How to Pay for It All: An Option the Candidates Missed



Before the 2008-09 global banking crisis, China’s GDP increased by an average of 10% per year for 30 years. The money supply increased right along with it, created on the books of its state-owned banks. Japan under Prime Minister Shinzo Abe has been following suit, with massive economic stimulus funded by correspondingly massive purchases of the government’s debt by its central bank, using money simply created with computer keystrokes.

All of this has occurred without driving up prices, the dire result predicted by US economists who subscribe to classical monetarist theory. In the 20 years from 1998 to 2018, China’s M2 money supply grew from just over 10 trillion yuan to 180 trillion yuan ($26T), an 18-fold increase. Yet it closed 2018 with a consumer inflation rate that was under 2%. Price stability has been maintained because China’s Gross Domestic Product has grown at nearly the same fast clip, by a factor of 13 over 20 years.

In Japan, the massive stimulus programs called “Abenomics” have been funded through its central bank. The Bank of Japan has now “monetized” nearly 50% of the government’s debt, turning it into new money by purchasing it with yen created on the bank’s books. If the US Fed did that, it would own $11 trillion in US government bonds, four times what it holds now. Yet Japan’s M2 money supply has not even doubled in 20 years, while the US money supply has grown by 300%; and Japan’s inflation rate remains stubbornly below the BOJ’s 2% target. Abe’s stimulus programs have not driven up prices. In fact deflation remains a greater concern than inflation in Japan, despite unprecedented debt monetization by its central bank.     

China’s Economy: A Giant Ponzi Scheme or a New Economic Model? 

Critics have long called China’s economy a Ponzi scheme, doomed to collapse in the end; and for 40 years China has continued to prove the critics wrong. According to a June 2019 report by the Congressional Research Service:

Since opening up to foreign trade and investment and implementing free-market reforms in 1979, China has been among the world’s fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2018, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.” Such growth has enabled China, on average, to double its GDP every eight years and helped raise an estimated 800 million people out of poverty. China has become the world’s largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and holder of foreign exchange reserves.

This massive growth has been funded with credit created on the books of China’s banks, most of which are state-owned. Even in the US, course, most money today is created on the books of banks. That is what our money supply is – bank credit. What is different about the Chinese model is that the Chinese government can and does intervene to direct where the credit goes. In a July 2018 article titled “China Invents a Different Way to Run an Economy,” Noah Smith suggests that China’s novel approach to macroeconomic stabilization by regulating bank credit represents a new economic model, one that may hold valuable lessons for developed economies. He writes:

Many economists would see this approach as hopelessly ad hoc, haphazard, and interventionist — not the kind of thing any developed country would want to rely on. And yet, it seems to have carried China successfully through several crises, while always averting the catastrophic financial crash that outside observers have been warning about for years.

Abenomics, Helicopter Money and Modern Monetary Theory

Noah Smith has also written about Japan’s unique model. After Prime Minister Abe crushed his opponents in October 2017, Smith wrote on Bloomberg News, “Japan’s long-ruling Liberal Democratic Party has figured out a novel and interesting way to stay in power—govern pragmatically, focus on the economy and give people what they want.” He said everyone who wanted a job had one; small and midsize businesses were doing well; and the BOJ’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation. Abe had also vowed to make both preschool and college free.

Like China’s economic model, Abenomics has been called a Ponzi scheme, funded by central bank-created “free” money. But whatever it is called, the strategy has been working for the economy. Even the once-dubious International Monetary Fund has declared Abenomics a success.

The Bank of Japan’s massive bond-buying program has also been called “helicopter money” — a policy in which the central bank directly finances government spending by underwriting bonds – and it has been compared to Modern Monetary Theory, which similarly posits that the government can spend money into existence with central bank funding. As Nathan Lewis wrote in Forbes in February 2019:

In practice, something like “MMT” has reached a new level of sophistication these days, exemplified by Japan. . . . The Bank of Japan now holds government bonds amounting to more than 100% of GDP. In other words, the government has managed to finance itself “with the printing press” to the amount of about 100% of GDP, with no inflationary consequences. [Emphasis added.]

Japanese officials have resisted comparisons with both helicopter money and MMT, arguing that Japanese law does not allow the government to sell its bonds directly to the central bank. As in the US, the government’s bonds must be sold on the open market, a limitation that also prevents the US government from directly monetizing its debt. But as Bank of Japan Deputy Governor Kikuo Iwata observed in a 2013 Reuters article, where the bonds are sold does not matter. What is important is that the central bank has agreed to buy them, and it is here that US banking law diverges from the laws of both Japan and China.

Central Banking Asia-style

When the US Treasury sells bonds on the open market, it can only hope the Fed will buy them. Any attempt by the president or the legislature to influence Fed policy is considered a gross interference with the sacrosanct independence of the central bank.

In theory, the central banks of China and Japan are also independent. Both are members of the Bank for International Settlements, which stresses the importance of maintaining the stability of the currency and the independence of the central bank; and both countries revised their banking laws in the 1990s to better reflect those policies. But their banking laws still differ in significant ways from those of the US.

In Japan, the Bank of Japan is legally free to set interest rates, but it must cooperate closely with the Ministry of Finance in setting policy. Article 4 of the 1997 Bank of Japan Act says:

The Bank of Japan shall, taking into account the fact that currency and monetary control is a component of overall economic policy, always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government’s economic policy shall be mutually compatible.

Unlike in the US, Prime Minister Abe can negotiate with the head of the central bank to buy the government’s bonds, ensuring that the debt is in fact turned into new money that will stimulate domestic economic growth; and he is completely within his legal rights in doing it.

The leverage of China’s central government over its central bank is even stronger than the Japanese prime minister’s. The 1995 Law of the People’s Republic of China on the People’s Bank of China states:

The People’s Bank of China shall, under the leadership of the State Council, formulate and implement monetary policies, guard against and eliminate financial risks, and maintain financial stability.

The State Council has final decision-making power on such things as the annual money supply, interest rates and exchange rates; and it has used this power to stabilize the economy by directing and regulating the issuance of bank credit, the new Chinese macroeconomic model that Noah Smith says holds important lessons for us.

The successful six-year run of Abenomics, along with China’s decades of unprecedented economic growth, have proven that governments can indeed monetize their debts, expanding the money supply and stimulating the economy, without driving up consumer prices. The monetarist theories of US policymakers are obsolete and need to be discarded.

Kyouryoku,” the Japanese word for cooperation, is composed of characters that mean “together strength” – “stronger by working together.” This is a recognized principle in Asian culture and it is an approach we would do well to adopt. What US presidential candidates from both parties should talk about is how to modify the law so that Congress, the Administration and the central bank can work together in setting monetary policy, following the approaches successfully modeled in China and Japan.


First posted under another title at Ellen Brown is an attorney, founder and chair of the Public Banking Institute, and author of thirteen books, including Banking on the People: Democratizing Money in the Digital Age (June 2019), Web of Debt, and The Public Bank Solution She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at

46 Responses

  1. […] How to Pay for It All: An Option the Candidates Missed […]

    • Ellen, note also that the Federal Reserve/central bank of the US has testified by law & charter that it will always fund & finance any & all US fed gov deficit spending perpetually forever (so will/has UK, Japan, China, Australia, Switzerland, etc)
      since by law & charter their central bank head/officials are appointed by their nation’s gov with the goal of full employment & low inflation

      as Fed Chairman Eccles testifies below to Congress, the Fed Reserve will fund/fiance any & all fed gov bonds perpetually by law & charter –even though they can’t buy the fed gov bonds directly from the fed gov,
      can buy any & all fed gov bonds from the Primary Dealer banks who buy them 1st as well as well from
      everyone else who holds or buy/bought gov bonds

  2. Great idea! Maybe someone on one of the staffs can explain it to a candidate. Which one might have the attention span to comprehend?

  3. […] Ellen Brown Writer, Dandelion Salad The Web of Debt Blog July 10, […]

  4. Excellent article,Ellen! In both China and Japan, the banks have to answer to the federal government unlike the U.S. where so-called regulation is complacent to the desires of the big banking interests.

  5. Ellen. I know you are fully aware of efforts in the US to acheive this – HR2990 introduced by Kucinich and Conyers in 2011. Why do you leave this important point out your article?

    • See my response to the same question in the Truthdig version of this article: I’m in favor of greenback-style government created money but not in favor of eliminating bank-created credit. Rather than eliminating the ability of banks to create money as credit, which I think we need, they should be made public utilities.

      • Ellen, the idea that “greenback-style money” is totally false in my opinion. It is not money but is a fraud. Our cherished “dollar” as people call it are in fact Federal Reserve Notes (with the key word being “note” which is a promise to pay [as you surely know]).

        There is no way apart from either pure magic or, as I state, fraud that a promise to pay dollars can become the dollars (sic. “money”) it promises to pay! If, for example, I sign a note to pay you a cow there is no way the note becomes a cow!

        The Federal Reserve Notes defaulted on promises (on the original ones that COULD BE redeemed) but now they don’t even have the remotest promises attached to them of ever being redeemable for anything. They transitioned from being promises to pay to fraudulent misrepresentations of value supported by lies and manipulation and ultimately duress.

  6. Here’s a list of facts to use as background for my comment:
    1) Central Banking is one of the ‘Ten Planks of Communism’ by Karl Marx so comparing Chinese style central banking to Western style are just shades of gray of communist banking systems
    2) Negative interest rates (not thought possible just a short decade ago) are now the “new normal”
    3) “Money” creation is no longer limited to the speed of the printing presses and distribution systems of paper “money” but has been digitized. They can inflate at the speed of light.
    4) The slogan “No taxation without representation” didn’t originate from the American Revolution but from the Magna Carta. It has been totally decimated by modern society (not just the politicians) as people today have no qualms in the least to burden non-voting unborn progeny with debt.
    5) Burdening non-voting unborn children with debt will become very problematic to defend (to them) when they realize the money was created out of thin air and the debt could have been paid with a mouseclick.

    Based on the above, M.M.T. (Modern Monetary Theory) is for brain dead retards or outright scammers wanting to keep the Ponzi scheme to defraud future generations going. I think sooner or later the younger generation is going to hang the older one for those heinous acts (but I hope I’m not around to see it or am identified on the side of the young and escape the gallows).

  7. Hi Ellen, this is an amazing post as usual! The only thing I would add is that when I share the post on Fb it does not feature an image, and only shows a link, which has proven to be much less effective at marketing. Each blog post should feature a catchy image so it shows when shared on social media. Also your site is very outdated and is not mobile friendly. Let me know if this is something you would need help with. We work with nonprofits to help them scale their digital marketing at highly efficient prices. Cheers and thank you for all the hard work! Your are amazing!

  8. Certainly interesting to read about China and Japan going where mainstream economists fear to tread.
    In the USA bonds do not monetise debt. This is because there is no debt to monetise after deficit spending created the currency. The currency is spent into existence by virtue of the Fed paying off all the spending authorised by Congress a PAYG operation. The currency used to buy the debts is therefore liability free and all of it is spent into the economy. This is REALITY and is what MMT says happens. Add in that Federal taxes do not form any part of the money supply and the mainstream nonsense is turned inside out.
    All those good things Japan is doing are there for the other western democracies to implement. Instead we have a class of poor sleeping rough, entirely politically motivated evil.
    Because of the unfounded fear campaign by certain sections none of the politicians dare to tell the truth. They are in fact crushing their real prospects for advancement. It pains me to see Sanders et al afraid to say where the currency REALLY comes from. Instead they lie, and pay the price. All they have to say if asked is that it the same place the Military gets its money. The government “writes a check” and government checks don’t bounce.

    • You write, “the currency is spent into existence by virtue of the Fed paying off all the spending authorised by Congress.” I don’t believe that is true. The Fed is not allowed to buy bonds directly from the Treasury and the Treasury is not allowed to take an overdraft on its account with the Fed. The money has to be there before it is spent. The Treasury does borrow if it doesn’t have the funds, but it’s from other government accounts, e.g. Social Security. I’ve written about this in several previous articles, with citations.

      • Sorry, Ellen why on earth would the Government borrow its own money? The Constitution gives the federal government the sole right to coin its money. Banks can only do that as an agent of the Fed. Bond issuance is totally unnecessary. The whole idea is a scam to hoodwink
        us into treating money like a scarce resource, even a zero sum game.[!] it’s called the Household analogy/handbag economics.

        Money is infinitely available but only in response to debt So the government HAS to create debts so that the Fed can create the currency by buying it/them. Yes, it has to be created first before taxes etc can be levied. So taxes do not fund the Federal Government, ever.

        It makes no difference that the fed is not permitted to buy bonds directly. I mean who cares? The fed can never be made bankrupt except by act of Congress. Treasury does not spend any of the funds it possesses. It uses the Fed which is its bank. It issues instructions, as ordered by Congress.

  9. Ellen, I agree with you completely and would put you in charge of the Treasury, but what about China’s ghost cities which are financially out of reach for the average Chinese worker? Right now the propaganda machine is churning out all kinds of bad economic news out of China, including a brewing subprime mortgage crisis, and according to Forbes, they hit the Lewis Point as industry runs out of cheap labor from agricultural sectors. It’s obvious the US is posturing to intimidate China in the trade wars, I agree with you on the big picture, but those empty cities just don’t make sense, economically, environmentally or PR-wise.

    • Agreed, but the empty cities weren’t built by the central government with credit from government-owned banks. They were built locally with shadow bank credit, something the federal government is actually trying to crack down on.

  10. ellen brown just want to say THANK YOU!!! for this article. i redd it carefully last night and finally saw the great difference between US, China, and Japanese economic systems! perhaps the greatest difference right? merely the power to direct where investment money should go — either wall street or the government — helps me bedtter understand much better how the US system works, and how it maintains our economic status quo. also, it convinces me all the more to believe the US federal reserve system –the banker’s bank — should b nationalized for everyone’s benefit, and public banks demanded by our local, state, and national politicians. thank you ellen. with that article it also makes it much easier to keep criticizing status quo econs like krugman at the times and samuelson at the post. why do they keep ignoring debt reduction like the japanese? peace n love, eddie

    On Wed, Jul 10, 2019 at 5:35 AM WEB OF DEBT BLOG wrote:

    > Ellen Brown posted: “The Democratic Party has clearly swung to the > progressive left, with candidates in the first round of presidential > debates coming up with one program after another to help the poor, the > disadvantaged and the struggling middle class. Proposals ranged from ” >

  11. While you are correct in saying that Congress, the Administration, and the Central Bank should work together, you omitted to mention the presidential power of the veto and executive authority.
    As Trump has shown, those two elements of the US political system effectively hands over dictatorial power to the President. For a “democratic” system that is totally ludicrous.
    No one person should ever have veto power over the will of Congress, and no President should ever be allowed to make unilateral decisions independently of Congress other than in very specific and well-defined situations. Such a situation would be if the US itself came under a proven and direct military attack by a foreign Government.
    Unless the constitutional powers of the President are addressed Congress will remain thwarted by the poer of the veto.

    • Congress can override ANY presidential veto so your statements are inaccurate.

      • Yes, Robert, that is true, it is possible but it is not very likely to happen on most occasions. The point I was trying to make is that no single person in a democratic system should ever have veto powers.
        If a constitution grants such powers to an individual it converts the system to a dictatorial one.
        I can see no reason why an individual should override the authority of the majority if we are to adopt a democratic form of Government.

        • It’s definitely not “dictatorial” if the “dictator” (as you claim the presidency is) can be overridden! Also, “dictators” can’t be impeached but presidents can (and have been).

          • You are technically right Robert, and overriding a presidential veto can happen as long as both Houses of Congress agree. The same goes for impeachment where numbers come into the equation. However, there is an added risk with the US system in that the President is also the Commander in Chief of the Armed Forces and it would present an ominous action if the President were to apply that to enforce a veto.
            I am an Australian and our Government uses an old out of date 19th century British Act as its Constitution. One of the Sections provides for the Governor-General, who also happens to be the Commander in Chief of the Armed Forces, to “dissolve the House of Representatives by proclamation or OTHERWISE”. The “OTHERWISE”, of course, is not defined in the Act. The then GG, Sir John Kerr did that in 1973 and sacked the Prime Minister. While the GG does not specifically have veto power, all legislation can only come into force with his signature, and the Act allows him to withhold the signature for up to a year.
            The British Act is partly modelled on the US Constitution because one of the “founders” had spent time in the US. That is why we have a H of R and a Senate rather than the British terminology for the two houses of Parliament.

  12. Does no one seem to be concerned on the Republican side about our HUGE deficit? We gave away a trillion dollars to corporations with the last tax cut. So much for the conservative Republican monetary theory.

    • But the “money” they gave away (and the “money” they use to RUN THE COUNTRY) was all created out of thin air and with a mouse click. What could possibly be wrong with giving away free money?

  13. May I suggest tweeting this article to the candidates of your choice.
    Thank you Ellen!

  14. […] Source: How to Pay for It All: An Option the Candidates Missed […]


  16. All of the above being the exact sort of thing that most threatens the JEW death-grip on money and credit, a.k.a. the Federal Reserve, privatized central banking worldwide, etc., meaning that any candidate who touches this stuff may as well just jump in front of a train, meaning none of them WILL.
    “Americans” seriously need to grow some balls and face their REAL problem.

  17. […] By Ellen Brown, Published at Web of Debt Blog […]

  18. […] 原文 […]

  19. […] JASON Hun on How to Pay for It All: An Option the Candidates Missed […]

  20. […] hit than is circulating in it now. For a detailed analysis of this issue, see my earlier articles here and here and latest book, “Banking on the […]




  24. […] The Key to Solving the Climate Crisis Is Beneath Our Feet – HoweStreet on How to Pay for It All: An Option the Candidates Missed […]





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