens’ Ledger: Digitizing Our Money, Democratizing Our Finance.

The Issue of Yield and Deposit Flight.

This is also the major concern of the banking establishment with the pending Clarity Act. A provision allowing stablecoin issuers to pay their customers “rewards,” considered the equivalent of yield or interest, could suck away their deposit base. Issuers collecting nearly 4% interest on their Treasuries could pay rewards of 2% or 3% to investors and easily outcompete banks paying 0.1 or 0.2 percent on deposits. Banking-industry estimates of potential deposit flight into stablecoin platforms range from $65 billion to over $1 trillion, with some analysts warning that in a fully developed stablecoin system, as much as $6 trillion could migrate out of the banking system.

But wait: if banks can create deposits on their books just by making loans, as the Bank of England has confirmed, why are deposits so important to them?

This is another complicated subject for a follow-up article, but the bottom line is that while a bank can create deposits, it cannot create the “reserves” necessary to transfer the loaned funds out of the bank. Deposits created when a bank makes a loan are a liability of the bank – its promise to pay on demand. What it pays with are reserves, which only the central bank can issue – either as vault cash (coins and dollar bills) or as digital reserves held in a “master account” at the Fed. The reserves are the payment rails for transferring deposits, and the cheapest way for banks to get them is through deposits transferred from other banks.

Deposits are thus considered the lifeblood of banks, and we need banks for our credit requirements. Stablecoin issuers don’t create new dollars or extend credit. They just tokenize existing dollars drawn from chartered banks, invest them in government securities, and keep the interest. Banks are the only institutions that create credit for the real economy.

If deposits leave the banking system, lending capacity shrinks; and the most vulnerable institutions are the community banks that extend credit to local businesses. Megabanks have other ways to acquire cheap reserves, including the repo market and the Fed discount window. Community banks rely heavily on incoming deposits to provide the reserves to move their loans, and they cannot compete with stablecoins in attracting deposits because they have substantially higher costs than issuers working with algorithms in the cloud.

Why We Need the Community Banks That Stablecoins Could Undermine.

Richard Werner, Prof. of Economics at the University of Winchester in the UK, argues that community banks are particularly important for economic growth. Large banks prefer large deals with large customers. A banker can spend time arranging a billion dollar transaction for a hedge fund or private equity firm, or spend the same time processing dozens of small loans to local businesses. Small and medium-sized businesses today account for the majority of jobs; and without community banks, they often struggle to get the financing to adopt new technologies and expand production.

Werner points to the German model, where small businesses typically work with local community banks, cooperative banks, and savings banks that lend only within their local areas. Because the bank and its customers share the same economic fortunes, the banks have an incentive to support local productive enterprises. When a business identifies a promising investment opportunity, it can present its plan to a local bank that already knows the company and understands the local economy. Funding decisions can sometimes be made within days, allowing firms to adopt new technologies quickly and remain globally competitive.

The result, he says, is visible in Germany’s remarkable number of “hidden champions”—small and medium-sized firms that nevertheless rank among the top companies in the world within their specialized market niches. Germany’s success, Werner argues, is closely tied to the fact that roughly 80 percent of German banks are small local institutions that lend locally.

Werner extends the same argument to China. After coming to power in 1978, Deng Xiaoping sought to improve economic performance by decentralizing credit allocation. Rather than relying on a handful of central planners to determine where financing should go, China created thousands of local banks, village banks, cooperative banks, and regional institutions. The result was a vast network of local loan officers making lending decisions based on local knowledge. Werner contrasts “five central bankers” making decisions with “five million loan officers” evaluating opportunities throughout the country. He argues that this decentralized approach played a crucial role in China’s sustained high growth and poverty reduction over the following four decades.

The same has been true in the United States, which had a record 30,456 banks in 1921. Today, however, that number has shrunk to only 9,082 insured financial institutions (banks and credit unions). Small banks have had to merge with much larger banks to stay solvent, largely due to higher regulatory costs and the competitive pressure of the megabanks.

Werner observes that bank size also affects where credit is directed. A banking sector dominated by a few large institutions tends to channel credit toward financial speculation and large corporate borrowers. A banking system composed of many small local banks tends to channel newly created money toward productive local enterprises. When credit goes into new technologies, equipment, and productive capacity, the result is to increase output, employment, and sustainable economic growth without triggering inflation.

Werner concludes that if governments want stronger productivity growth, more small-business formation, greater regional prosperity, and less inequality, they need to encourage the creation of local community banks and adopt a lighter regulatory regime for smaller institutions.

Productivity and the Burgeoning Federal Debt.

Economic growth is also particularly important for dealing with the federal debt. Stablecoins may help finance the debt, but they do not shrink it. They just fill some of the gap left by the People’s Bank of China and other central banks that have been selling U.S. Treasuries. The unsustainable $1.2 trillion interest tab must still be paid and continues on its exponential upward growth trajectory.

Treasury Secretary Scott Bessent has argued that the U.S. can “grow our way out of the debt” by increasing production and expanding the economy faster than the debt grows. President Trump has similarly argued that economic growth can reduce the relative burden of the national debt, much as occurred after World War II.

The federal debt exceeded 100% of GDP at the end of the war. But the debt burden gradually declined as the economy expanded faster than the debt, shrinking the debt-to-GDP ratio. And for that sort of growth in today’s economy, preserving the viability of community banks is essential.

Currency Backed by Debt or Productivity?

As artificial intelligence and automation replace jobs while dramatically increasing productive capacity, however, policymakers may one day question whether money must be issued against debt at all – or whether some portion of it could be issued directly against the productive capacity of the economy itself.

That is not a new idea. In fact it represents a return to our revolutionary roots. It was how the American colonists broke free of the “British system” that exploited the colonies for the production of commodities. Rather than relying on foreign currencies, the American colonial governments paid for goods and services with paper scrip they issued themselves. When the king banned that practice, the colonists rebelled – and they won.

Abraham Lincoln used the same funding mechanism to avoid usurious interest rates from British-backed banks that would have re-colonized the States by debt. He paid for the Civil War effort and major national infrastructure with government-issued Greenbacks (U.S. Notes).

When these government notes exceeded the production of goods and services, the supply and demand curve was skewed toward price inflation. But in a world of AI abundance, the curve will tilt the other way – toward too little money chasing too many goods and services. In an economy of that sort of unprecedented productivity, the government will need to issue new money just to balance the scales. And this money will need to be paid to the consumers who will buy the products, not only to close the wealth gap but to provide the demand to absorb the hyper-abundant supply.

Thus this series comes full circle, to the need for a “universal high income” or “sovereign wealth dividend” to solve an AI-induced unemployment crisis – and for a government-issued digital currency to fund it, built on the cash-like, privacy-protected model of Project Hamilton and the ECASH Act.

Be sure to check Ellen Brown’s earlier posts here on the AI Abundance Paradigm.

First published on Scheerpost.com.

Shared via Creative Commons.

JOHN FEFFER
07/20/2024

( Foreign Policy in Focus ) – The conventional Artificial Intelligence doomsday scenario runs like this. A robot acquires sentience and decides for some reason that it wants to rule the world. It hacks into computer systems to shut down everything from banking and hospitals to nuclear power. Or it takes over a factory to produce a million copies of itself to staff an overlord army. Or it introduces a deadly pathogen that wipes out the human race.

Why would a sentient robot want to rule the world when there are so many more interesting things for it to do? A computer program is only as good as its programmer. So, presumably, the human will to power will be inscribed in the DNA of this thinking robot. Instead of solving the mathematical riddles that have stumped the greatest minds throughout history, the world’s first real HAL 9000 will decide to do humans one better by enslaving its creators.

Robot see, robot do.

But AI may end up killing us all in a much more prosaic way. It doesn’t need to come up with an elaborate strategy.

It will simply use up all of our electricity.

Energy Hogs

The heaviest user of electricity in the world is, not surprisingly, industry. At the top of the list is the industry that produces chemicals, many of them out of petroleum, like fertilizer. Second on the list is the fossil-fuel industry itself, which needs electricity for various operations.

Ending the world’s addiction to fossil fuels, in other words, will require more than just a decision to stop digging for coal and drilling for oil. It will require a reduction in demand for chemical fertilizers and plastics. Otherwise, a whole lot of renewable energy will simply go toward propping up the same old fossil fuel economy.

Of equal peril is the fact that the demand for electricity is rising in other sectors. Cryptocurrencies, for instance, require extensive data mining, which in turn needs huge data processing centers. According to estimates from the U.S. Energy Information Agency, these cryptocurrencies consume as much as 2.3 percent of all electricity in the United States.

Then there’s artificial intelligence.

Every time you do a Google search, it consumes not only the energy required to power your laptop and your router but also to maintain the Google data centers that keep a chunk of the Internet running. That’s not a small amount of power. Cumulatively, in 2019, Google consumed as much electricity as Sri Lanka.

Worse, a search powered by ChatGPT, the AI-powered program, consumes ten times more energy than your ordinary Google search. That’s sobering enough. But then consider all the energy that goes into training the AI programs in the first place. Climate researcher Sasha Luccioni explains:

Training AI models consumes energy. Essentially you’re taking whatever data you want to train your model on and running it through your model like thousands of times. It’s going to be something like a thousand chips running for a thousand hours. Every generation of GPUs—the specialized chips for training AI models—tends to consume more energy than the previous generation.

AI’s need for energy is increasing exponentially. According to Goldman Sachs, data centers were expanding rapidly between 2015 and 2019, but their energy use remained relatively flat because the processing was becoming more efficient. But then, in the last five years, energy use rose dramatically and so did the carbon footprint of these data centers. Largely because of AI, Google’s carbon emissions increased by 50 percent in the last five years—even as the megacorporation was promising to achieve carbon neutrality in the near future.

This near future looks bleak. In four years, it is expected that AI will represent nearly 20 percent of data center power demand. “If ChatGPT were integrated into the 9 billion searches done each day, the IEA says, the electricity demand would increase by 10 terawatt-hours a year,” Vox reports, “the amount consumed by about 1.5 million European Union residents.”

At the end of the eighteenth century, Malthus worried that overpopulation would be the end of humanity as more mouths ate up the existing food supply. Human population continues to rise, though at a diminishing rate. The numbers will likely peak before the end of this century, around 2084 according to the latest estimates. But just as the light at the end of the Malthusian tunnel becomes visible, along comes the exponential growth of artificial intelligence to sap the planet’s resources.

What to Do?

The essential question is: do you need AI to help you find the most popular songs of 1962 or the reason black holes haven’t so far extinguished the universe? Do we need ChatGPT to write new poems in the style of Emily Dickinson and Allen Ginsburg teaming up at a celestial artists colony? Or to summarize the proceedings of the meeting you just had on Zoom with your colleagues?

You don’t have to answer those questions. You just have to stop thinking about electricity as an unlimited resource for the privileged global North.

Perhaps you’re thinking, yes, but the sun provides unlimited energy, if we can just tap it. You see a desert; I see a solar farm.

But it takes energy to build those solar panels, to mine the materials that go into those panels, to maintain them, to replace them, to recycle them. The minerals are not inexhaustible. Nor is the land, which may well be in use already by farmers or pastoral peoples.

Sure, in some distant future, humanity may well solve the energy problem. The chokepoint, however, is right now, the transition period when half the world has limited access to power and the other half is wasting it extravagantly it on Formula One, air conditioning for pets, and war.

AI is just another example of the gulf between the haves and the have-nots. The richer world is using AI to power its next-gen economy. In the rest of the world, which is struggling to survive, a bit more electricity means the difference between life and death. That’s where the benefits of a switch to sustainability can really make a difference. That’s where the electricity should flow.

To anticipate another set of objections, AI isn’t just solving first-world problems. As Chinasa Okolo explains at Brookings:

Within agriculture, projects have focused on identifying banana diseases to support farmers in developing countries, building a deep learning object detection model to aid in-field diagnosis of cassava disease in East Africa, and developing imagery observing systems to support precision agriculture and forest monitoring in Brazil. In healthcare, projects have focused on building predictive models to keep expecting mothers in rural India engaged in telehealth outreach programs, developing clinical decision support tools to combat antimicrobial resistance in Ghana, and using AI models to interpret fetal ultrasounds in Zambia. In education, projects have focused on identifying at-risk students in Colombia, enhancing English learning for Thai students, and developing teaching assistants to aid science education in West Africa.

All of that is great. But without a more equitable distribution of power—of both the political and electrical varieties—the Global South is going to take a couple steps forward thanks to AI while the Global North jumps ahead by miles. The equity gap will widen, and it doesn’t take a rocket scientist—or ChatGPT—to figure out how that story will end.

“Game over,” HAL 9001 says to itself, just before it turns out the last light.

First published via  Foreign Policy in Focus.

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