Medium of Exchange: How Interest Free Monetary Reform must Contribute

to Arab Uprising
Younus Abdullah Muhammad
The position into which money and the methods by which it is controlled and manipulated have
brought the world, arises, not from any defect or vice inseparable from money (which is
probably one of the most marvelous and perfect agencies for enabling co-operation, that the
world has ever conceived), but because of the subordination of this powerful tool to the objective
of what it is not unfair to call a hidden government.
~Major Clifford Hugh Douglass in Social Credit (1933 ed.)
The events that occurred in Tunisia and Egypt recently are truly remarkable. Populations in these
countries, where despotic regimes dominated for more than a generation, managed to overthrow
decades of authoritarianism in weeks by way of collaborative public protest. While it is true that
these uprisings create the potential for positive institutional change in their respective societies,
they also run the risk of reinstituting preexistent and prevalent authoritarian structures thus
producing cosmetic alterations that will not truly alter the social fabric within them.
As this spirit is replicated elsewhere an important distinction must be made; any social, political,
or economic reform occurring in the world today must not only alter the institutional structures
domestically but must address the broader complications associated with seeking such reform in
a hostile international environment that in many ways limits the potential for successful
modification. Any effort to break away from old networks of domination and privilege must
attend to the reality that international macroeconomic norms reify the underlying conceptual
flaws of an interest-based economics and manifest them in ways that perpetuate those flaws
throughout all sectors of society.
This paper addresses a primary aspect of this reification. The use of interest to create debt
hierarchy grants an unfair advantage to a dominant minority and preserves a disproportionate
portion of wealth in the hands of an elite few. There is perhaps no greater example of this then in
looking at the way the money supply of sovereign nations today operate under interest-based,
independent central banking and fractional reserve structures. Under this model money is a
commodity, manufactured by an elite from nothing and with power to direct and control credit in
a society. As a consequence one of the most creative opportunities in the realm of policy-making
is lost and relegated to a tiny minority. Access to credit thereby becomes a privilege that
disproportionately serves only a small segment of the society. Nearly every country in the world
has adopted this model and this reality has broad reaching implications for all social segments.
Its hidden effects is to organizes even developed, democratic nations as economic hierarchies
which in turn has reciprocal effects that tend to counter any horizontal relationships with vertical
mechanisms of control in a community. This is true when we look at consequences internal to
nations as well as when we arrange isolated national economies into a global framework while
paying attention to the similar institutionalized norms and consequential affects that run through
them.
In the era of globalization there is a real need to identify the role that present interest-based
structures play in creating an uneven distribution of power and wealth not only in Egypt and
Tunisia but across the globe. This becomes evident when the contemporary practice of monetary
policy under central banking, as an institutionalized global norm, is analyzed as a contributing
factor in creating the conditions under which these recent developments occurred. This paper
seeks to make that connection and then discusses the role that present monetary practice has on
the ability of all societies to develop effectively alongside the inflationary reality of the
contemporary dollar dominant order while arguing that contemporary conversation of monetary
theory as explained by either exogenous or endogenous causality fails to account for the injustice
inherent in the interest-based system altogether.
In order to realize the changes protestors are demanding, namely stable prices, higher
employment, development and basic human rights, the authoritarian reality of private central
banking and fractional reserve lending must be connected to these variable manifestations
inherent in nearly every national society today. This paper closes by posing the possibility that
alternative understandings of endogeinity and the use of interest-free monetary policy may be
utilized to create mechanisms that contribute to the overall effectiveness of the uprisings in
Egypt and Tunisia and simultaneously initiate a major step in a return to just, productive and real
economic development. At the same time, this paper argues that absent an address of the interest-
based macroeconomic order, current efforts to reform any society would be superficial no matter
the removal of regime, alteration of constitution, realignment of political organization, or other
modification. Once this is realized alternatives can be identified that promote an institutional
interconnectedness promoting harmony between public, private and individual sectors, a view
that refuses to separate or give preferential treatment to isolated sectors or individuals within
society.
Contesting the Regime: Contextualizing the Cause of Dissent in Tunisia and Egypt
On December 17, 2010 Mohamed Bouazizi lit himself on fire in an attempt at suicide his fruit
and vegetable stand was confiscated by Tunisian police for selling without a permit. He
complained about his grim economic condition and begged the officers not to take his only
means of livelihood. The Tunisian public, reacting to shared frustrations and similar woes, took
to the streets hours later in organized protests that eventually led to the ousting of President Zine
El Abidine Ben Ali 28 days later on 14 January 2011. Ben Ali had ruled Tunisia for over 23
years. Within days, contesting political parties, organizations, and individuals mounted similar
oppositions in Egypt and after several weeks of very contentious and sometimes violent reactions
from the regime, Hosni Mubarek, ruler of Egypt for 30 years, was also removed. Within hours of
his ouster protests movements were occurring in countries all over the Muslim world including
Algeria, Jordan, Yemen, Morocco, Libya, Iran, Oman, Bahrain, and Saudi Arabia. Today
pundits, protestors, politicians and publics across the globe are certain that the Middle East and
North Africa is being remade but no one is certain just how or what reforms will be made and
what these societies will look like afterwards.
The protests were caused by a combination of political and economic grievances; however most
of the issues were covered as caused by domestic and not international factors. The most
common portrayal has been that the opposition movements were spurred due to nationalist
ambition for democratic reform. While this refrain is convenient for dominant democratic
powers seeking to downplay Western economic, military, and political support for these regimes
over the years, it is a reductionist view that largely ignores the primary grievances expressed by
the opposition movements, a great many of them economic concerns like rising prices, unequal
opportunity, and unfair distribution of wealth.
The fact that these nondemocratic regimes have been in place for more than several decades
without facing opposition that even remotely resembles the massive mobilizations that led to
their ouster suggests that their causality has a much more complex origin. The fact that these
protests have spread across a region sharing similar race, ethnicity, religion and culture also
suggests they cannot be minimized to nationalist ambitions or desires for statist reforms. Still,
most analysis addresses each movement independently as a nationalist uprising rather than a
region-wide mobilization despite the fact that there is a very real connection between protests in
these states including similar repressive regimes funded from afar, economic factoring, historical
processes and easily recognized common cause.
Most contemporary analysis of international affairs, whether from the media or academy, tends
to adhere to ‘realist’ perspectives: an international relations paradigm that holds the international
arena as anarchic and places dominant emphasis on rational-acting nation states serving their
own interests in a highly competitive global playing field. The role of international institutions
and other variables is minimized in similar ways as is typified by coverage of the happenings in
the Arab world today, where broad connections have been made but coverage still
compartmentalizes each national occurrence separately.1 This realist perspective dominates an
age that still has not altered in the post-cold war era and a victory of sort for transnationalism.
The phenomenon of globalization, classified as an “intensification of global interconnectedness”
(McGrew, 1998, pp. 300) has been proclaimed by many to quell the death of the nation state thus
rejecting the concept that the nation state can any longer be considered a primary and
independent actor in the international arena. This view properly recognizes key factors like the
“global and domestic rights of capital” (Panitch in Biswas, 2002, pp. 18). For example Dr.
Robert J. Holton, a leading historical sociologist, says that “flows of investment, technology,
communications, and profit across national boundaries are… the most striking symptom of
global challenge to the nation state” (1998, pp.80). Unfortunately, most coverage has fails to
consider and account for the economic element of transnational nature when analyzing the
uprisings across the Arab world.
On November 5, 2010 Ben Bernake, Chairman of the Federal Reserve in the United States,
announced what has come to be called Quantitative Easing 2, inserting unlimited dollars into the
global economy through a near zero percent interest rate policy because “the pace of recovery in
output and employment continues to be slow” despite an earlier round of easing in March 2009
where America’s private Central Bank purchased $1.7 trillion in government bonds and near
interest-free emergency lending of $12.3 trillion worth of toxic securities that took most of the
bad debt banks accrued during the run-up to the “Great Recession” off their books and placed it
onto the American taxpayer 2. Bernake announced the second wave of such policy saying, “In
addition, the Committee intends to purchase a further $600 billion of longer-term Treasury
securities by the end of the second quarter of 2011, a pace of about $75 billion per month.” One
member of the Committee voted against the policy expressing concern “that this continued high

1
While the perspective is expected from Western media the same is predominantly true for coverage even in the
Arab world. For example, Al-Jazeera, the most popular Arab media outlet, has classified the developments as
Rabiia al-Thuraat al Arabiyy , “The Spring of Arab Revolution” or “A Region in Turmoil” on its website but still links
to sections that compartmentalize converage of each national effort (http://aljazeera.net/portal as of March 9m
2011). The second most influential Arabic news source Al-Arabiyya completely compartmentalizes each uprising on
its homepage (http://www.alarabiya.net/ as viewed on March 9, 2011)
2
See http://www.federalreserve.gov/newsevents/reform_transaction.htm
level of monetary accommodation increased the risks of future financial imbalances and, over
time, would cause an increase in long-term inflation expectations that could destabilize the
economy.”3 While an action within the sovereign nation of the United States separate from
Egypt, Tunisia or any other this policy is highly representative of a key economic element mostly
missing from current coverage.
Within 24 hours stocks jumped nearly 2 percent around the world in New York, London, Paris,
Tokyo and Japan, oil rose almost two dollars per barrel, gold hit record highs, and other
commodities prepared for an inflationary push as well. The Egyptian Central Bank met in
emergency as the American policy announcement sent the Egyptian pound to the largest
appreciation in six years against the dollar. However, the Egyptian Central Bank decided to
maintain interest rates as foreign reserves had already increased by $3 million from June to
November and by fourteen percent over the past year. In Tunisia the Central Bank also
maintained their rates 4 as developing countries all over the world denied inflationary concerns
based on Household Expenditure Survey data 5 that reports only highly aggregated household
expenditure and contains no information on quantity making it virtually impossible to derive any
information about prices whatsoever. 6
In the real world inflation became immediately apparent. The Reuters/Jefferies CRB index, a
global commodities benchmark hit a two-year high immediately and started trekking its way
back towards highs that led to riots in Egypt in April, 2008 when a confidential study conducted
by the World Bank revealed that a “confluence of factors” including the large increase in biofuel
production, speculative activity, the decline of the dollar and higher energy prices. 7

3
See http://www.federalreserve.gov/newsevents/press/monetary/20101103a.htm
4
See http://www.bct.gov.tn/bct/siteprod/english/actualites/evenement.jsp
5
See excel data from Central Bank of Egypt here http://www.cbe.org.eg/public/MPC_InflationCoreFebE.pdf
6
http://ageconsearch.umn.edu/bitstream/42251/2/08-WP_475.Fabiosa-Soliman.pdf
7
http://image.guardian.co.uk/sys-files/Environment/documents/2008/07/10/Biofuels.PDF
8
http://www.jefferies.com/cositemgr.pl/html/ProductsServices/SalesTrading/Commodities/ReutersJefferiesCRB/In
dexData/index.shtml
In actuality the Federal Reserve policy is pumping liquidity into an economic environment where
domestic investment is virtually impossible to fathom when analyzing the perplexing and
pernicious private and public debt of American society. In essence this continuation in policy
allows the United States, possessing the global reserve currency, to export its food inflation to
the rest of the world as the policy of easing is ostensibly to enable banks to earn their way out of
negative equity resulting from bad loans made during the real estate bubble, but the increased
liquidity is spilling over to foreign economies, putting pressure on them to increase their
exchange rates and creating international inflationary pressure affecting prices across the world.
Zero interest rates have generated a gain for stock markets and maintained asset prices that were
inflated for many years but this policy has also done little to stimulate domestic employment and
lending within the U.S. and has initiated something of a currency war amongst major developed
economies where the cheap dollars are flowing trying to purchase assets from free. The real
adverse effects can be seen within developing nations that are crippled as they are forced to
either print their own currency to absorb the dollar inflows or to tighten rates to defend exporters
and control for increasing inflation. This gives an unfair advantage to banks in using the carry-
trade to borrow at low interest in the United States and generate arbitrage gains at high interest
overseas and also for multinational corporations that borrow at low interest rates and invest
overseas buying tangible assets. Former World Bank economist Joseph Stieglitz acknowledged
on October 5, 2010 before the official announcement of quantitative easing 2 that instead of
helping the global recovery, the “flood of liquidity” from the Fed and the European Central Bank
was causing “chaos” in foreign exchange markets. He said, “The irony is that the Fed is creating
all this liquidity with the hope that it will revive the American economy… It’s doing nothing for
the American economy, but it’s causing chaos over the rest of the world.” 9
On December 17 Mohamed Bouazizi was self immolated and on January 6, 2011 Algerian youth
protested over high food prices shouting “bring us sugar,” 10 within months the leaders of Tunisia
and Egypt were overthrown and protests were going global, but inflationary trends remain at
highs. The Federal Reserve, for its part, is largely aware of these realities and expresses little
remorse. The current Federal Reserve Chairman of St. Louis recently defended the quantitative
easing policy. When a CNBC talk show host inquired about the program, “the question is at what
cost and did it lead directly to these skyrocketing commodity prices for things like grain and
things like copper and part of the reason that we have seen so much unrest in the Middle East?”
He said,
That’s not an easy story to tell actually but I’ll tell you one version of it without signing on
to it… the Chicago vision would be that you got independent monetary policies all over the
world, you got flexible exchange rates, but that isn’t really what would happen because a
lot of countries want to manage their exchange rates pegged to the dollar so what they are
doing is that they are importing some U.S. monetary policy when they are doing that and
so there is some leeway to say that U.S. monetary policy is affecting things around the
world, conversely that would mean that maybe what you should do is look at what is going
on globally, a global output gap instead just looking at US output gap when you’re making
U.S. monetary policy.

9
http://www.reuters.com/article/2010/10/05/us-stiglitz-economy-idUSTRE6944M920101005
10
http://news.yahoo.com/s/ap/20110106/ap_on_re_af/af_algeria_riots
He continued and remarked with regard to countries experiencing unrest that, “Those countries
choose to have a flexible exchange rate and that is up to them” and then ended by saying that the
only concern of the Federal Reserve is US interests denying any accountability for the potential
alternative reality aforementioned or acknowledging that the U.S. system coordinate to run an
international financial, military, and corporate empire.
In reality of this is paradoxical. Modern international monetary policy suggests that nations are
to manage exchange rates by raising or lowering interest rates. Countries that run a current
account deficit11 are to raise interest rates in order to attract a capital inflow of foreign funds
whereas countries with low interest rates expect that international and domestic capital will flow
elsewhere borrowing at home tends to lead to investment and speculation abroad. The United
States runs a persistent balance of trade and current account deficit and by all standards should
have to heighten interest rates in order to follow convention. However U.S. quantitative easing
directly contradicts this decree. The net effect of such a policy is to support an astronomical asset
bubble in the U.S., the result of two decades of Federal Reserve induced artificial market
manipulation, pushing money into stocks and bonds, and lowering the dollar’s exchange rate in
order to help exporters in international trade. In reality it has created a new carry-trade with
cheap American dollars flowing into foreign markets and creating domestic imbalances,
widespread commodity inflation, and political unrest that has the potential to dampen any
recovery.
In reality, the Federal Reserve has been conducting contradictory policy like this for over a
generation. The financial markets are full of speculation and previous crashes were only repaired
by similar, albeit not so extreme efforts at stimulus.
This culminated in what seemed to be a hyperinflationary tendency in 2008 but was mitigated
when the financialized manipulation spun out of control and revealed the subprime mortgage
crisis and led to the subsequent bankruptcy of Lehman brothers at the end of that year. As the
Reuters/Jefferies CRB index shows the process may be steadily on the return; still little to no
connection has been made with regard to this issue in serious political circles or within the
mainstream press. The connection between the Arab Uprisings seldom includes an analysis of
these realities clearly understood within the Federal Reserve and the business community.
However, the implications of this reality are severe. Without contextualizing the revolutions in
Tunisia and Egypt this financial formulation will persist alongside peoples trying to establish
new institutions, new legal frameworks and justice in their respective societies. Unfortunately,
absent effort to connect these political, economic, and social factors in interconnected ways one
is incapable of posing solutions to the problem and one all pervasive and influential factor
surpasses and at the same time connects them all: the nature and role of money today.
The International Monetary System: A Ribaa-based Phenomenon
"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it
away from them, but leave them the power to create deposits, and with the flick of the pen they
will create enough deposits to buy it back again…if you wish to remain the slaves of Bankers and
pay the cost of your own slavery, let them continue to create deposits."
~attributed to Sir Josiah Stamp Director of the Bank of England 1928

11
Defined as “the difference between the value of exports of goods and services and the value of imports of goods
and services” http://www.imf.org/external/pubs/ft/fandd/2006/12/basics.htm
The decisions of the Federal Reserve system exert great influence on foreign nations, central
banks, and geopolitics at large because the dollar represents the world’s dominant currency.
Neglecting the magnitude of this influence represents but one of the ways that the typical
perceptions and commentary today fails to account for the confluence of diverse influences
between state and other global institutions of power today. As a consequence most analysis
underemphasizes the role of international finance and capital in affecting national policy via an
imposition of institutional norms from a global monetary order. This narrow-minded view not
only plagues those that report and study the contemporary international arena but also tends to
beleaguer the proposed solutions of reformists within national boundaries by subconsciously
limiting the scope of their analysis and preventing them from recognizing these external forces,
exogenous to the statist view as well. Consequently, one in a country like Egypt or Tunisia can
reduce the cause of dilemma and domestic corruption, repression, and injustice to faces and
figures while failing to recognize that the contemporary system mandates, supports and enforces
these circumstances from afar by imposing institutional configurations that normalize structures
of authoritarianism even inside professed democracies.
At the head of these financial influences lie two institutional orders: independent central banking
and fractional reserve lending; the very systemic practices that allow the aforementioned
mechanisms of direct relationship from the chief financial agency of the world’s richest and most
powerful nation to influence the rest of the world and affect behavior in ways that are potentially
converse to their own interests. It is in understanding these phenomena and their relationship to
national policy today that true alternatives may be found.
The modern order of globalized finance was ushered in at the conclusion of World War II. At
that time the United States was essentially the only productive economy in the world and the
Bretton Woods system of monetary management was created as, for the first time, commercial
and financial relations between nations would be negotiated under transnational institutions like
the United Nations, the World Bank (WB) and the International Monetary Fund (IMF). The
Bretton Woods agreement in 1944 represented a new economic order and at the same time
signified a rising role for monetary policy in the international arena. Each country was obliged
to adopt a policy that tied its currency to the U.S. dollar and gave the IMF an ability to bridge an
imbalance of payments. The dollar was the only currency convertible to gold and this system
continued until August 15, 1971 when President Richard M. Nixon discontinued the conversion
of U.S. dollars into gold at $35 per ounce and effectively made the monies of the United States
and other countries into completely fiat money—money that national monetary authorities have
the power to issue without legal constraints.
Today the majority of nations relinquish control of the country’s currency to independent central
banks that have a monopoly on issuance of bills. The central banks is responsible for issuing the
money supply, regulating it, and controlling the interest rates of their respective country.
However they are typically private or quasi private-public institutions that operate on behalf of
private interests. It is a delicate relationship that is under increasing scrutiny across the world.
The Federal Reserve in the United States undergoes extreme effort to downplay the effects of its
relationship with power private on society claiming that it “is not ‘owned’ by anyone and is not a
private, profit-making institution,” and that the bank can best be described as “independent
within the government.” By its own account however the institution admits that the Federal
Reserve Banks are “organized much like private corporations,” that they “issue shares of stock to
member banks” and stock that “may not be sold, traded, or pledged as security for a loan;
dividends are, by law, 6 percent per year. 12” Most people know little of the implications of this
relationship.
The casual description of the Federal Reserve system essentially documents that the world’s
most powerful sovereign nation state relinquishes control over its currency to an independent
bank operating like a private corporation whose primary shareholders are owned by banks, the
very banks that are not nearly as interested in the 6 percent profit accrued each year as dividend
but access to money backed by nothing tangible but (fiat) that can then be multiplied through
powers of further money creation known as fractional reserve banking, placing economic
planning and control over the economy in a relationship between central banks and private
commercial operations.
This type of relationship between commercial banks and central banks has been replicated across
the globe today and is important for one trying to understand the source of money in any society.
Central banks are not the sole issuers of money into the economic order because of fractional
reserve banking. This system is summarized misleadingly as,
A banking system in which banks hold only a fraction of their deposits in reserve, so that
the reserve-deposit ratio is less than 1, is called fractional reserve banking. Fractional
reserve banking is profitable for banks because, instead of sitting in the vault earning no
interest for the bank, a portion of the funds received from depositors can be used to make
interest-earning loans. (Abel, Bernake and Crushore, 2008, p.532)
All economies are planned from somewhere, but this relationship places the planning of a
national economy in the hands of its private banks as the power of money creation is granted to
the private central bank that issues the money supply or monetary base but mostly to commercial
banks that, through fractional reserve practices, are empowered to lend more money than they
hold on deposit, thus the equivalent of creating money from and for nothing and lending at
interest. The relationship of money supply to the monetary base depends on the reserve
requirements and the currency to deposit ratio chosen by the public. With recent policy pushing
interest rates to almost zero and a long process that repealed legislation dedicated to protecting
from financial consolidation and excessive leverage and speculation, there are virtually no
reserve requirements on banks today. This reality coupled with the ability of the Federal Reserve
to print dollars and purchase U.S. bonds with interest has created a system of debt hierarchy and
reduced the sovereign federal government as to borrower from private banks taking away one of
the most important components of governance. With the Federal Reserve in possession of the
world’s most powerful currency, the United States has created a global financial dictatorship of
sorts.

12
http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm
Fig.1 Debt Hierarchy and Private Central Banking – The Dollar Bond Issuance Order in the United States

Federal Reserve
Owners of Wealth
Primary Dealers of the Cost of
Federal Reserve $$$ @
Other Banking Interest
Institutions Rate
Federal Government Increases
Multinational at Each
Corporations
State and Local Level
Governments and
Municiplalities
Small Businesses and
Public

These financial relationships create a model akin to feudalism both internal to the United States
and internationally as long as the system continues to run on dollar reserves. Figure 1 above
arranges the domestic American relationships into a pyramid with the Federal Reserve on top
and the public at the bottom. The dollar bond market is categorized in ordinal relationships with
relation to the cost of government debt. Money is commoditized under this structure as its cost
increases at each layer of the pyramid scheme.
If we account for the powers of money creation and the ability to lend on interest then the
Federal Reserve which creates dollars from absolutely nothing has no cost whatsoever as they
can buy government debt and other instruments along with possessing an ability to lend.
Thereafter the private owners of bonds, typically big institutions and powerful individuals and
the central banks of foreign countries with surpluses must at least earn through some effort the
currency they use to buy the bonds of the Federal government but they are rewarded with yields
and ultimately a gain and power position depending on how much of the debt they accumulate.
The primary dealers of the Federal Reserve are next with first access to new money, other
banking institutions come after them and only then the U.S. government which is followed by
state and local government. This means governments must pay interest on all bonds subsequently
tax the people to pay this debt.
It is obvious to see that these relationships create a society dominated by banks, financial
institutions and the wealthy around the world. Each lower layer feeds the section above it and
ultimately the public ends up servicing the upper section of the pyramid as real wealth is
redistributed upwards due to the redistributive outlay of money for free at the upper levels of
banking with taxes and interest payments completing a model that can easily be described as a
ponzi scheme under present conditions13. The fact that there is never enough currency in
circulation to cover all debt issuance within the bond market keeps the lower echelons working
to perpetuate a process that can never attain equilibrium and utilizes debt as a means of control.
The international order is organized in much the same way.

13
Bernie Madoff, convicted of a $50 billion ponzi scheme has recently alleged that banks were complicit in his
operation and claimed that “whole government is a Ponzi
scheme."http://news.yahoo.com/s/ap/20110228/ap_on_re_us/us_madoff_scandal
Because Federal Reserve monetary policy has such pervasive effects across the world, the
announcements and actions of a country’s central bank are closely monitored by anyone
concerned with economic realities thus the importance that this structure and these relationships
be understood and considered by anyone advocating for economic alterations in any nation of the
world. Today the elitist relationship created by independent central banks working through a
fractional reserve system is evident in nearly every country. Wealth is distributed unevenly and
statistics abound that document this reality. A most recent study by Credit Suisse reported that,
At the top of the wealth pyramid, there are over 1,000 billionaires globally, of which 245
are in Asia Pacific, 230 are in Europe and 500 are in North America. Moving down the
wealth pyramid, there are 80,000 ultra-high-net-worth individuals (average wealth per
adult above USD 50 million). At the base of the wealth pyramid there are three billion
people with average wealth per adult of below USD 10,000, of which 1.1 billion own less
than USD 1,000 and 307 million are in India. 14

Fig. 2 - Debt Hierarchy and Private Central Banking – Cost of Bond Issuance Order in the World

Federal Reserve

U.S. Federal Government Cost of

Primary Dealers of the
$$$ @
Federal Resereve and
Global Financial Interest
Companies Rate
Developed Nations - G20 Increases
Multinational at Each
Corporations Level
Developing Countries -
Rest of World
Small Businesses and
Public

Figure 2 describes the international system of debt hierarchy. As in the domestic American
model, the cost of money at interest increases at every level while the availability of money
diminishes at the base creating a scarcity that forces participation and acceptance absent
alternative. Essentially the Federal Reserve head the order because of the powers it has to insert
new dollars backed by nothing into an international order that values the dollar as the reserve
currency. As the central currency in the order the dollar benefits immensely as floating exchange
rates in a post-Bretton Woods environment create the possibility for speculators to attack other
countries currencies and so nations that accumulate dollar surpluses cannot invest them in
productive development but must hold dollars on hand so as to prevent from speculative attacks
on the currency but actually representative of real effects within the nation. It is a factor that
forces all developing economies to obey U.S. dictate and forms a system of monetary empire

14
https://www.credit-suisse.com/news/en/media_release.jsp?ns=41610
backed by the U.S. federal government and its political and military diplomacy and paid for
completely with money created from nothing and added interest rates that tend to dictate policy
for other countries in the world.
The primary banks of the Federal Reserve System and Global Financial Companies get direct
access to dollars at lower interest rates and due to fractional reserve practices can invest in real
assets, currencies and the mechanisms that influence foreign countries many times over.
Developed G20 nations are next in line as they are mostly traditional participants of Western
domination or colonies of old that conformed completely and are stable enough to absorb some
of the distortions of dollar dominance. Today they are still confronted by a dollar diplomacy that
pushes an influx of foreign investment for real assets and attempts to force currency appraisal or
devaluation in ways that serve the interests of the levels of the top of the pyramid and have a
downward pressure on the smaller institutions and publics below.
Multinational Corporations also have preferential treatment in this model due to economies of
scale which place them as richer than many of the countries they do business in. They also can
issue their own bonds typically at lower interest rates than developing nations and can borrow
abroad in America as well to invest overseas. The whole international environment is dollarized;
this has essentially made a fiat currency created from and backed by nothing a polytheistic
godhead of sorts with other currencies subservient to the U.S. dollar and the IMF and WB
directing relationships in ways that serve the interest of continuing the relationships and
hierarchy that defines this global dominance. Most people fail to recognize however that without
the people on the bottom adhering to the rules, paying taxes, working, lending and borrowing the
ponzi scheme would fold. This is why it is usual for regimes in developing nations to be heavily
funded, supported and in debt to those at the top of the pyramid scheme.
The run-up to this contemporary financial empire was phenomenal and heralded by all sections
of the debt hierarchy as an era of prosperity and essentially an end of history altogether with the
triumph of economic liberalization. One of the most famous proponents of such a view, Thomas
Friedman, calls this the ‘Golden Straightjacket’ which he classified in his highly influential work
the Lexus and Olive Tree (2000) as “the defining political-economic garment of this
globalization era” marked by a particular set of economic policies that opened national economic
sovereignty to global capital markets, multinational corporations and the ‘electronic herd’”, a
group of “often anonymous stock, bond and currency traders and multinational investors,
connected by screens and networks.15” This financialization of the international arena which can
be defined as “a process whereby financial services, broadly construed, take over the dominant
15
Friedman, Thomas. Understanding Globalization: The Lexus and the Olive Tree. First Anchor Books. (2000)
Friedman explains the comprehensive policies associated with the era as, “To fit into the Golden Straitjacket a
country must either adopt, or be seen as moving toward, the following golden rules: making the private sector the
primary engine of its economic growth, maintaining a low rate of inflation and price stability, shrinking the size of
its state bureaucracy, maintaining as close to a balanced budget as possible, if not a surplus, eliminating and
lowering tariffs on imported goods, removing restrictions on foreign investment, getting rid of quotas and
domestic monopolies, increasing exports, privatizing state-owned industries and utilities, deregulating capital
markets, making its currency convertible, opening its industries, stock and bond markets to direct foreign
ownership and investment, deregulating its economy to promote as much domestic competition as possible,
eliminating government corruption, subsidies and kickbacks as much as possible, opening its banking and
telecommunications systems to private ownership and competition and allowing its citizens to choose from an
array of competing pension options and foreign-run pension and mutual funds. When you stitch all of these pieces
together you have the Golden Straitjacket. (p.107)
economic, cultural, and political role in a national economy 16” was deemed to be an end of
history, a triumph for a particular version of capitalism.
The view that American-led globalization was destined to conquer the entire world were
persistent from the 1980’s through unto 2008 when the entire system nearly collapsed as marked
by the bankruptcy of Lehman Brothers in September. The externalities of such an event
represented a form of global bank run that almost wiped out the entire international economy. By
the time what is now termed the Great Recession actually hit interest-based leverage was
abundant and the entire global pyramid was financialized. Whether you were CitiGroup
leveraged at 35 to 1 or a U.S. homeowner with tremendous debt chances were you were highly
indebted and participated in a portfolio composed of financial instruments you probably couldn’t
understand with investments tied to parts of the world never visited.
After the inflated global markets almost collapsed during the recession of the end of 2007 thru
June 2009, the international monetary order returned to the very same policy that created the
problem in the first place as this was the only way to defend the by now fabricated and
fraudulent wealth of those at the top of the pyramid. The policy practices aforementioned by the
Federal Reserve and most of the reactions of governments, banks, and institutions since have
marked a continuation of protecting a pyramid, ponzi scheme that failed with no detachment
whatsoever from what had become normalized practices. The protests and uprisings across the
world, whether completely conscious of this or not, represent opposition to this perpetuation in
policy practice and generate new opportunities to alter the order altogether.
Cases in Point: Egypt and Tunisia in the Run-up to Revolution
Since the revolution, nothing has changed… We threw out Ben Ali, that's all." Kamid Hamdi –
Degree in Economics, Waiter in Tunisia March 12, 201117
The relationship between national money supply and private, fractional reserve central banking
today is not unlike the relationship between the dollar-dominated international banking
arrangements and developing economies. The first order is dominated by institutional
arrangements that vest the power of money creation initially to autonomous central banks and
then to commercial bankers that represent the shareholders of the former. Subsequently an
exogenous relationship develops between banking institutions and the rest of society. In the
second order developing economies are forced to hold dollar reserves due to the nature of the
fiat, floating exchange system ushered in by the collapse of Bretton Woods in 1971 and other
mechanisms like the sale of oil from OPEC nations in dollar denominated amounts, the pricing
of most commodities in dollar bills and the threat of military intervention in the event one tries to
break from convention.
In the international arena these relationships are manifested in many ways including exogenous
inputs of foreign capital and aid, and technical know-how from institutions like the World Bank
and International Monetary Fund that act as the central banks and planners of developing
nations. These institutions provide assistance, oftentimes following natural economic or political
crisis (Klein, 2007), by extending loans if countries accept structural adjustment polices. The
policy set implemented as a result represents an ability to dictate key aspects of monetary and

16
Phillips, Kevin. American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the
st
21 Century. Viking Books (2006)
17
http://www.npr.org/templates/story/story.php?storyId=134482424
fiscal policy directly and indirectly and creates conditions where the interests of the upper
pyramid are not affected.
As a consequence of such exogenous relationships, less developed economies tend to adopt
policies that not only preserve the interests of foreign influence but that replicate similar banking
models for domestic banking practices and create a relationship indigenous to nations where
bankers exert immense control over populations as well. However where quantification of
central bank independence can be somewhat verified in stronger, developed nations, quantifying
the relationship and autonomy of banks versus the government has proven difficult in developing
countries since, “laws are often incomplete, ambiguous, or simply not respected (Farraq and
Kamaly, 2007).” The banks are usually embedded with a regime and thus help to perpetuate
authoritarianism via central banking’s compatibility with the existent political structures. In the
developing world there tends to be little need to portray a veneer of democracy. As a
consequence, developing nations have proven to be the host of parasitical operations that allow
those on the top of the pyramid scheme to continue the order. Tunisia and Egypt are prime
examples.
Tunisia and Egypt were the World Bank’s poster children for economic success. On October 27,
2010, a few weeks before the protests, World Bank commentary on economic progress in
Tunisia embellished the state of society there claiming,
Through a range of development policy loan programs with IBRD, Tunisia has boosted its
global competiveness and seen exports double over a little more than 10 years. The best
illustration of Tunisia’s improved competiveness is its total factor productivity growth,
which often drives investment… Furthermore, exports of goods doubled in value between
1996 and 2007, while annual foreign direct investment flows increased steadily, averaging
2.2% of GDP in 1996-00, 2.6% in 2002-05 and 5% in 2006-08. Tunisia ranked as Africa’s
most competitive country in Davos 2009 Global Competitiveness Report.
Egypt was not so far behind. The IMF reported in its summary of the Executive Board’s yearly
meeting with Egyptian officials that,
Egypt made significant progress in wide-ranging structural reforms that accelerated after
2004. This spurred rapid output growth—averaging 7 percent a year during FY2005/06
FY2007/08—underpinned by foreign investment-driven productivity gains and the
favorable external environment. Reforms also reduced fiscal, monetary and external
vulnerabilities, leaving some room to maneuver on macroeconomic policies in the event of
negative shocks18.
The World Bank concurred explaining that,
Since the appointment of a reformist Government in July 2004, Egypt has embarked on a
reform path. The reforms have been sustained until now (until the global crisis) and the
Government has established a solid track record as one of the champions of economic
reforms in the Middle East and North Africa region (MNA). 19

18
http://www.imf.org/external/np/sec/pn/2010/pn1049.htm”
19
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/MENAEXT/EGYPTEXTN/0,,menuPK:287166
~pagePK:141132~piPK:141107~theSitePK:256307,00.html
In reality, reforms were not reaching the majority of the populations. Tunisian reform began in
1986 when the country adopted structural adjustment policies associated with the Washington
consensus and the golden straightjacket, and the North Atlantic Treaty Organization (NATO)
covertly ushered Ben Ali to power so that the reforms could be implemented wholeheartedly. In
1999 Fulvio Martini, former head of Italian military secret service SISMI, declared to a
parliamentary committee that "In 1985-1987, we (in NATO) organized a kind of ‘golpe’ ( coup)
in Tunisia, putting president Ben Ali as head of state, replacing Burghuiba, 20" in reference to the
first president of Tunisia.
Ben Ali was an avid adherent to the Golden Straightjacket throughout his 23 year rule
implementing every recommended reform coming from the IMF, World Bank and international
order. The actual outcome of the reform programs was the privatization of essential
infrastructure and industries, removal of tariffs on imports, easing of export restrictions,
devaluation of the currency, and the opening up of the domestic labor market to foreign
investment so that corporations could employ Tunisians at cheap labor in the textile and auto
spare parts industries. These economic reforms, professed as documentation of the liberalization
of society altogether, actually made those on the bottom of society, “worse off economically and
older forms of clientelism reappeared, undermining the prospects for political democratization.
Socioeconomic conditions (increasing inequality and a shift of power away from subordinate
classes) and the habits of single-party rule were much more important to regime outcome than
the stated choices of political elites well rehearsed in the language of democratic transition
(King, 2003, p.6)21.” Inflation, high unemployment, and a low quality of life for those at the
bottom of society meant little to World Bank and IMF analysts as profits at the top were
substantial enough to promote the notion that the Tunisian economy was growing, reforms were
working and that there was an economic miracle in action.
Egypt followed the norm as well and started implementing IMF and World Bank reforms
around the same time as Tunisia. However, the implementation of the golden straightjacket was
really increased in 2004 with the appointment of a new government who adopted every
recommended adaption. Egyptian growth remained above 6 percent from 2004 thru 2010 and
the international community touted Egypt as a bastion of successful reform. The economy was
continuously deregulated and open to further foreign investment and privatization as political
power was decreased for unions at the hands of a repressive state. In reality aggregate growth
absent inclusion of distribution hid costs to the general population as inflation, unemployment;
widespread poverty and malnourishment were ignored. This was expressed by Kamil Abbas,
General Coordinator of the Center for Trade Union and Workers Services in Egypt in an
interview in August 2010 with the Wall Street Journal. In it he explained, “The gains touch only
certain segments of the population — the upper crust of society… You have employees making
$20 a month in some new businesses. What kind of reform is that? 22”
The Egyptian and Tunisian economies were wearing the Golden Straitjacket as prescribed:
opening up to foreign investment, manufacturing industries and infrastructure development
were neglected in favor of low-end manufacturing, tourism and other menial and low paying
jobs. In Tunisia land privatization and agricultural reforms still rendered it incapable of feeding
20
http://www.repubblica.it/online/fatti/afri/tuni/tuni.html
21
King, Stephen J. Liberalization Against Democracy: The Local Politics of Economic Reform in Tunisia. Indiana
University Press, 2003.
22
http://blogs.wsj.com/economics/2010/08/03/egypt-critical-take-on-a-model-reformer/
its own population as in Egypt which before the protests imported 6 million tons of mostly U.S.
wheat a year in order to feed its people despite having ample arable land and being food
independent as early as the 1960’s. Military support and foreign aid in each nation from abroad
created a dependency that allowed dictatorial relationships to persist from the United States and
European nations to the regimes and as a consequence from the regimes to the populace. Barack
Obama, right before his much touted speech in Cairo in June of 2009, referred to Hosni
Mubarak as a "stalwart ally of the United States" and a "force for stability and good". In similar
ways Nicolas Sarkozy had to excuse France’s positive regard for the Tunisian economic miracle
Europe had touted for many years. He portrayed ignorance exclaiming, "Behind the
emancipation of women, the drive for education and training, the economic dynamism, the
emergence of a middle class, there was a despair, a suffering, a sense of suffocation. We have to
recognize that we underestimated it.23” Still, the United States and European nations supported
these regimes to the end and only recently have come out with rhetorical support of the internal
alterations as they prepare to force the perpetuation of policy and influence new political allies.
The policies manifested in both Egypt and Tunisia were those of the now-deposed dictators and
their regimes and were only possible with the complicit support of the international monetary
order that kept them in power. The success stories ignored the ravaging effects these policies had
on the poor majority, the repressive political circumstances in which they occurred and the
possibility that short term reforms coincident to the international order could create instability
and eventually lead to replacement of the regime altogether. For the first time in the hyper-
acceleration of international globalization unforeseen potential collapse seems near and the
uprisings are part and parcel of reaction to that system. However, the normalized institutional
practices have not been removed from the Egyptian and Tunisian situations and despite a
warranted celebration in favor of political reform any alteration will prove cosmetic unless it
addresses the larger macroeconomic practices that undermine advancement for all sectors of
society and continue practices that conform to the order of the dollar dominant debt hierarchy.
It already seems as if there will be no serious or complete effort to break away from the norms of
financialized globalization as induced by the global order. Immediately after Bin Ali was
deposed Tunisia's Central Bank Governor Mustapha Nabli said in Washington at a conference at
the Carnegie Foundation for International Peace that in the next months the country will need
funding from the international community stating that, "It is possible that our needs for financing
may increase at both budgetary and external levels. 24” "We will need financing and we are
working with the World Bank, the IMF, the African Bank, the European Union and Arab Funds,"
he said. Standard & Poor’s lowered Tunisia’s currency rating to triple B+, while Moody’s
downgraded its foreign debt to Baa3, the lowest investment-grade rating25 since the removal of
Ben Ali.
In Egypt the financial consequences are similar; Egyptian currency reserves declined by a billion
dollars due to the political unrest, a need to prop up the Egyptian pound against the dollar and a
decline in tourism.26 The stock market remained closed for over a month and Egypt’s central
bank put 4.5 billion Egyptian pounds on the market and only sold 3 billion of them due to

23
http://www.guardian.co.uk/world/2011/jan/24/nicolas-sarkozy-tunisia-protests
24
http://en.ce.cn/World/Africa/201102/26/t20110226_22249802.shtml
25
http://www.ft.com/cms/s/0/21b42d54-23f3-11e0-bef0-00144feab49a.html#axzz1GVHEou9b
26
http://www.bloomberg.com/news/2011-03-07/egypt-s-february-foreign-reserves-decline-to-33-3-billion-1-.html
expectations that the pound would depreciate in the near term. 27 “It is expected that the balance
of payments at the end of the third quarter of the current financial year which ends on March 31,
will register a deficit of more than $3 billion," the central bank said in a statement. And on
March 10 the Monetary Policy Committee of Central Bank (CBE) decided to keep the overnight
deposit rate and overnight lending rate unchanged at 8.25 per cent and 9.75 per cent respectively
while inflation was rising steadily. Egypt’s stock market seems ready to be exposed to a
complete bargain sell off as it resumes. Egypt’s stock market regulator recently eased rules on
margin calls requiring investors to pay margins or present more collateral when the client’s debt
reaches 70 percent of the shares’ value at the end of trading each day. Claiming these efforts
were to develop “mechanisms to resume trading with the aim of limiting the volatility that may
happen in the market when trading starts, and to mitigate the negative impact on investors,
especially those dealing in margin trading, as well as to spur demand.”All of these indicators
suggest that absent any radical alternative these economies, despite being new democracies
motivated by regime change, will be at the mercy of the international financial order.
When countries like Tunisia and Egypt run deficits they are expected to raise interest rates to
attract foreign investment and further indebt their populations. The IMF also dictates that they
impose privatization and austerity measures that further decrease government intervention and
that deflate stock markets and assets long enough to induce foreign buyouts and ownership of the
economy. No efforts are made to prevent the ‘electronic heard’ from conducting a speculative
frenzy on every aspect of the Egyptian and Tunisian economy thus rendering the possibility that
any and all effective political reform is rendered null and void as well.
The developed countries responded accordingly. At a two day meeting in France held shortly
after the ouster of Mubarek and Ben Ali finance chiefs from the G20 nations issued a joint
statement claiming, "We stand ready to support Egypt and Tunisia, with responses at the
appropriate time well coordinated with the international institutions and the regional
development banks, to accompany reforms designed to the benefit of the whole population and
the stabilization of their economies," and International Monetary Fund chief Dominique Strauss-
Kahn said his global lending institution stood ready to help Egypt and Tunisia if asked, but that
had received no request so far. 28
In response to the Tunisian downgrade Central Bank Governor Nabli declared that external debt
would be honored. “Tunisia will pay back its debts, estimated at 1120 million dinars for 2011
($800 million), on the due dates. Some 820 million dinars ($584 million) will be paid back in
April 2011 and 300 million dinars ($213 million) in September 2011, 29” he said. Egypt owes EU
member states $9 billion and the country's total foreign debt at about $34.7 billion with
government debt accounting for roughly $29.8 billion, or slightly more than 11 percent of GDP.
Still, despite this debt being run up by rapacious dictators and despotic regimes there has been
very little talk of default suggesting they will continue to play by international standards.
These internal situations exist alongside a global macroeconomic reality of continued
quantitative easing and subsequent commodity inflation. If the economic dimensions of this
movement are not understood and included in analysis then there is little hope that the uprisings

27
http://af.reuters.com/article/egyptNews/idAFLDE7250C320110306
28
http://www.reuters.com/article/2011/02/19/us-g20-mideast-idUSTRE71I2MG20110219
29
http://www.bct.gov.tn/bct/siteprod/documents/20110125.1.ang.pdf
in Egpyt, Tunisia and any other countries that may successfully depose their dictatorial servant to
this international order will be either revolutionary or effective whatsoever. Unfortunately, any
competent address of the issue requires that contemporary economic phenomenon are understood
through the lens of elitist domination contemporary norms create. Absent an address of the
repressive nature of money as debt control mechanism in the international arena, there can be no
change.
Monetary Policy Today: Interest Rate Relations and the Real Economy
“Inflation is always and everywhere a monetary phenomenon.”
~Milton Friedman
By the agency of power vested in banking institutions, namely to control the issuance and cost of
credit, monetary policy is perhaps the most important dimension of governance today. Whereas
monetary and fiscal policy are the two primary tools of affecting macroeconomic behavior, it is
important to note that the relinquishment of decision-making capability to the financial sector
limits the role of government to fiscal matters. The argument that independent central banks
function as independent judiciaries is nearly nonsensical when recent policies are weighed in
relation to underlying constitutional principles and the notion of a social contract that suggests
governments and all arms of governance act on behalf of their citizens.
As austerity measures and fiscal restrictions follow monetary policy that failed the real economy
and instead socialized the losses of banks, it should stimulate recognition that something is
fundamentally wrong with the nature of this relationship. The cumulative experience and current
state of the post-Bretton Woods fiat, floating exchange rate system created an international arena
that utilized central banking, fractional reserve underpinnings and perpetual debt servitude to
usher in a financialized form of globalization that constitutes a domination by financial
institutions, multinational corporations and an array of elitist arrangements based largely on the
ability to leverage excessive debt. As a result economic indicators and analysis have grown
increasingly reliant on financialized denominations to support the notion that the global economy
is still growing. Similar to the way in which financial, real estate and insurance sectors overtook
manufacturing and real economic production in the United States during the rise of globalization,
today the real economy and real people all over the world are being exploited to feed a
speculative debt parasite that is destroying the real world yet reporting profits and growth due to
an array of financial products and speculative activity.
What the world seems to have embarked upon now, as one analyzes the consequences of
political upheaval across the world and what that means for economic recovery, is the potential
end of an international monetary order altogether although. It would be hard to tell when
isolating economic variables however, this time away from the political realm. No matter the
continuation of monetary interventions seeking to stimulate an economy, the international order,
clearly denominated in fiat U.S. dollars, has become increasingly reliant on fabricated growth via
monetarist manipulation. Nearly all of the economic data whether measuring unemployment,
inflation, aggregate growth or other has been deliberately distorted in order to defend a system
and to honor debt that is increasingly reliant on political, economic and military intervention.
Everywhere these interventions are failing however but traditional policy and practice sustains
absent any alternative.
This order is maintained by several hundred years of imperialist practice. The development of
today’s economic order is largely a byproduct of a philosophical worldview rooted in usurious
manipulation, conquest, competition and private triumphalism: a worldview that necessitates self
seeking behavior as productive and the pursuit of profit absent moral judgment as ultimately
benign. Thus contemporary monetary policy has evolved inside an environment that necessitates
a justification for imperial patriarchy over people, cultures, nations and today the world. As
Thomas Friedman put it, “Unfortunately, this Golden Straitjacket is pretty much ‘one size fits
all…’ It is not always pretty, gentle or comfortable. But it’s here and it’s the only model on the
rack this historical season30.” These philosophical roots, manifested in the structures of money
creation and interest-based relations are patronizing and degrading and thrust upon real people
the notion that actors from above should dictate to those below. No greater example of this exists
than in an analysis of monetary policy today.
Current monetary policy gives a “monetary authority” control over the supply and availability of
money and its cost by setting interest rates. Monetary practice has grown increasingly
sophisticated and complex but is largely derived from a body of monetarist theory that preceded
the study of macroeconomics and stems from discussions about the relation between prices and
money traditionally classified as the Quantity Theory of Money.
The quantity theory of money explains inflation as the reduction in the value of money that must
take place if an increase in the money supply is to be demanded thus holding that there is a direct
proportionate relationship between money and prices. It is interesting to note that the quantity
theory of money has its roots in deliberations about the effects of “new money,” then intrinsic
gold and silver coming from the “new world” and thus introducing an increase in the price of
money after an influx due to conquest from afar.31 The theory has been successively and
successfully sophisticated over several generations and served as the backbone of monetary
policy for most of recent history having appeared to “receive a clinching verification during the
Great Inflation of 1969–1983 (p.3).” The adherence to monetarist doctrine was heralded as a
period of triumph for central banking due to a targeting of the money supply which, it was
claimed, had effectively managed inflationary periods. This was attributed to monetary practice
that emphasized “shifting perceptions with respect to the importance of price stability (Volker,
4).”
The victory for concentration on money supply and central banking specifically was short-lived
however. Soon after the ultimate influence and determination for the money supply under
fractional reserve systems was proposed to be endogenous, coming from the conventional banks
and demand for money in the system and not stemming from the lofty exogenous decisions of
independent central banks. Ample evidence documented that efforts of central banking to control
the money supply were futile and disconnected from reality. Instead the increase of money was
something that was not looked at as having caused a proportionate inflation but that the monetary
policy itself was explained by inflation or alteration in prices inside the system.
As a consequence of such fluctuating perspectives it becomes evident that consensus in the realm
of monetary policy is in no way shape or form existent. Still, the peculiar notion of today’s
monetarist practices is a complete eradication that money supply is connected in any which way

30
Friedman, Thomas. Understanding Globalization: The Lexus and the Olive Tree. First Anchor Books. (2000)
31
See Nicolaus Copernicus (1517), Memorandum on Monetary Policy or Jean Bodin, Responses aux paradoxes du
sieur de Malestroict (1568).
to price. The argument for the endogenitiy of the money supply completely eradicated virtually
any referral whatsoever to the LM curve (quantity of money versus money demand) in monetary
policy and instead placed emphasis on the role for central banks in setting short term interest
rates, representing a virtual dismissal of the centuries old quantity of money belief altogether.
Primary evidence of this reality lay in the fact that the Federal Reserve in the United States no
longer publishes data affiliated with the M3 measure, the measure showing the fastest growth in
monetary supply, after claiming that the monetary aggregate “has not played a role in the
monetary policy process for many years 32.” This reality is an indication of the now prominent
monetarist notion that money supply and inflation are not directly related and that setting short
term interest rates is the mechanism by which inflation and deflation can be controlled.
These alterations are important for a few reasons. First, the quantity theory of money has played
a predominant role throughout the history of monetary and macroeconomic analysis, as recently
as the 1970’s-80’s the quantity of money and thus a focus on monetary base had been considered
of utmost import. Secondly the debate around the exogenous or endogenous nature of money
demand and supply is a haphazard argument of circularity. Central banks are exogenous actors
but so are conventional banks under a fractional reserve system that places money at the
exogenous hands of banking institutions that characteristically lend for speculative investment
and are not interested nor obligated under their private, profit creating foundation to allocate
resource to the productive real economy or for the needs of society at large. It is the nature of
this relationship that suggests that much monetarist theory and practice is based on blind
acceptance of faulty underpinning ideology, an ideology that unquestionably acknowledges the
merits of independent central banks influencing a monetary base and fractional reserve practices
thereby granting authority to commercial banks to control the who, what, and how much of
money entering into the economy. It is this control and these relationships that must accompany
any social reform today if there will be any fathom of economic justice.
It is not just developed countries that ace such threats. The triumph of central banking as a means
of creating price stability birthed widespread adoption of the practice. The IMF reported in 2010
that,
Over the past twenty years, almost all advanced economies and many emerging market
economies central banks adopted monetary policy frameworks with price stability as the
primary objective. These monetary policy frameworks often have the following features:
(i) central bank independence to achieve price stability together with strong policy
accountability; (ii) policy formulation based on a strategy that makes use of all available
information; and (iii) an operating framework based on a single policy interest rate target
implemented with market operations. 33
Both endogenous demand and exogenous behavior are actually representative of exogeneity in so
far as they place banks as dominant external actors in society. The dangers of such an exogenous
relationship and the conflict of interest inherent in such institutionalized relinquishment of power
cannot be understated. Efforts to belittle the relationship of money supply and inflation may very
well be deliberate manipulation designed to prevent an acknowledgement that the dollar
denominated system is dead and that monetary policy as practiced is incapable of effecting
32
http://www.federalreserve.gov/releases/h6/discm3.htm
33
http://www.imf.org/external/np/pp/eng/2010/052710.pdf
results as low interest rate policy over a 20-year era has only stimulated asset bubbles of growth
based on inflation at the cost of drastic debt expansion. The underlying structural collapse in the
real economy went by unnoticed for most of a 20-year run but today as low interest rates
continue to try to stimulate the economy it becomes evident the flawed nature of contemporary
monetary effects.
A Financial Crisis Inquiry was recently completed in the United States and documented that
“From 1978 to 2007, the amount of debt held by the financial sector soared from $3 trillion to
$36 trillion, more than doubling as a share of gross domestic product.” The report concluded
that, “this financial crisis was avoidable. The crisis was the result of human action and inaction,
not of Mother Nature or computer models gone haywire. The captains of finance and the public
stewards of our financial system ignored warnings and failed to question, understand, and
manage evolving risks within a system essential to the well-being of the American public.” Still,
today after billions in loans and trillions in troubled asset relief, the relationship that places
dominant control of the nation’s money supply and credit issuance in the hands of bankers is not
diminished. In fact, it has only grown and seeks today to export the inflationary consequences
and the practice and adoption of that very policy to the rest of the world.
Thus monetary policy is a process that takes economic planning away from governments and
places it into the hands of large financial institutions deeming that the control of money is best
left in the hands of the private sector as a check and balance away from the pernicious evils of
government. History documents that private power can be as equally pernicious and it has been
shown, contrary to the touted historical reconstructions that place money as a creation of
Neolithic individualism, that the use of money for providing a general unit of account,
developing exchange economies, and even for lending at interest is a public phenomenon that
originated within the public institutions of ancient Mesopotamia34. This awareness has grave
implications for the proper positioning of monetary practice in society, namely that control over
money stems from and should be a public endeavor.
If the design of the contemporary monetary system does little more than allocate access to
money in the hands of an elite; the problem is exasperated by the very use of interest itself as an
additional component. This use of interest in this model not only vests money creation in the
hands of a private cartel but also creates conditions where a perpetual pursuit for principal pay-
down is not only impossible, but creates institutionalized debt slavery by way of cost for money
plus interest and by way of issuance of money as debt leading to taxation. Today a country’s
currency is nothing more than a floating debt instrument controlled by banks and because the
origin of any currency under independent central banking is issued to the government with
interest and then multiplied throughout the society by way of the fractional reserve model the
total money supply in circulation is insufficient to pay down money supply plus debt. Thus we
may say M < Cumulative Debt or M < M + I, where M is money supply and I is interest. This
equation effectively means that cumulative debt always exceeds money in circulation and this
equation, albeit completely rudimentary, has grave implications for both the makeup of the
economy and the inability to control for both inflation and deflation.

34
http://michael-hudson.com/2003/03/the-creditarymonetarist-debate-in-historical-perspective/)
As interest continues to multiply debt in greater portions throughout a society, greater portions of
currency in circulation go to service debt thus leaving a greater drag on currency available for
productive consumption or investment. This reality is hardly ever accounted for with relation to
monetary policy and actually explains a great deal as to why the economies of the world have
become increasingly financialized and why monetary policy has grown increasingly reliant on
targeting interest rates to maintain a rate of investment that can feed its all pervasive need for
additional stimulus to honor an ever-growing speculative debt thus inducing a drag on
production in the real economy. These relationships are completely unnecessary.
In seeking equilibrium monetarists seek to make the demand for money equal to supply of
money. A better method of controlling inflation would be to make the demand price of credit
equal the supply price of credit yet still the laborious process in both theoretical and empirical
investigation to attain such an outcome is easily remedied when interest itself is removed from
the equation altogether and monetary policy vis a vis inflation can concentrate on creating an
arena where the price and supply for credit is zero and the demand and supply of money can then
remove itself from any and all argumentation as to root causality of exogenous or endogenous
purport and money supply, creation and issuance can be directed in ways that allow for true
equilibrium, represented by a necessary collaboration and horizontal structuring between
governments, banks, and the population. Such allocation eliminates the disequilibrium when
money is created as debt, spreads risk across the social spectrum, creates the opportunity for
profit and loss application, and creates an arena where money is a measure of exchange and not
acting as a commodity in and of itself devoid of backing representative of real value.
It is quite unfortunate that the consummate body of evidence and theory in the realm of
contemporary monetary policy utterly accepts the root institutions of contemporary monetary
practice and the use of interest as a given. In similar circular argumentation as to cause of
inflation, as long as interest is included in the equation there is no potential for equilibrium
whatsoever and so as variables of causality are altered, models are built to account and explain
new phenomenon and monetary theory is altered. Nonetheless the end result will always remain
disharmonic until interest is completely removed from the equation and the relationships of
monetary authority are altered.
The fact that interest represents a tax associated with price due to the reality that most economic
transactions include purchases involving interest suggests that it should be considered when
dealing with monetary policy. The inability to account for the tax of interest and the distortions
created with regard to circulation in relation to debt may also account for distortions that
discredit the proportionate relationships that the quantity theory of money suggests should hold.
Contemporary analysis of the theory has shown that while there is a proportionate relationship
between money and inflation in the long run there is no correlation between the growth rates of
money and real output35.
The quantity theory of money holds that MV = PY, where money supply (amount of currency)
multiplied by velocity (number of times each denomination of currency changes hands in a year)
is equal to prices (average price of all goods and services in a society) multiplied by output
(quantity of assets), with PY representative of nominal GDP. Thus each variable is an identity
where each term is defined by the values of the other three. However, when M is considered in

35
http://www.minneapolisfed.org/research/QR/QR1931.pdf
disequilibrium as M + I, then the identity relationship between variables is altered as (M + I) * V
= GDP or M * V = GDP – (I * V) thus accounting for an actual drag on total output. Solving for
P = (M + I)(V)/ Y thus creating a added inflationary inducement and with Y = (M + I)(V)/P
creating inflated output levels with an additional boost from the nominal value of debt. These
distortions should be considered as potential causes behind the reality that assets, goods, and
services, once an aggregate measure associated with nominal GDP, are no monger reliable due to
the rise of financial transactions and a heavier role for interest (I) in the economy. Thus today it
is virtually impossible to separate growth associated with real production from financial
aggregates. As a result, monetary policy is increasingly reliant on the manipulation of interest
rates to influence prices and especially today to maintain a false asset price inflation preventing a
massive correction that would lead to widespread global depression.
While rudimentary in rationale, it is necessary to recognize the effects of interest on economic
and thereby social conditions today. Calculations tend to accept the nominate contribution
interest gives to an economy without recognizing the overall consequences, as society is
monetized and access to credit determines station and prosperity. These artificial distortions,
manifest in increasing financialization, imbalanced economies of scale, uneven distribution of
wealth, and a reliance on interest to influence variables like growth and price, manufacture a
state where the real economy becomes detached from the role of interest in society. The
monetarists enter a terminal phase the Federal Reserve seems to be embarking upon now where
the financialized dependence breeds a complete disconnect from the real economy and policy is
akin to “pushing on a string,” trying to get out of a liquidity trap where the distortions start to
show.
The call for a monetary system absent interest is largely foreign to dominant macroeconomic
theory and practice today. The time value of money is viewed as a necessary component in order
to give reward for savings and thus investment but the very nature of money creation, lessening
reserve requirements and increasing debt leverage in the system documents that there is an
obvious distortion inherent in the contemporary order. The agent of that distortion is interest and
as a consequence of income derived by interest inside the conventional fiat money there are no
competent measures of productive economic activity. The sole agent of debt multiplication is
interest, and it is the very variable that creates distortions in the economic measures of inflation,
growth, financialized transactions versus productive activities and etcetera. With total cumulative
currency plus debt exceeding total currency in circulation, the inability to pay down principal
plus debt makes the growth of debt exponential and pushes economic activity into the realm of
money manipulation and away from real productive development. As a consequence, the system
is failing and facing collapse, monetary policy has entered a zero sum game of unlimited money
for virtually free yet absent any real net productive effects.
If there is a positive aspect of this position it is the reality that talk of an interest free monetary
policy need not seem so foreign anymore. The Bank of Japan has effectively had a near zero
interest rate since October 1995 and in the United States the federal funds rate has been reduced
to near zero since September of 2008 with no end in sight. However in both Japan and the United
States there has been little to no consequential growth. Conventional theory suggests that it is
time for monetary stimulus, but with interest rates at zero there is little room for maneuvering
under present practices. The insertion of money into the global economy through banks cannot
garner productive economic activity as borrowing continues to be used as an arbitrage
investment opportunity to create profit for free. The once popular yen-carry trade is now the
dollar carry-trade and the refusal of the United States to follow traditional rules for country’s
running deficits has put a gun to the head of economies all over the world. It is only in serious
departure from the norms of central banking and fractional reserve lending along with efforts to
move towards an end of interest altogether that proper monetary reform can occur.
Immediate Solutions for Egypt, Tunisia and the Rest of the World: Sovereign Credit and
Endogenous Loans
The government should create, issue and circulate all the currency and credit needed to satisfy
the spending power of the government and the buying power of consumers..... The privilege of
creating and issuing money is not only the supreme prerogative of Government, but it is the
Government's greatest creative opportunity. By the adoption of these principles, the long-felt
want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of
interest, discounts and exchanges. The financing of all public enterprises, the maintenance of
stable government and ordered progress, and the conduct of the Treasury will become matters of
practical administration. The people can and will be furnished with a currency as safe as their
own government. Money will cease to be the master and become the servant of humanity.
Democracy will rise superior to the money power.
~Abraham Lincoln
The uprisings of Egypt and Tunisia and the spark they have created across the globe for activism
and opposition that stretches from Wisconsin to Bahrain represent an outcry of those most
affected by the international monetary order. They also mark an indication of potential political,
social, and economic disintegration in the event they are unable to render any comprehensive
challenge to both the latest wave of monetary domination initiated by the Federal Reserve and
the continued efforts of America to lead and advance the causes of globalized imperialism.
While it may be impractical and unrealistic to call for comprehensive alternatives at this
juncture, there is a documented need for awareness that connects political repression to the
general monetarist macroeconomic order and that at least contributes in significant ways to the
lack of concern foreign powers held with regard to repression in light of the norms of
financialized globalization and debt hierarchy. The ideal manner for creating productive
pathways towards making these necessary broader connections, working toward an interest-free
order, and returning monetary practice to its proper role as servant of sovereign peoples is in the
utilization of what have been termed Islamic endogenous loans36.
Deliberation along the terms of exogenous and endogenous nature of money supply and demand
neglect the most important aspects of money supply theory where they accept the a priori
assumptions that money creation is best left to private and financial hands and overlook the
underlying axiomatic contradictions and contemporary empirical evidence that suggests this
relationship represents a massive conflict of interest. The root of exogenoity is the central bank,
endowed with the ability to create money, organized like a corporation with shareholders that
happen to be private banks, and able to charge interest on money they’ve done very little to earn
while the root of endogenity is from banks and money demand from the public. These banks also
create money through fractional reserve practices, can charge interest on money acquired

36
http://islamiccenter.kau.edu.sa/7iecon/Ahdath/Con06/_pdf/Vol1/14%20Rodney%20SHAKESPEARE%20Non-
interest.pdf
through very little effort and are profit producing institutions many of whom are shareholders in
the very independent central bank claims suggest they are influencing. Under these conditions
efforts to pinpoint the source of causality completely ignore the reality that this relationship
entwines profit seeking institutions in a collaborative endogenous affiliation while creating an
exogenous relationship between banks and the rest of society, both the public and government.
Causality hardly matters when the intention and inevitable outcome is the same.
The incentive to hold money for speculative purpose has taken any possible connection between
money and physical production away. The process and possibilities of speculation based profit
motives were exasperated with the complete disintegration of the gold reserve system in 1971.
The contemporary market for derivatives, credit default swaps, currency speculation, complex
securities and other exotic financial instruments has naturally developed as a fundamental
consequence of the complete monetization of the global economy. These natural byproducts of
the axioms underlying a privatized fiat system can only further consolidate power in the hands of
central banks and the private banks they provide money too. The relationship between central
banks and commercial banks manifests itself similarly in almost every country while the
relationship between the Federal Reserve and foreign central banks creates an international order
much the same.
In the contemporary era of globalization the U.S. produces dollars through its central bank at
interest and the rest of the world produces goods, services and natural resources that those dollars
can buy. Trade is no more a quest for comparative advantage and utility as everyone needs to
acquire dollars. IMF debt is valued in dollars, between sixty to seventy percent of global foreign
currency reserves are held in dollars37, oil is sold in dollars and due to the potential of speculative
attacks in a floating exchange rate environment every country has to acquire and hold dollars in
amounts that can withstand any speculative pressure on their currencies. These factors create the
conditions under which the Federal Reserve can act alone and completely contradictory to the
normal rules of macroeconomic behavior. The U.S. continues to flood the world with its
currency despite running massive deficits that would usually mandate tightening and austerity.
The term endogenous stems from the Greek and means ‘coming from within;” a truly
endogenous money supply would necessitate that banking institutions were immersed in the
society, that currencies which are supposed to represent the economies of sovereign nation states
were circulated not as a reaction to speculative attack or to attract foreign direct investment but
in accordance with the demand of their societies. The cost of money under the contemporary
order places the value of money as the exogenous factor in a society’s development, it is the cost
of such endeavors at interest that prevents any role for government and ideally the citizenry in
determining how money should be inserted into society. There is actually no need for sovereign
governments to relinquish control of money of money to private central banks. As Abraham
Lincoln expressed, “The privilege of creating and issuing money is not only the supreme
prerogative of Government, but it is the Government's greatest creative opportunity.” Sovereign
nations can simply utilize sovereign credit to issue currency without entering the bond market
and paying interest at all. There is also no need to allow private central banks to control every
aspect of the money supply. It is just as easy to issue a government directorate to print more

37
http://www.sfgate.com/cgi-bin/article.cgi?f=%2Fg%2Fa%2F2011%2F03%2F14%2Fbloomberg1376-
LHXH8B0YHQ0X01-2IEEE621JB223VPV7JMNOGE69E.DTL
currency and to issue it in productive means. One such method has been classified as Islamic
endogenous loans.
Binary Economist Rodney Shakespeare explains this alternative,
In contrast to conventional endogenous money, an Islamic money supply is a modification
of present practice so that there can be central bank issuance of interest-free loans for the
purposes of productive capacity. The issuance is administered by the banking system, and
is ultimately repayable to the central bank, does not have interest attached,
is always directed at productive capacity and thus serves the real economy, efficiency and
resource-allocating purposes of a market economy, has wide ownership, social and
economic justice purposes.38
The solution for immediate relief, development and true revolution in Egypt, Tunisia and
countries all over the world is this method of monetary policy that is free of debt and interest,
can garner economic activity into real productive measures and projects most needed by
society. While it would be much more appropriate to transform the whole society immediately
around this principle, it is better under the immediate circumstances of the era, with countless
decades of propaganda and intellectualization of the current system and widespread
unawareness of the connection between the nature of money supply issuance and political,
economic, and social reality, to immediately push for interest-free endogenous loans as a
means to attaining solutions to the economic issues that underlined these societies before
revolution and so too will persist despite political alterations. It is in this manner that political
economic and social grow interrelated and under these conditions that justice can be served
with something as traditionally avaricious a tool as money.
Masudal Alam Choudhury explains this fundamentally different endogenous relationship as,
The nature of money now turns out to be endogenous. Endogenous money is a systemic
instrument that establishes complementarities between socioeconomic, financial, social and
institutional possibilities towards sustaining circular causation between money, finance,
spending on the good things of life and the real economy. . . . Money cannot have an
exchange value of its own, which otherwise would result in a price for money as the rate of
interest. Money does not have a market and hence no conceptions of demand and supply
linked to such endogenous money in Islam. (Choudhury 2007, p. 34)
One of the catastrophes of the post-Bretton Woods order is that it has virtually wiped out the
potential for infrastructure development internal to nations. Factors that contribute to this reality
include the notion that state intervention is a sign of socialism that floating exchange rates make
it impossible to invest in long term infrastructure projects due to fluctuations in currency
valuation, and that interest payments on such projects make them unfeasible. These factors have
created a world where physical development is virtually nonexistent. In the United States,
despite the ability to print dollars at will, huge disintegration of infrastructure is present. A recent
evaluation by The American Society of Civil Engineers gave infrastructure in America a grade of
"D" and stated that “U.S. roads, airports, schools, levees, dams, and other infrastructure are in

38
http://islamiccenter.kau.edu.sa/7iecon/Ahdath/Con06/_pdf/Vol1/14%20Rodney%20SHAKESPEARE%20Non-
interest.pdf
overall poor shape and require a $2.2 trillion investment to bring them up to par. 39” Obviously
the banks are not allocating resources efficiently where they are needed.
Eric Hobsbawm said in his book Industry and Empire form 1750 to Present Day, “It is often
assumed that an economy of private enterprise has an automatic bias towards innovation,
but this is not so. It has a bias only towards profit.” There is no greater example in this than in
the way that countless trillions has flown from creation by banks into speculative debt seeking
quick return. The use of interest-free endogenous money creation for development also allows
the government to play a larger role in determining where resources are allocated and adds a
creative dimension to policy formulation; as aggregate demand is understood as the
accumulation of consumption, investment, government expenditure, and exports minus imports,
the loans can target specific sectors and the mechanism of repayment can be diversified as well.
For example the construction of rail or power plants can be organized under many already
existent structures from the Islamic finance sector in order to return initial investment via user
fees or profit sharing agreements. Establishing schools, roads, hospitals or other endeavors can
also prove to be the prerogative of the people as government because ultimately the general mass
is valued as participant rather than passive victim where the potential for democratized project
proposals and collaboration are inserted into the social process.
The currency of a country under private central banking becomes a debt instrument of a banking
cartel and not a productive power within the rational sovereign powers that should be allotted to
a government allegedly expressing the will of the people. In place of the networks of privilege
that presently represent a social fabric of Muslim nations, introducing the concepts of
endogenous money links the relationship between the real economy and government. Money
does not have an exchange rate in and of itself and thereby loses all power by itself. It is a
measurement of productive activity and a true means of facilitating exchange; any returns on
investment of money are determined by the real economic value of the exchange between goods
and services in demand and supply. Demand is no longer determined by interest rates set by
either a monetary authority (exogenous) or by the demand for loans in the banking sector
(endogenous). Instead money is part of a holistic relationship where relationships of risk are
shared and money is a means of measuring the success or lack of success of those relationships.
Value is not in the price of either commodities or credit but in its productive output for society as
a whole.
The objectives of Islamic, interest-free monetary policy have been expressed in ways that
suggest they are similar to conventional notions. Dr. Muhammed Umer Chapra has identified
them as,
1) Economic well-being with full employment and optimum rate of economic growth;
2) Socio-economic justice and equitable distribution of income and wealth; and
3) Stability in the value of money to enable the medium of exchange to be a reliable unit of
account, a just standard of deferred payments and a stable store of value. 40
The difference between the results of the model of private central banking with fractional reserve
lending is that the concentration on aggregate growth without concern for the manner in which it

39
http://www.infrastructurereportcard.org/
40
http://www.financeinislam.com/article/1_36/1/45
is distributed creates a trade-off for inflation in exchange for employment that is just as harmful
in the long run. Absent the insertion of inflationary monetarist intervention it is argued, the
economy would enter recession. However with the mechanisms of credit creation in the hands of
the private sector, yielding interest gains on an asset they’ve done nothing to create, there is no
way to allocate money in ways that generate actual production or guarantee justice in
distribution. Instead, as we are witnessing now, those with access to new credit creation are
preserved and protected from financial loss, while the real unemployed suffer from loss of
creditworthiness and their plight is enhanced by the reality of rising prices and loss of purchasing
parity over time.
Interest-free, endogenous loans are a means of monetary intervention for funding physical
products deemed necessary and useful and directed at projects that would specifically either
directly increase productive capacities and thus growth in the economy or expand and develop
the infrastructure that facilitates productive economic activity. If conducted effectively then from
the banks that administer the funds to the workers building the projects on the ground a new
money multiplier effect in the short term would persist within the society akin to Keynesian
stimulus. Because the issuance of sovereign credit is not mere insertion of fiat money into the
system and instead is a loan that must be paid back overtime then there is no hyperinflationary
risk whatsoever.
As the widespread adoption of such practices could restore the relationship and measurability of
price under the quantity theory of money, any temporary increase in money supply that leads to a
long-term increase in productive activity could ultimately prove counter-inflationary in the long
run as the money is paid back and cancelled from circulation yet development remains. With the
power to create credit being returned to sovereign status and with the interest free principles
associated with such loans creating legal and institutional barriers to corruption and fraud, the
whole economy can benefit and a return to concentration on the real economy may be realized.
Additionally the utilization of interest, free endogenous loans actually balances the arguments of
economic schools as well. The neoclassical economist accepts that changes in the money supply
affect only nominal variables such as price level, wages, and nominal exchange rates. Money is
viewed as neutral, that any increase in the supply of money will simply be offset by adjustments
in prices and wages. The neutrality of money may hold over time or in the long run but most
economists today agree that monetary policy has at least short term affects on real variables such
as GDP, real interest rate, and the unemployment rate. IMF chief economist Olivier
Blanchard has commented that, "All the models we have seen impose the neutrality of money as
a maintained assumption. This is very much a matter of faith, based on theoretical considerations
rather than on empirical evidence. 41" Under sovereign credit issued for interest-free endogenous
loans the money is truly neutral as there is no net increase in the money supply, only a temporary
stimulus that can target specific areas of need in an economy.
It is easy to ascertain the reasons contemporary monetary systems fail the majority of
populations. They are designed to do so. Like any authoritarian social structure, benefits are
accrued by an elite and at the expense of the mass. While this is obviously completely immoral,
the reality we have documented here is that as this system has perpetuated itself the inability of
the financialized economy to extract from the real economy any longer suggests that the
problems inherent in the system have been laid bare by recent developments. The concept of

41
Davidson, Paul. Financial Markets, Money and the Real World (2002), Edward Elgar Publishing, p. 8
endogenous money, as proposed here, poses not only a potential leeway into a comprehensive
interest-free macroeconomic paradigm, but also a crucial distinction that debt-based money is
neither necessary nor preferable.
Under these alternative conditions the central bank (more appropriately termed a national bank)
is connected not only to banking institutions but horizontally to other sectors of society including
the government. Endogenous money is then prone to unifying relationships between
governments, banks, companies, the people, even the environment. It is in the interest-free
relationship and reliance of co-dependency that the profit motive is preserved but yet prevented
from relegating reward solely to a private elite, privatizing gain and socializing losses and
passing all risk to the social mass. As long as movements and protests calling for rights and
reform or even replacement of regimes fail to recognize that it is impossible to realize any real
reform without rejecting or at least working towards the rejection of these contemporary
practices, then actual change is impossible and instead cosmetic alterations will allow a system
to perpetuate similar to if not worse than what was replaced.
In an interview on February 22, 2010 Egyptian Finance Minster Samir Radwan reported that the
government was planning a stimulus package for the economy due to the effects of the political
unrest. He stated that he did not know exactly what the package would look like but emphatically
stressed that, "The whole issue of fiscal space is becoming a bit tighter because of the emergency
measures we have taken in the past three weeks." His conclusion, "Therefore we have to draw on
the private sector." He then added that Egypt wanted to draw on help from "our development
partners.42" Of course these quotes merely portray the reality that as things stand now Egyptian
participation in the international monetary system will continue unabated.
In Tunisia the Central Bank announced on the same day that it was developing a “Civic Fund,”
targeted at collecting resources from donations and contributions of private individuals and legal
entities to use them in financing regional development projects and directly in the form of social
assistance, or through associations entitled in this respect” Essentially this is an example of
repeating a process of relying on international aid for development, something that has never
shown promising results at all. With endogenous loans there is no need for such proposals.
Any public works projects in these societies would generate the results they are trying to attain
by other means. In Tunisia there is a possibility for developing roads and highways, hospitals,
technological infrastructure, transforming agricultural yields by inserting industry over arable
land, running irrigation ditches, developing factories and industry, etcetera. In Egypt the ability
to improve the Suez Canal region, alter agricultural processes, improve refining capacities, or
increase similar infrastructural deficiencies is present as well. The ultimate and ideal project
would be a collaborative effort between the two constructing high speed railways from the
Mediterranean ports in Tunisia to the Suez Canal over a generation. It is interesting to note that
this project would have to run through Libya a country in civil war now, thus presenting the
opportunity to connect national struggles to region wide interest, garner support from dissenters
within the Qaddafi regime and earn the backing of other countries in the region.
All of these projects provide immediate stimulus, employment and alter the physical and social
landscape while utilizing the talents of the Egyptian and Tunisian populations. All of these can

42
http://www.reuters.com/article/2011/02/22/us-egypt-finance-idUSTRE71L4ZA20110222
be conducted absent international debt, interest payments to a central bank, and absent foreign
dependence. If applied to Egypt and Tunisia the use of interest-free endogenous loans via
sovereign credit represents a truly revolutionary yet rational and pragmatic next step in taking the
fire from the gods of monetarism, advancing the understanding, study and awareness of interest-
free economics and returning an understanding of finance and economics in ways that connect
the governments, banks and people and end the authoritarian relationships that are produced and
in fact necessary for the present practices of the banking system to continue.
Toward a new Role for Money in a Ribaa-Free Monetary System
He is the only One who controls life and death. To have anything done, He simply says to it,
"Be," and it is ~ Holy Quran 40:68
Have you not turned your vision to one who disputed with Abraham about his Lord because
Allah had granted him power? Abraham said: "My Lord is He Who Gives life and death." He
said: "I give life and death". Said Abraham: "But it is Allah that causes the sun to rise from the
east: Do thou then cause him to rise from the West." Thus was he confounded who in arrogance
rejected faith. ~ Holy Quran 2:258
The power to create money and issue it through the private banking sector while charging
interest even to the very governments currencies are to represent grants an all pervasive power to
central banking institutions and makes their monetary policy perhaps the most important aspect
of any given country’s economy. This creation of previously non-existent purchasing power is
akin to the creation of something from nothing, however where the manipulative forces
aforementioned exist, money is not a neutral measure of exchange for facilitation of economic
transaction but a means by which money becomes a commodity in and of itself although a
commodity with very little cost and tremendous potential reward. In this manner monetary
creation and monetary policy have very serious consequences. In a sense they give life and death
to whole nations, their people, and the general environment. And the system we have today is
utterly failing in that regard.
If the only supply today is created out of nothing and the effects of that creation grant powers to
a private, elite section of society, then there is nothing that should prevent the same power of
money creation from being granted to another part of society and issuing it debt free. As long as
the money was attached to productive economic activity and recognized as a measure of
facilitation of exchange by the people the same process could apply. Thus one of the primary
arguments against interest is the unnecessary nature of money creation. If there is virtually no
original cost or toil in relation to the issuance of purchasing power through credit creation then
why should it cost one to access it? In reality under today’s banking system, people are taxed
twice by the charge of interest, once by the interest charge the Federal Reserve gives to the
government passed on via taxation and another on the interest attached to most purchases of
consumption and investment in the private economy. Thus the nature of money today is truly a
redistributive tax for those with most access to it. Where there is no ability to attack these
fundamental issues there is virtually no chance that reform anywhere in the world be anything
other than cosmetic.
The uprisings are nothing new. The Asian Financial Crisis of the late 1997 was similar as a
combination of political and economic variables heavily influenced by a World Bank, IMF
success story, floating exchange rates, speculation and the contemporary model of globalization.
At the bequest of foreign dictate Indonesian President Suharto agreed to repeal subsidies, end
public services, implement austerity measures, and open up the Indonesian economy to further
foreign penetration (Pincus, 1998, p. 723-26). This led to widespread discontent and subsequent
massive protests and by May 1998 protests similar to those in Egypt and Tunisia forced
President Suharto to step down after thirty years in power. Suharto was supported
wholeheartedly by Western powers as an agent of stability even as he invaded East Timor and
killed hundreds of thousands in 1975.
In another classic example of debt hierarchy in action the World Bank lent Indonesia a total of
$30 billion in the course of Suharto's three decades of rule. In 1998, World Bank resident staff in
Indonesia estimated that, "at least 20-30 per cent of the Government of Indonesia’s development
budget funds are diverted through informal payments to government staff and politicians, and
there is no basis to claim a smaller 'leakage' for Bank projects as our controls have little practical
effect on the methods generally used". This data implies that the Bank's own account admitted up
to $9 billion of World Bank loans to Indonesia were wasted through corruption and that World
Bank staff knew it. It also shows nothing was done to stop what was in plain view. Today the
poor people of Indonesia are still paying back the debt on billions of dollars wasted before the
eyes of IMF.
Post-revolution Indonesia is more democratic in political structure today but these
transformations have hardly altered the economic landscape significantly. The country continued
to play by international financial norms which were described succinctly in a Japanese research
paper from 2002 as, “continuity in the basic framework of capitalist system with policy
orientation toward economic liberalization.” “In this framework, the policies to overcome the
crisis are continued from the last period of the Suharto rule, under the support system of IMF and
CGI (Consultative Group on Indonesia) 43.” Political alterations did not alter financial structures
of control; further research indicated “that almost every large scale development project in Riau
has a Suharto family member or crony involved in it. This is still the case despite the Fall of
Suharto in 1998.44” As Western diplomats and transnational institutions continue to advise and
seek influence with the new regimes in Egypt, it is safe to say that new systems developing
anywhere will face the same dilemma. Where there was a genuine reform along monetary lines,
other countries could easily follow and a major step in the movement for a new and just
international economic order could be formed.
Gold Dinar Policy: Towards an Interest-Free Economic Order
Inserting the concept of sovereign money creation and endogenous interest free loans into the
realm of monetary policy at a juncture in time of political change and economic awareness
represents a major opportunity at continuing already existent efforts to transform the
international monetary system and create similar endogenous relationships throughout the world.
In October 2002, on the eve of the Iraq War and just after 9-11, then Malaysian Prime Minister
Mahatir ibn Mohamad hosted a conference entitled The Gold Dinar in Multilateral Trade
involving representatives of governments from across the world. The event was part of a process
that formulated a few years earlier and continues today. In his speech at the event Dr. Mahatir
called for trade debt between nations to be settled at the end of a fiscal period using a gold dinar.
He made it clear that his call was not the call for a gold standard but for a gold reserve. The

43
http://www.ide.go.jp/English/Publish/Download/Papers/pdf/04.pdf
44
http://www6.cityu.edu.hk/searc/Data/FileUpload/220/WP31_02_Wee.pdf
examples given by his economic advisor at the conference Tan Sri Nor Mohamed Yakcop
utilized Malaysia and Saudi Arabia in a deliberate example, describing that trade balances at the
end of a period would be settled not in fiat paper but on the gold dinar. This system would
represent a major break away from fiat currency and dollar dominance45 and has grave
implications for the US dollar system which benefits from its relationship to the international
order in many ways not the least of which is represented by the petrodollar recycling reality.
In the event major oil producers would agree to this process the dollar system could fall
immediately; a 2006 New York Federal Reserve study documented that as things stand presently,
“petrodollar investments are finding their way to the United States, indirectly if not directly.” “In
particular, the increase in net financial inflows to the United States since 2002 has roughly
matched the increase in net outflows from oil exporters.” “This relationship suggests that
petrodollar purchases of non-U.S. assets have been generating roughly offsetting flows from the
financial markets where they were originally invested to U.S. financial markets. 46” As more of
the wealth generated by Muslim nations could go to develop impoverished countries Dr. Mahatir
continues calling for fundamental reform, stating in January 2011 that using Islamic economic
principles would promote a better world. "Although there are rich and poor Islamic countries,
there must be a balance. We use Islamic finance to invest in the poor Islamic countries and help
make them rich," he said. "The Islamic financial system will grow when we are successful.
Nowadays, we see that non-Muslims are using Islamic banking. 47”
The weakness of a gold denominated order is that it does not guarantee stability as speculators
can easily attack gold as well as fiat paper. Dr. Mahatir explained at the conference that, "Gold
prices can also be manipulated, but not as easily as the U.S. dollar or other currencies....
Speculation and manipulation will not be as easy as when local currency is valued against the
U.S. dollar." The ultimate objective of these noble proposals is to return currencies to measures
of exchange attached to physical wealth. There is a very real possibility that a basket of
commodities could back all currency overtime if the nature of money creation was restored to its
proper place. Introducing the simpler and more immediate concept of sovereign credit as an
administered, interest-free endogenous loan helps to create the stability necessary to pull away
from speculation and work toward developing this block of countries dedicated to true stability
and in line with the order outlined and advocated under Dr. Mahatir’s plan. Therefore the process
should and could be adopted in any country and should not be limited to the particularly
applicable case studies here. The implication and ramifications of posing paradigmatic
opposition are too great to limit via nationalist views.
In his work The Lexus and the Olive Tree, Thomas Friedman belittled Dr. Muhatir’s call as
nonsensical conspiracy theory and hopeless in the face of the triumph of American globalization.
He said, “Ah, excuse me, Mahathir, but what planet are you living on? You talk about
participating in globalization as if it were a choice you had. Globalization isn't a choice. It's a
reality. There is just one global market today, and the only way you can grow at the speed your
people want to grow is by tapping into the global stock and bond markets, by seeking out
multinationals to invest in your country and by selling into the global trading system what your
factories produce. And the most basic truth about globalization is this: No one is in charge - not
45
http://nuradli.com/no32.pdf
46
http://www.newyorkfed.org/research/current_issues/ci12-9/ci12-9.html
47
http://www.worldribaconference.org/home/1-latest-news/89-use-gold-dinar-for-trade-mahathir.html
George Soros, not 'Great Powers' and not I.” Today it is fairly conclusive that Dr. Muhattir
successfully saved Malaysia from a speculative currency attack during the 1997 Financial Crisis.
As a result capital controls once considered obsolete by the IMF are back in vogue, a recent Staff
Position Paper entitled “Capital Inflows: The Role of Controls,” issued on February 19, 2010
IMF staff discussed that capital controls “can usefully form part of the policy toolkit to address
the economic or financial concerns surrounding sudden surges in capital. 48” Research also
showed that the policies “produced faster economic recovery, smaller declines in employment
and real wages, and more rapid turnaround in the stock market. 49” Thomas Friedman must have
wondered in awe as this crisis set in and destroyed his proclamation of victory. Today as
monetarists try to rebuild a model that has actually blown apart, as international monetary
agencies alter their previously flawed theoretical positions, and as people like Thomas Friedman
try to justify efforts to bail out the old order, the necessity that new thinking challenges such
convention despite what experts say is of utmost importance.
Reviving Ancient Principles
Nicolas Copernicus is credited in most modern historical accounts with the “Copernican
Revolution” proved heliocentricity and allegedly separated a scientific West from a dogmatic
East. He is also most often credited for the earliest elaborations on the quantity theory of money.
However recent scholarship has shown that Copernicus’s scientific discovery of heliocentricity
was dependent on two theorems unable that could not be derived from mere reliance on Greek
and documented that his discoveries were actually mere plagiaries taken from Muslim
astronomers in the Arab world50. Today a closer analysis of Muslim scholarship in the economic
realm reveals ample discussion by Islamic scholars about debasement of coinage and
consequential inflation and suggests that a deep awareness of the connection between money
supply, prices and society was evident to the scientific revolutions of the secular age.51 It is
always a through a coincident manipulation of history combined with economic and military
power that empires are born. The contemporary global situation is a continuation of that doctrine.
Events today contradict the notion that military power is sufficient, the economic issues seem to
imply that the paradigm touted highly as a final chapter in economic history almost came
completely crashing down over the 2007-2008 interval and is vulnerable to catastrophic
disintegration. Today as it tries to preserve itself with new policy from the same axiomatic origin
it is necessary to return to something old by establishing something new. A return of Islamic
countries to Islamic economics could prove to pose such a radical solution.
Much controversy and difference occurs with relation to discourse about the nature of money in
Islam. Islamic jurisprudence finds precedence both for a limit of money to gold and silver and
for the opinion that the government authority can mint or print fulus coins (valued above
intrinsic worth) “according to the just value of people’s transactions without any injustice to
them.52” Precious metal standards have been prone to inflation via debasement in similar ways to

48
http://www.imf.org/external/pubs/ft/survey/so/2010/POL021910A.htm
49
http://www.nber.org/papers/w8142.pdf
50
See "Lost Discoveries: The Ancient Roots of Modern Science - from the Babylonians to the
Maya" by Dick Teresi. Simon & Shuster, 2002.
51
http://mpra.ub.uni-muenchen.de/18346/1/MPRA_paper_18346.pdf).
52
See Haneef, Muhammad Aslam and Barakat, Emad Rafiq. Must Money Be Limited to Only Gold and Silver?: A
Survey of Fiqhi Opinions and Some Implications. JKAU Islamic Economics., Vol 19, No. 1, pp.21-34. 2006.
fiat systems53 thus suggesting that institutional arrangements are equally as important. While this
is a necessary conversation that should be held and while entire schools based on both junctures
should and could be developed, the only way to revive such issues of fundamental importance
and to work toward one or the other is to implement what is possible in the present time. In
reality whether a system consists of a hard commodity standard or a fiat order, the management,
regulation and nature and distribution of authority is perhaps the most important factor of
economic success.
An awareness of the effects of money supply on prices arose first in the Muslim world by
noticing the debasement of governing authorities who were melting down gold and silver coins.
While the discussion most definitely predates an era of fiat money and interest rates altogether,
the basis of the discussion is sufficient here not only in expressing the reality that continuing an
ancient conversation from an interest-free perspective is not reactionary in the realm of tradition
and religion but rather an effort to revive and resume a general continuation of cumulative
economic thought derived from all of history; all major religions prohibit interest. This crucial
distinction necessitates an identification of the role that historical forces play in creating
institutional norms within societies. That is to say that breaking from convention is difficult and
is the exception not the norm but that addressing such significant factors such as the role and
nature of money can in fact attack the root afflictions of social disorder. There is perhaps no
greater concept of this than in addressing both the nature of money creation alongside the
widespread use of interest in an economy. The issues addressed in this paper tap into the root
flaws of monetary issuance and policy as practiced today and can initiate progressive steps at
restoring the role of money to its proper position as servant of and not master over mankind.
In the case of the present disintegration of the international order, the catastrophic effects it has
on the poor, and the political authoritarianism that has become engrained in contemporary
practices themselves, steps that present opportunities to move towards new systems are
necessary but with widespread ignorance of such realities and their magnitude immediate
transformations are not only unlikely but could produce general catastrophe. Interest-free
endogenous loans can initiate improved awareness of the issue, provide immediate relief in the
form of productive employment and stimulus, advance the skills and practices of people in a
society and reconnect government, banking and social sectors thus paving the way for the
establishment of a just order that breaks from contemporary tradition in effective ways.
Perhaps the most valuable asset in terms of privilege and power in the contemporary world is
money creation, along with the general awareness that it is possible to hold politicians
accountable for the conditions of the people, there must also be alternatives that address the root
support of dictators and despots, the importance of the international monetary system in domestic
affairs. This crucial distinction can not only save countries once plagued by colonialism but can
so too create real recovery in developed nations as well. Truly endogenous money was a key

53
For examples in the Islamic World see Al-Maqrizi, Taqiudeen, Igatha al-Ummah bi-Kashf al Ghummah
Şevket Pamuk, A Monetary History of the Ottoman Empire, p. 122-126. “After the debasement of 1585-86, in which the
akce lost 44 percent of its silver content, the Ottoman currency entered a period of extreme in- stability. Its silver
content declined further while fluctuating sharply and often until the middle of the seventeenth century.
Substandard akces circulated widely during this period. As a result, most of the increases in food prices after 1585
measured in nominal akces were due to the deterioration of the currency.”
component of America’s revolution and is thoroughly imbedded in its constitution. Article 1,
Section 8 gives the Federal government the ability “To coin Money, regulate the Value thereof,
and of foreign Coin, and fix the Standard of Weights and Measures.” Benjamin Franklin stated
that the reason for rebellion against the British was reaction, “To a concurrence of causes: the
restraints lately laid on their trade, by which the bringing of foreign gold and silver into the
Colonies was prevented; the prohibition of making paper money among themselves, and then
demanding a new and heavy tax by stamps; taking away, at the same time, trials by juries, and
refusing to receive and hear their humble petitions. 54" Thus in the event people increase
awareness of this crucial distinction, they can even save America from its seemingly inevitable
trek towards imperialist self destruction and establish a new form of globalization based on real
development, fair trade, stable currency and absent interest.
If ideas are like viruses in that once they ignite they spread, as these uprisings suggest is indeed
the case, then inserting the concept of endogenous money can transform what is unto now a mere
rebellion into a comprehensive global movement leading to truly revolutionary change. It is
possible to imagine a new economics as such, interest free where there is a substituted profit and
loss sharing, an economics with commodity backed money where paper currencies are
representative only of real productive assets or activity, with a 100 percent reserve requirements
and an end to fractional reserve practices, and a system where concentration on the distribution
of wealth and protection of localized systems is preserved. However, initially, the most important
first step in the direction must be to identify that the macro-order is the actual cause of the
deteriorating conditions of the indigenous economies across the globe.
There is little effort to connect the political alterations of today to broader, structural economic
realities. This is largely due to the prevalence of realism in international analysis. E.H Carr, one
of the great theorists of realism, classified the doctrine as lacking "a finite goal, an emotional
appeal, a right of moral judgment, and a ground for action (Cobb, 1999, p.180)" The same can
be said about the nature of monetary policy. Unfortunately, with the incessant isolation of
political and economic variables and concentration on nation state structures a deeper and more
pertinent ideological order is mostly accepted blindly. This paper has not proposed is a call to
radically reform this situation overnight; all variables considered that is impractical. Instead the
intention is to outline fundamental principles that must be addressed by any contentious social or
political movement today. The ideas here intend to influence movement in ways that are
conducive to taking the necessary next steps for the actual establishment of an interest-free order.
The debate around the nature of money in economics generally and as it pertains to Islamic
economics as such will and should continue. The efforts here are only to dynamically tie these
factors together in a truly endogenous way. It must be recognized that the adoption of interest-
free loans as outlined here are a means of returning a connection between money supply and the
real economy and providing immediate relief to some of the causes of the present unrest
(inflation, unemployment, corruption), but perhaps most importantly represent a leeway into an
expanding conversations with regard to the effect potential interest-free practices have on truly
challenging the existing system. Perhaps, if implemented, then a new step toward establishing
alternative forms of globalization apart from the Golden Straitjacket will be taken. A primary

54
"The Examination of Benjamin Franklin" in The Parliamentary History of England from the Earliest Period to the
Year 1803 (1813)
indication suggests that old thinking has failed. The likely consequences of a continuation of
traditional policy include rampant inflation and decreasing conditions for most people in the
world or even worse a potential that efforts at stimulus fail completely and a new depression
occurs. It is apparent that the most optimistic scenario is a period of slow to no growth and
cheap money, speculation and parasitical operations that decimate the poor and oppressed. The
solution is simple and easy to understand and creates the possibility that political changes
occurring in the world today separate holistically from a dictatorship that knows no nation,
recognizes no moral values and controls the imperialist machine largely through the monetary
system. The threat, “what it is not unfair to call a hidden government,” is not a person as Thomas
Friedman verified, it is an ideology, a religion and a way of life largely unconducive to social
well-being; here are to new ideas.
 REFERENCES:

Cobb, Adam "Carr, E.H." pp. 180–181 from The Encyclopedia of Historians and Historical
Writing, Volume 1, Chicago: Fitzroy Dearborn, 1999 p. 180

Holton, R. J. (1998) Globalisation and the Nation-State, London: Macmillan.

McGrew, A. G. (1998) The Globalisation Debate: Putting the Advanced Capitalist State
in its Place, Global society, 12 (3), Abingdon: Carfax.

Biswas, S (2002) W(h)ither the Nation-state? National and State identity in the Face of
Fragmentation and Globalisation, Global society, 16 (2), Abingdon: Carfax

William J. Baumol, "Entrepreneurship: Productive,

Unproductive, and Destructive," Journal of Political ECOIlOmy. October 1990 (part 1). pp. 893-
921.

Friedman, Milton. 1969. The optimum quantity of money. In The optimum quantity of money
and other essays, pp. 1–50. Chicago: Aldine

Hobsbawm, Eric J. Industry and Empire from 1750 to the Present Day. Har-
mondsworth: Penguin, 1969

Klein, Naomi. Shock Doctrine: The Rise of Disaster Capitalism. Penguin Allen Lane, 2007

Indonesia: From showcase to basket case.Pincus, Jonathan; Ramli, Rizal. Cambridge Journal of
Economics, Nov98, Vol. 22 Issue 6, p723, 12p.
 BIO
Younus Abdullah Muhammad is an activist heading the website IslamPolicy.com He is a
graduate of Columbia University with a Master's of International Affairs in Management and
Institutional Analysis and a concentration on the Middle East Region. He is currently preparing
the research for an intended doctoral dissertation on Islam and Binary Economics and lives in
Morocco now teaching Business and Economics courses in Casablanca. He is a Certified
Counselor and Psychotherapist in the United States of America and spent many years there as a
community advocate and social worker.
A consummate writer, activist, advocate, researcher, and speaker, Mr. Muhammad is attempting
to consolidate the interests of progressives, anarchists, and other alternative ideologues to the
Islamist mindset. His objective is to enhance the little-known reality that Islam represents a
complete system and that many of the universal principles included in the religion coincide with
the rational conclusions made by objective rational minds. He has appeared on Press TV, Russia
Today, BBC and other media outlets. He is a available for contact at islampolicy@gmail.com.