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November 20, 2011

Comments

CharlieMcMenamin

A non expert writes: OK, I can see the obvious flaws with the idea of any one simple solution - but why nationalise banks *unless* to control and direct their lending which this proposal surely entails?

Nick Rowe

Chris: many "monetary cranks" are indeed cranky (including that fellow you linked to in the Manchester Guardian piece). But there may be an underlying truth to their crankiness. Let me try to sketch it:

We need a monetary payments system, because monetary exchange works much better than barter.

We need an intertemporal exchange system, because some people want to spend more than their income today (on consumption plus investment) and spend less than their income tomorrow, and others want to do the opposite.

Recessions and booms are caused by excess demands and excess supplies of the medium of exchange. They are disorders of the monetary payments system.

We have one set of institutions (banks) that play both roles at the same time. So if there are problems (like defaults) in intertemporal exchanges, these problems spillover into the monetary system and cause recessions.

And it doesn't have to be this way. For example, when all the hi-tech firms crashed, it didn't cause big spillovers, because they all used share-finance rather than bank-finance.

But the cranks (and me too) are fighting against an iron law of Finance, which always tries to convert long, risky, illiquid liabilities into short, safe, liquid (monetary) assets. Which can't ultimately, be done. But Finance keeps on trying, because that's what people want.

Frances Coppola

Chris,

I missed your original post fisking Dyson's CiF piece (I really should look at my RSS feeds more!).

Did you see Izabella Kaminska's post at FTAlphaville on Dyson's piece? Link is here http://ftalphaville.ft.com/blog/2011/11/15/747991/on-the-demonisation-of-debt/

Dyson responded to Kaminska's critique here http://www.positivemoney.org.uk/2011/11/ft-alphaville-touched-nerve/#comment-8221

There was an extensive debate on both posts about the wisdom or otherwise of Positive Money's proposals. What became very clear to me in the course of that debate was how many people simply don't understand that debt=savings, and that when banks create money in the course of lending savings also increase by the same amount when that money is spent. Several people suggested that the problem is "debt doesn't equal savings". They are looking at individual banks, rather than the monetary system as a whole, noticing that deposits don't cover lending, and assuming that therefore there is a pyramid of debt made entirely of imaginary money which could just as easily be wiped out without affecting anyone. If only this were true.

The proposals for a "debt jubilee" from Steve Keen and others actually amount to a proposal to wipe out all private savings. And Positive Money's proposals for 100% reserve banking would not only create the mother of all credit crunches, they would also have the effect of seriously limiting people's ability to save. For someone to have savings, someone else must be in debt.....We really do need to understand the impact on BOTH sides of the debt=savings equation in order to consider whether these are changes we can afford. Too many people think that eliminating debt is simple and cost-free. It isn't.

aragon

As commented at the time: I would prefer Modern Monetary Theory (MMT) as opposed to 'Positive Money' which I have not read in detail.

Housing is non-productive why create new money to fund housing, the traditional building societies operated on the model of deposit taking. Also most of the new mortgages in the property bubble went not into new build, but into asset (houses price) inflation and extraction of money from house price inflation through re-mortgages.

We need deflation to re-price housing, post bubble, but the Government will not allow this, houses are over priced relative to wages.

This crisis show the banks (yet again) will inflate the money supply in order to extract huge fees. Northern Rock never used wholesale funding until the Thatcher Government allowed prvatisation of mutual building societies, asset stripping retained profits. Banks were already abusing the system of money creation through securitisation (non-productive). There only interest was in more transactions to create enormous fee income. Fraud and poor lending practices (sub-prime and worse) was widespread.

Only extremely low (less than 1%) interest rates are keeping these loans afloat, avoiding defaults, try raising interest rates to 8% or 15% (historically realistic values) and watch the house prices collapse and defaults explode). Not to mention the bailout of the banks and QE.

Try books like 'All the devils are here' for full details.

How about restricting the housing market to mutuals ? That would allow banks to make commercial loans, a situation that existed before financial engineering (securitisation et al) allowed banks to abuse the creation of money, and loot society.

We appear to be entering a period of permanent financial crisis (except for the banks) who will be bailed out.

Food for thought, even if you do not support the proposed solution.
http://www.tullettprebon.com/Documents/strategyinsights/Tim_Morgan_Report_007.pdf

Mark Wadsworth

Yes of course under current rules, lending creates deposits.

If this weird mix of socialists and faux libertarians had their way and didn't allow banks to take deposits, then we'd find that "lending creates bonds" or investment accounts or indeed share capital. The banks would issue shares at par which are redeemable at par at any time at the option of the shareholder with a fixed rate of dividend and that would be in practice the same as having a deposit with the bank.

Big deal.

BT

The biggest problem with the Positive Money proposal is that a unit of currency can be lent over and over again to different borrowers. Thus, the total amount of debt can end up exceeding the total amount of money. The central bank would have to monitor this and correct it by issuing more money - against the interests of the creditors.

The current system keeps money and debt in equal balance. Chris is right to point out that all of our present problems can be addressed with the current system - it just takes political will.

BT

@Frances Coppola

Steve Keen knows that a debt jubilee would involve writing off both credit and debt. That's what happens in a foreclosure and jubilee is just a nicer way of reducing the principal of the loan without evicting the homeowner.

Either way, foreclosures or principal-forgiveness will reduce the stock of credit and so need to be supported by either a private sector boom or public sector borrowing and investment to maintain the stock of credit/demand in the economy.

Frances Coppola

Mark Wadsworth

I don't think they are trying to prevent banks taking deposits. They are trying to prevent banks creating them. They want banks only to be able to lend out what they have already taken as deposits from customers or received as "free reserves" from the Bank of England. The fact is that bank deposits don't go anywhere near covering even existing volumes of bank lending, let alone new. And currently "deposits" includes current accounts, which Positive Money want to make unavailable for lending out. The Bank of England is going to have to provide an AWFUL lot of money to replace current account balances and interbank borrowing.

Really the only way the Positive Money proposal has any chance of working is if savers change their habits. Virtually all savings would have to be redirected into bank deposit accounts. Otherwise the Bank of England will end up funding most lending. And the Bank of England is of course backed by the government. Do we really want the government underwriting most bank lending? I thought we were trying to get away from this.

Ralph Musgrave

Frances Coppola claims the Bank of England would have to print and distribute a fair amount of to make up for the restrictions on the use of money proposed by Positive Money. Well of course! Where’s the problem in that? It does not cost anything in REAL TERMS to create money. Or as Milton Friedman put it, “It need cost society essentially nothing in real resources to provide the individual with the current services of an additional dollar in cash balances.”

As to Frances’s idea that because the central bank issues all money that therefor the central bank “underwrites” bank loans, that just ain’t true. £20 notes are part of the monetary base (i.e. “central bank created money”). If I lend someone £1,000 of £20 notes and the borrower goes bust, the £20 notes don’t disappear: the central bank is no worse off.

BT

Here's an interesting proposal to limit speculation under the existing banking system:

http://blogs.reuters.com/david-cay-johnston/2011/11/18/closing-wall-streets-casino/

Charlesbarry

I first came across positive money a few weeks ago when they parked themselves outside my students' union (Newcastle Upon Tyne) and started waving placards and handing out leaflets.

Intrigued, I decided to engage to see what they were protesting about. I got the usual spiel about the evils of the banks but I didn't really get a clear explanation of what and why they were protesting, what their solutions were and if they were any good.

The first question of mine was 'what are you protesting about?' An agitated woman explained to me that the banks were lending more money that they had, and were therefore creating money.

The woman (and later a man who joined in) didn't really seem to understand the difference between actually creating new money and just increasing bank deposits through fractional reserve banking.

A bit of cobblers about how awful and nasty banks were got thrown in between but overall at any given time they were advocating one or more of the following ideas:

1) reduce lending overall,
2) prevent banks from lending using deposits,
3) "stop banks from creating new money".

As evidence for their incoherent proposals, they relied increasingly on a misquote of Martin Wolf, and some obscure Bank of England report from the early twentieth century.

Additionally they seemed to accept ideas or world-views in which the identity of assets = liabilities + equity was often violated. They also got quite angry when I explained that actually banks can't do that without committing crimes - I think their retort was 'well the banks are doing that, so they are committing crimes'!

Our current situation is a complicated mish-mash, with interlocking layers of finance, economics and politics colliding like the earth's tectonic plates. The idea that a simple (although actually it's not that simple) change to banking rules would solve all this is either absurd or as you say preposterously arrogant.

I am reminded of a passage in David Aaronovitch's "Voodoo Histories", in which he explains that conspiracy theories proliferate because (some) people crave a worldview in which actually there is a simple answer to the problem which "they" (the conspirators) don't want you to know about. The actual truth, in which great human catastrophes such as 9/11 were created by a bunch of fanatical cretins who were less organised than the film-crew of your average low-budget indie film, is too unappealing to consider. (Some) people would prefer an orderly world controlled by evil than a chaotic world with no sense of right-or-wrong.

I suspect a similar psychology has pervaded the positive money crowd.

Frances Coppola

BT

I'm sure Steve Keen knows that perfectly well. But many of the people who are enthusiastically promoting his idea don't seem to understand what the cost will be.

Ralph Musgrave

Increasing the money supply, whether through central bank money creation or commercial bank leverage, does of course carry with it a risk which if realised becomes a cost. If production does not increase sufficiently to mop up the extra money in circulation, the result is inflation. As we have seen in recent years with the house price bubble of course.

If the Bank of England is forced to issue a huge amount more money to support lending, I can't see how on earth inflation can be avoided.

I didn't say the Bank of England would underwrite bank lending. I said the Government would. In the end the Bank of England's solvency is guaranteed by government.

Frances Coppola

Ralph Musgrave

By the way, I did debate the inflation question with Ben Dyson and I have to say I am still unclear about exactly how he proposes to avoid either a credit crunch or inflation if most bank funding is taken over by the Bank of England. If the MPC restricts bank funding to keep inflation under control, there will be a credit crunch. If the MPC relaxes bank funding enough to avoid a crunch, there will be inflation in some sector or other. Does anyone see a third possibility? I can't.

Ralph Musgrave

Frances, Obviously if a central bank (CB) creates and spends too much money into the economy then inflation ensues, and if too little, there is a recession. But this is a problem with WHATEVER stimulatory / deflationary tool the authorities choose (e.g. interest rate adjustments).

Re your question as to how a CB can greatly increase the amount of CB created money without inflation ensuing, remember that at the same time, significant restrictions are put (under the Pos Money proposals) on how money is used. In particular, banks cannot lend on money that people have put in 100% safe accounts. That is, people cannot indulge in a free lunch: enjoy 100% safety while reaping the benefits of having their money invested in a less than 100% safe manner.

This free lunch which is currently offered to depositors is just chicanery. Mervyn King called it “alchemy”. Someone pays for the lunch and it’s the taxpayer.

Frances Coppola

Ralph,

I'm very keen on savers accepting that their money is "at risk" and holding banks to account for managing those risks properly. And actually I think protecting current accounts, which are "money in transit" really rather than savings, is a good idea.

However, those Positive Money restrictions - particularly reserve precedence, which will kill off the interbank market - together will create the mother of all credit crunches if the MPC also restricts money supply to control inflation. The reason for that is that wholesale savings balances currently used to fund lending will no longer be available. Therefore the MPC will either have to inflate bank reserves sufficiently to replace much of the lost interbank lending, which would stoke inflation, or preside over a massive reduction in credit. That's Chris's point, which you haven't addressed.

Keith

So to sum up: all credit is money and all money is credit. If all Banks collapse their loans become worthless so all resulting deposits do. If all money came from the state in the form of Bank notes but enough people firms etc went bust and defaulted on their cash debts the Central Bank and Government would still have to increase the money supply to compensate or demand will fall as the lenders net worth has been destroyed by the inability of the borrowers to repay. Which is in fact Quantatative easing by a different name. The existence of the bank notes and the fact the CB does not have any direct liability for lending employing them is irrelevant, at the level of society as a whole severe credit contraction will stop the economy working what ever the form of the IOU. And the default involving them.

I agree with Chris that all his ideas are very good ones but I am doubtful they are any more likely to be implemented than the ideas he calls cranky. Both Left and Right on the political spectrum seem unwilling to contemplate constructive reform or regulation of Finance. The right seem to have a GOD called the free market which solves all problems which means in practice allowing the money men to do what ever they like and the left seem to agree either as they fear Bankers or may be want a cushy job out of them when they retire plus campaign contributions in the interim!

With out major reforms the credit crunch problems will recur in the same or different form again. Underlying this whole problem lies the issue that a more effective financial sector will make less profits as it will be more conservatively run. More capital, stricter reserve requirements, minimum deposits for mortgages etc are perfectly reasonable and not a cranks delusions; but they work by reducing gains to finance. No one with power i.e. Bankers and politicians wants to bother with boring conservative rules as they mean a smaller financial sector and a need to make and sell other things than financial products and services. I may be wrong and Chris or some one else might want to tell me why I am wrong, but it seems that all the actual reforms of Finance are if implemented going to reduce Finance as a proportion of GDP. Politicians and civil servants presumably don't want to have to think up a way to deal with such a result.

phil jones

Chris. I'm disappointed that you aren't giving Positive Money a fairer hearing here.

For example, you say that taking the monopoly of creating money away from private banks "is potentially deflationary. To remedy this, they propose that the Bank print money and lends to banks.

This leaves us with two possibilities. Either the Bank completely fills the gap, in which case nothing much changes in aggregate. Or it doesn’t, in which case lending does fall."

My understanding of the Positive Money proposal from their conference of a couple of weeks ago is that new money is created by the central bank and injected into the economy in the form of tax-cuts.

The quantity of money created is determined by the current inflation rate and intended to keep it fixed. In other words, there's no way that the PM proposal could be deflationary.

Note that the government doesn't try to guide how that money is used, except for the progressive aim of making those tax-cuts favour the less well off.

So what does "nothing much changes in aggregate" mean? Given that the new money created is not money which anyone needs to repay (ie. it's in the economy, but it's not accompanied by debt).

Surely you can see that there's something fundamentally wrong with the current situation in which, in order to have the money we need in the economy we give a license to a few favoured private enterprises to lend money that they don't have, while collecting interest repayments on those loans which everyone else (including government) has to scrabble around trying to find the money to pay off.

Positive Money and many other people are trying to figure out a better basis for the economy. Just labelling them cranks because they're willing to think outside the extremely narrow set of options that we've boxed ourselves into seems extremely blinkered.

Ralph Musgrave

Frances, I don’t actually agree with Pos Money’s claim that inter-bank lending should be constrained. On p.9 of the Pos Money / NEF / Prof Werner submission to the ICB they justify this constraint on the grounds that this lending is “a source of instability in many cases, such as Northern Rock”.

Strikes me that it was not inter-bank lending AS SUCH that was the problem. It was the fact that institutions lending to Northern Rock were indulging in much the same chicanery as small depositors are allowed to engage in: namely “lending short” while reaping the benefits of having their money “invested long” – with any problems arising from that dubious practice being paid for by the taxpayer.

In short, I’d favour large institutions who lend to banks being faced with the same choice as Pos Money wants to impose on small depositors, i.e. “if you want the nice rate of interest that comes from lending long, then you’ll s**ding well have to lend long”.

But even if inter-bank or wholesale lending to banks was forbidden, the deflationary effect could always be countered by expanding the money supply.

 Luis Enrique

The two things the vast majority of people use the banking system for right now are:

1. free payment services, ATMs, online banking etc.
2. (notionally) risk free savings (conventional savings accounts)

how are people going to react to proposals that will remove both of these things and replace them with fees for 1. and risk exposure of 2. in return for the theoretical promise of fewer financial crises?

Frances Coppola

Ralph,

Northern Rock's problems arose from its ridiculously high-risk business plan, not from inherent instability in the interbank lending market. But interbank lending is short by definition because it is basically an end-of-day reserve balancing exercise. If interbank lending were to continue, this would have to change fundamentally - banks would, like the MPC, have to forecast funding needs in order to determine how much to borrow or lend.

Really Positive Money's proposal is for a fundamental change in our monetary system - from the present debt money system to a credit money system. The implications of such a change, not only for banking but for the whole economy, need to be carefully thought through. And the move from debt-based to credit-based money would require an enormous amount of new liquidity in the economy, as I said - which would be inflationary.

I personally am not convinced that a credit money system would be any better than a debt money system at ironing out major inequalities in wealth distribution. And I don't like the central planning and control of the economy that seems to be Positive Money's core idea. They aren't old enough to remember the heyday of command economies, I suppose - though they could look at North Korea.

Dianna Homes

My unfortunate experience has showed that even with a common checking account you can end up in an extremely disadvantaged position. My bank had changed they policy regarding this type of accounts some months ago and now there is a nominal amount of money (namely 1000 dollars) that need to be in the checking account, in order to avoid fees. And the best part about this change is that they didn't communicate it with us, the customers, in whatever way.

Gillian Swanson

Frances Coppola: "I don't like the central planning and control of the economy that seems to be Positive Money's core idea."

I don't think Positive Money are advocating centralised control of the economy. To my understanding, the proposal is that new money should be spent into circulation on infrastructure, in accordance with the preferences of the electorate, as indicated at general elections.

The body deciding how much new money should be issued would be distinct from the Government, and it would be Parliament, rather than the Government, to which it was answerable.

Once new money was in circulation, the banks would compete to attract it, and businesses to borrow it.

In fact, what we would have is a nationalised money circulated through the agency of non-nationalised companies.

Conrad Jones (Cheam)

You seemed to miss out a few key characteristics of our monetary system in your article.

1. 97% of our National Currency is now created from Private Businesses.

2. Northern Rock has just been sold (the Good Part of the Business) to Richard Branson at a loss to the Tax Payer. The Real Loss is in the Bad Part of Northern Rock which holds billions of pounds of loss to the tax payer and will not be sold except by default to the tax payer.

3. In 1963, the Government create 20% of the money supply. Nobody thought that was a bad thing then so why are people not up in arms about austerity measures when the Government could just create 17% of the money supply (to take up the shortfall in Bank Loans) and use this to reduce the deficit and inject money into the economy (interest and debt free to the tax payer) through normal Public Spending.

4. Why should we the public accept that the Government can sell Treasury Bonds (with a debt burden) when it can just create the money directly. Money is just to help exchange Goods and Services between people. It's not backed by gold anymore so the Government can easily just create it through the MPC.

5. Mortgage debt has escalated through Banks ability to shift their losses onto Tax payers. I expect you are familiar with the term "Moral Hazzard"? Banks predatory lending and the demise of "Friendly Societies" with the emergence of derivative markets and collateralised debts obligations allows Banks not to care whether someone can afford a loan or not. They just dump the debbt onto someone else.

I would say that Banks are not the best judges of where our National Currency is directed when you consider the protection they currently enjoy from the Tax Payer and the the fact that they are able to generate the loan using Fractional Reserve Lending?

Nationalising Banks would make Moral Hazzard even worse as ALL losses would be covered.
We need Privately owned Banks lending Government created money as the last 50 years has just proven that reducing Government created money leads to increased De-Regulation and deeper Recessions. Banks should operate like any other in a free market economy. This is not the USSR.

Conrad Jones (Cheam)

I believe that the Draft Bill proposed by 'Positive Money' takes into account a Transitional Phase which would ease the economy off Debt based money onto Government Created money. So a Reserve would gradually increase over a number of years to allow the economy to adjust.

A bit like a Diver stopping durng an ascent to the surface from a Deep Dive to decompress, allowing the Nitrogen to release safely from the body tissues - not all at once causing the bends, severe pain and eventual death.

Robin Smith

Money Cranks - Reform of finance is a cover up of primary injustice
http://gco2e.blogspot.com/2011/12/money-cranks-reform-of-finance-is-cover.html

I've been asking Ben Dyson for 2 years now,

"With your money reform perfected, who would then collect the economic rents. The total unearned income stream?"

Never get an answer. Just get called arrogant or patronising or communist.

Also to others who correctly state it would fuel more speculative asset bubbles in location values. If this speculation is wrong, then abolish it at the root. The best way is to tax those values to death and stop taxing production. No harm to production from that. In fact it would deliver an enormous boost.

Also there are a million empty homes. A million more under the current system just means even more speculation opportunity. Duh!

Steve Keen gets jubilee. But he leaves the speculation in place. Needing perpetual jubilees. Duh! You need to tax away the speculation to make the remedy permanent. If we don't really mean it, then carry on as normal.

The problem of the money bots is they are funded by the present collecters of the economic rents. Deliberately to obscure the systemically corrupt in that unearned income. Bankers and Landowners. Through all history they have remained the same class. An aristocracy of wealth.

A perfect money reform like this would improve the collection of the rents for them, giving even more of the total stock of wealth to land owning and banking parasites. What's not to like? :-)

The neo classical school did just this last century, obscuring the rental stream by confuddling the earnings from economic land as the earnings of capital. It worked perfectly. Look across the world for evidence of the effects. See Mason Gaffney and the Corruption of Economics for primary evidence of this pseudo science.

http://homepage.ntlworld.com/janusg/coe/!index.htm

Money reform is merely the latest manifestation of this cover up in a world that is starting to see the corruption revealed in the old way of thinking. It has got so bad that even the dumbest slaves are starting to see it. The powers opposed to justice must brainwash us yet further into The Matrix. Money reform is the answer.

Poor Mr Dyson, he is a good guy, works extremely hard, but cannot see it all. The road to hell and all that.

Mira

The author of this article did simply not understand what Positive Money is proposing. Based on the misunderstanding he is building his critique.

- He misunderstood many points, e.g.:
“They propose that the Bank (Bank of England) print money and lends to banks.” - WRONG! This is not what Positive Money is proposing.

“PM thinks this problem can be solved by the Bank of England directing that loans only go to productive activity.” – WRONG AGAIN! Positive Money doesn’t propose Bank of England directing any loans anywhere, no central planning – exactly the opposite – it does propose that the decision of “How much money is created” and “How this money is used” are completely separated.

If the author writes an article criticising a particular proposal, perhaps he should at least really read it / read it more carefully. (http://www.positivemoney.org.uk/our-proposals/)

Of course - if he misunderstands the core of the proposal - he comes then to the conclusions, such as that “it would be deflationary”, or “that nothing much would change in aggregate” etc.

Mira

The author of this article did simply not understand what Positive Money is proposing. Based on the misunderstanding he is building his critique.

- He misunderstood many points, e.g.:
“They propose that the Bank (Bank of England) print money and lends to banks.” - WRONG! This is not what Positive Money is proposing.

“PM thinks this problem can be solved by the Bank of England directing that loans only go to productive activity.” – WRONG AGAIN! Positive Money doesn’t propose Bank of England directing any loans anywhere, no central planning – exactly the opposite – it does propose that the decision of “How much money is created” and “How this money is used” are completely separated.

If the author writes an article criticising a particular proposal, perhaps he should at least really read it / read it more carefully. (http://www.positivemoney.org.uk/our-proposals/)

- Of course - if he misunderstands the core of the proposal - he comes then to the conclusions, such as that “it would be deflationary”, or “that nothing much would change in aggregate” etc.

Mirka Tekelova

The author of this article did simply not understand what Positive Money is proposing. Based on the misunderstanding he is building his critique.

- He misunderstood many points, e.g.:

“They propose that the Bank (Bank of England) print money and lends to banks.” - WRONG! This is not what Positive Money is proposing.

“PM thinks this problem can be solved by the Bank of England directing that loans only go to productive activity.” – WRONG AGAIN! Positive Money doesn’t propose Bank of England directing any loans anywhere, no central planning – exactly the opposite – it does propose that the decision of “How much money is created” and “How this money is used” are completely separated.

If the author writes an article criticising a particular proposal, perhaps he should at least really read it / read it more carefully.
(http://www.positivemoney.org.uk/our-proposals/)

- Of course - if he misunderstands the core of the proposal - he comes then to the conclusions, such as that “it would be deflationary”, or “that nothing much would change in aggregate” etc.

Conrad Jones (Cheam)

Hello Robin,

""With your money reform perfected, who would then collect the economic rents. The total unearned income stream?"

Never get an answer. Just get called arrogant or patronising or communist."

I'm not an economist but I am a PositiveMoney supporter and hope that you weren't called "arrogant or patronising or communist" by anybody from PositiveMoney. I've met members of the PositiveMoney team and find it difficult to accept that they would have been so rude, I've found them extremely curteous and professional in their approach. I would urge you to ask them again.

At present, PositiveMoney are attempting to generate interest in how the current Monetary System works and especially how money is created and who controls it. They have spent a great deal of time and effort studying the current system and are only trying to educate the rest of us on how it works and how to improve the system.

As a non-economist I admit to not totally understanding your question - is there a way you could reword it so that a non-economist could understand your question?

I agree with you though that Ben Dyson is one of the good guys and works extremely hard. He understands the Monetary System somewhat better than the vast majority of people in this Country (including many MPs and Treasury Officials, that also includes House of Commons Researchers - from my personal experience). I'm not a money fanatic and do not wish to spend anytime on this subject, but unfortunately, negative interest rates on savings and overpriced Housing Market has forced me into finding out why I cannot afford to buy a Home despite having saved for years and earning well above average earnings. Why are students being laiden down with a debt that I never had when I was at University and why MPs are not fighting for Students rights to a free education such as the one they enjoyed - with no tuition fees and University Grants. The "I'm all right Jack" mentality is both intolerable and irrational. We do not need to Tax speculation - we need to stop bailing out the speculators. We want a Free Market Economy - not a Welfare State Financial Sector which crucifies Home Owners and Savers while rewarding borrowers and speculators.

Even if you do not agree with the PositiveMoney Campaign in entirety, for me it has highlighted a massive change in the creation of money that has occurred over the last 40 years, shifting money creation powers away from Government and increased Moral Hazzard, funded by tax payers. Just look at the data from the Bank of England- threecenturiesofdata.xls.

Any saver or prospective Home buyer (who are usually young) are at a disadvantage with the way the system is now working. A system that allows it's National Currency to be rented from Private Banks is doomed to bankruptcy as we see on the News everyday. The evidence is already there - you just need eyes and ears to recognise it.

The system seems to encourage widespread fraud - just look at Self Cert Mortgages and Interest only mortgages. Housing benefit cheats are tolerated because they allow money to be funnelled into the Housing Market to prop it up maintaining the lie that the System is stable. At some point it is going to stall - just my opinion.

It's funny how we never have enough money for education and health care but always plenty to bomb countries such as Libya, Iraq, Afghanistan and possibly Syria and Iran next year. We always have plenty of money to give as "Aid" to India, despite India having it's own Nuclear Deterrent and Space Program. Strange how we give "Aid" to Countries who buy weapons from UK companies.

Thank you.

Regards,

Conrad Jones (Cheam)

Conrad Jones (Cheam)

"- House prices are too high? Build more.
- Banks are socially irresponsible? Nationalize them, with democratic control."

If the way the amount of money that people could borrow in the form of a Mortgage, had not changed in the last 30 years, then building more Houses would in fact be a credible argument. The fact that the amounts of mortgage loans has increased to include both people in a married couples allowance has forced BOTH men and women to continue working inorder to fullful the mortgage agreement and has injected increased amounts of credit into the Housing market making Housing more expensive, displays a complete disregard for how supply and demand economics works. If the amount of money a Bank or Building society is prepared to extend to someone has increased due to a slackening of the loan to salary ratio, then this will naturally increase the cost of Housing given a constant supply to demand ratio. The added fact that Banks are now more confident of being bailed out by government if they get into diffciculties with regard to defaulting loans is another factor that the author disregards.

De-regulation - such as self cert mortgages (liar loans) has helped Banks increase short term profits as the expense of sustainable mortgage payments, has also de-stabilised the economy and put increasing pressure on families.

No one has said that there is a simple solution, PositiveMoney's Draft Bill is not simple at all, but the basic concept of Government created money as opposed to Private Bank created money is incredibly simple for most people with average intelligence.

It is evident that we will continue to suffer economic crisis with the current debt based money system. PositiveMoney's proposals (along with other organisations such as the New Economics Foundation) are nothing more than common sense - it is common sense that proposes that the Government should be the only authorisation of legal tender currency - not private companies. Unless you believe that the Bank Charter act of 1844 was incorrect? This is how the English monetary system successfully operated for 726 years between 11000AD and 1826AD. A period of English history which saw the expansion of the market economy and a renaissance of Arts and Sciences. Money is nothing but an accountancy tools to record the passage of goods and services. By using the current system, the money system is used to extract real wealth from the people who create it to those that don't.

Conrad Jones (Cheam)

"This is potentially deflationary. To remedy this, they propose that the Bank print money and lends to banks."

What they are proposing is that instead of issuing Treasury Bonds - which are debt; the Bank of England will create money (based on inflation or deflation) so as to maintain the monetary policy decided by Parliament. Whatever amount is deemed necessary to maintain monetary stability will be given to the Government (i.e the Public) debt free and spent on public works. This money will enter the economy and will remain in circulation, not subject to removal by Banks. Banks are currently able to remove money from the system either by calling in loans or not issuing sufficient loans to replace the loans that are paid. When a loan is defaulted upon or paid, the money is removed from the system. That is deflationary at the worst possible time when people are nervous of taking out new loans or Banks are "recapitalising their reserves" - i.e. in a recession. Therefore, there is a systemic weakness that reduces the money supply at the very time when the money supply needs to be maintained. The PositiveMoney proposals do not suggest creating money and giving this to the Banks - the Bank of England has already done this through QE and it has not worked as the M4 (broad money supply) is still on the brink of collapsing.

Conrad Jones (Cheam)

"And herein lies my problem with positive money. We just don’t need such a radical and potentially dangerous reform. Our banking ills are remediable by other, safer policies:
- Banks tend to take on too much risk? Insist upon higher capital or liquidity requirements.
- There’s too much “speculative” mortgage lending? Impose quantitative limits."

Why is it Radical and potentially dangerous for the Government (democratically elected) to control the money supply in the same way it did for 726 years between 1100AD and 1826AD ? Is the author of this article seriuosly suggesting that it is more stable to have private companies - motivated by short term profit; to control our means of barter despite the overwhelming evidence to the contrary?

Is the author suggesting that the answer to this is more regulation without addressing the Moral Hazzard rampant in the system. The depositor insurance is paid for with Tax Payers money through direct taxation and through the highly inflationary system of Bank Lending which creates the Principal of a loan, but not the Interest to pay off the loan.

In a free market economy, regulation is self imposed when a Bank goes bankrupt due to imprudent lending policies and risky speculation that fails. There would then be an emergence of well run Banks if Banks - just like any other failing business; were allowed to suffer the consequences of there own negligence.

It is true to say that regulations - just like Laws; have slackened over the last 30 years with regards to Banking.

Conrad Jones (Cheam)

If Private Banks create financial "Products", such as Savings Bonds, have they breached the Trade Descriptions Acts recently when they say that they can provide a "GREAT" Interest rate of 3.75% when the Inflation rate is 5.2% (RPI even higher)? Can a Savings Rate (before Tax) of 3.75% legally be called "GREAT" despite it being a negative interest rate in real terms?

"The Trade Descriptions 1968 is an Act of the Parliament of the United Kingdom which prevents manufacturers, retailers or service industry providers from misleading consumers as to what they are spending their money on."

After quizzing a member of staff at a local Bank recently even they conceded that it certainly was not "Great", it's "very low". This seems to attack those who have worked hard all their lives and have saved money inorder to secure a comfortable retirement are finding that that their wealth, through poor interest rates, are taking money from them without them realising it. They just notice that food, energy and other goods and services are gradually increasing at a higher rate than their already Taxed savings.

The system is like a cowardly thief that - instead of burgling a Family's Home all at once, pops round every month posing as a Friend and while your making them a cup of tea, dips their hand in your wallet and takes out a couple of Bank Notes leaving enough Bank Notes in the wallet, so as not to arouse suspicion.

Sandra Crawford


I agree with Positive Money in one very big way.
The banks get a massive profit on creating money out of nothing throught the fractional reserve lending rules. 97% of our money is created this way and so the banks have a monopoly on creating money which they charge interest on. All our money, well 97% is therefore costing us money before we spend it.
The natioanl debt is based on borrowing by governments, but if government created the money supply completely, there would be no national debt. No 42bn a year in interest either.
Torys and socialists would love this, either tax cuts or more social spending - what ever your taste.. Yes, the national debt eats into our taxes.. why we have to pay more.
Nationalising the banks may be one method of curing the national debt, but this is too much state control. We need commercial banks lending, it creates competition. They should not create money though, as this leads to booms, housing bubbles, and busts, - they row the economy by controlling the money supply.
For further information see the following brilliant treatise on this subject.-
http://www.youtube.com/watch?v=Dc3sKwwAaCU
http://www.youtube.com/watch?v=rCu3fpg83TY

http://www.youtube.com/watch?v=QU0XiklHPMc

http://www.youtube.com/watch?v=JXt1cayx0hs

http://www.youtube.com/watch?v=swkq2E8mswI

Robin Smith

Conrad.

I do not disagree with PM. Im simply saying they do not go far enough. That not doing so will wreak havoc. That Ive pointed this out with clarity many times. And that they project aggression on me when I insist.

This is a classic indicator of denial. Im questioning core beliefs. For which there has been a huge investment. Im not surprised. Im an expert at receiving it.

There are 2 paths. Accept the observed facts, change ones mind and proceed with confidence. Or deny and change nothing.

On housing numbers you pose a false remedy. There are a milion empty homes. Most with full planning permission.

The question is why are they not available on the free market.

Build another million and most would also remain held speculatively vacant.

Im not sure if youve considered this yet? Private property in land is the worlds biggest ponzi scheme. Negative money is relatively tiny. Land speculation is like an enormous pyramid selling scheme where the first in only might win. Or a giant game of Monopoly where everyone loses.

Perfect money will only increase productive power. All the gains will go into land values. The lot of the working man will still not be permanemtly improved. The wealth gap will widen.

If we are unable to see this by now, expect this civilisation to fall into decline. If it has not started already. Perhaps to be buried out of sight for 500 years, just like Rome and China for the same reason.

Its not the money. We deny this at our peril.

Conrad Jones (Cheam)

Hi Robin,

I think we are in agreement on many things.

The sharp increase in House Prices has turned Private dwellings into Profit Making investments, which have attracted investment into the market.

The incentive for Banks has been driven by short term profits - as they can sell the debt into the market place. If the debt goes bad for the Investment Banks, the Government has proved that it will cover the losses with QE.

If the Banks were not covered by Government (Tax Payers money) - they would not have flooded the Housing Market with newly created credit money, thereby devaluing our wages and savings.

Positive Money proposes to remove the safety net from Banks - if they lend wrecklessly - which they prove they can; after the new Bill is passed, THEY will have to suffer the losses instead of the tax payer. Over time, this will lower the 'House Price / Earnings' Ratio, as Banks will become more cautious and will attract far less speculative House Purchasing for the purpose of profiteering from a non-productive investment. There has also been widespread fraud in the form of 'liar loans' and predatory lending encouraged by CDOs - selling the debt to an investment bank.

The housing market has helped divert money from productive investments to non-productive investment - i.e. inflating the Price of something that already existed, instead of going into a Productive Business. As the Housing Market creates the biggest form debt we have - the accelerating increase in that debt becomes understandable as it is our main source of new money into the system and this also explains why the Government (both Labour and Conservative) have come up with similar methods of "Helping" First Time Buyers with Shared Equity Schemes, both do nothing to help First Time Buyers as they remove partial ownership and funnel more Government money into a Housing Market in order to maintain the current inflated prices. What would help first time buyers would be a fall in House Prices so that they have a smaller mortgage. But the Government cannot afford to help reduce private debt as we would see our money supply shrink.

The Positive Money proposals will help reduce the deficit and allow the Government to control the money supply - rather than private banks, and this will also have the added benefit that we will no longer have to bailout banks in order to maintain the money supply as they will be restricted by law, to create new money of any form. I'm sure that the PM proposals are not perfect but I haven't seen any other proposals which would bring back stability to the economy in such a sustainable way. The ICB proposals are minor tweaks which will not address the systemic faults.

The situation today is: Banks can effectively go to the Government and say "our capital reserves are low and are restricting us from lending", this translates into "give us your money now or we will crash the economy". It's worked as they have been given £275 billion over two terms of QE. Once under Labour and now under the Conservatives.

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