Tuesday, 17 July 2012

Do we really care who creates money?

According to Positive Money, 97% of the money in circulation in the UK is created by private banks when they lend. Only 3% is money created by the central bank on behalf of the Government. Shock, horror!

Actually, that sounded a bit high to me, so I looked into the origin of this interesting statistic. About 3% of the total money supply in the UK (sterling M4) is indeed notes and coins in circulation. But Positive Money aren't correct to claim that the rest is entirely held by banks. They've ignored the little matter of central bank reserves.....This is actually rather more important than it sounds, since the effect of QE and a generally risk-off environment has been to encourage banks to keep more money in reserve accounts at the Bank of England rather than lending it to each other. So the true figure is probably more like 90%.

Well, ok, that's still a lot, isn't it?

No, it isn't. You see, nearly 90% of the UK population has at least one bank account. And guess what they keep in those accounts? Yup, you got it. Money. In fact most of the money in our society washes around the banking system. Some of it gets diverted into central bank reserve accounts (7%), and some of it gets withdrawn from ATMs (3%). The rest circulates as paper (cheques) and electronic transfers from one bank to another corresponding to the payment and spending activity by households and businesses.

Fifty years ago the proportion of notes & coins in circulation to money held in commercial banks was much higher. That is because far fewer people had bank accounts and the majority of working-class people were paid in cash. Even for those who did have bank accounts, making payments directly from bank accounts was not a simple matter. Regular payments could be set up as standing orders, but all other direct payments from bank accounts involved considerable delay. Most people preferred to use cash for their daily expenditure.

That was the world that I grew up in. Cash was king, cheques took two weeks to clear and credit and debit cards didn't exist.

It's still like that in large parts of the world. Even in the UK, over 10% of people still work on a cash-only basis because they do not have bank accounts or because for some reason they cannot use their bank accounts (for example because of high debts - if someone is over their overdraft limit, any money they put into their account "disappears" and is not available for essential personal expenditure such as food, so they don't put money in the bank at all). They are the very poorest of our society.

In poorer parts of the world such as Africa, where high proportions of the population don't have bank accounts, payments are increasingly being made electronically in ways that bypass banks. Mobile phones, rather than bank accounts, are the preferred means of funds transfer. Various agencies are energetically trying to improve access to banking facilities, but not so that payments can be made - on the contrary, they are encouraging further development of non-bank payment platforms. They are more interested in encouraging people to use banks for STORAGE. You see, these very poor people don't trust banks. They like to have money they can touch. And they don't borrow - even if they could, many of them have a horror of owing money. They save instead. Cash, under the bed or the carpet. But people who stuff their mattresses with cash are at risk of losing their precious money through fire, flood, mice, beetles and above all through theft, often violent. Compared to those risks, banks in poor countries are safe places. They are also rare - which is much of the problem. No-one really wants to put their cash in the bank if the nearest branch is 60 miles away and the only way of getting there is walking. So reducing the number of the "unbanked" is an uphill struggle, both in terms of provision of basic banking services AND in terms of their takeup.

It's interesting, isn't it, that much of the debate that rages around bank reform in the UK is concerned with making banks safer places to put money and reducing our dependence on debt. It's almost as if we want to be back where we were fifty years ago - where much of the world still is. We look back on that time through rose-tinted glasses. We perceive it as a "golden age" of financial responsibility, when bankers were pillars of the community rather than the hated pariahs they have now become. But we were also materially poorer then. I come from a firmly middle-class family, but we did not have a fridge until I was seven, we did not have a washing machine, we only had partial central heating, we did not run a car and we didn't have a television. We did not have overseas holidays, we walked everywhere and we borrowed books from the local library instead of buying paperbacks. When clothes developed holes, we mended them. There was a stigma around debt and few people borrowed, except for mortgages - and even those were not as common as they are now, as that was the heyday of post-WWII social housing. And people saved, because saving was regarded as "good". Even if it meant that they struggled to provide food for their families, they saved. Many of those elderly people who saved so much then are now among the richest in our society: not only have their savings appreciated, but those who owned their own houses have also benefited from significant inflation in property prices.

I have no desire to return to that way of life. It doesn't look like a "golden age" to me. So many things we take for granted simply weren't there then. Yes, for many people debt has got out of control. Yes, banks have behaved badly and destroyed much of our trust in them. But does that mean we throw away all we have gained?

The fact is that our credit money system has allowed many of us to borrow from our futures and become materially richer in consequence. As a society our standard of living is very much higher than it was fifty years ago: we live longer, we are healthier and we have more material goods. I don't know that we are necessarily happier because of this, and there is no doubt that inequality within our society has risen - there are still pockets of serious poverty, and the rich have benefited disproportionately. There is much to be done to redress that. But I can't see why discovering that 90% of our national currency is created by bank lending is so awful that we need to completely dismantle our financial system. I really don't care how my money is created, as long as I receive it on time and can spend it on things I need. Whether commercial banks or central banks should create money is not important to those whose problem is that they don't have enough money.

It seems to me that we are spending an awful lot of time and energy arguing about who should own the production of the means of exchange in our society, when we could perhaps use that energy more productively in finding ways of redistributing that means of exchange so that everyone has enough of it......


  1. The point is that the private banks charge us for use of the money they create, without which, of course, we can't trade. They profit from our trading. The more we trade, the more we need to go back to them to ask for more money to do it with which they'll happily let us have at interest. That way they cream profits off the top of our industry. That profit could be going back to us, the community that makes it, if instead of using money created by the private banks to trade we could instead use money created by banks we collectively owned.

    1. Yes, banks profit from our trading. But we own private banks. Anyone with a private or corporate pension owns private banks and benefits from their profits. That is a LOT of people.

      Positive Money are not suggesting that private banks should not be profitable. Nor are they suggesting that interest should not be charged on lending.

    2. And further. Central bank money is NOT produced at zero cost. Central banks profit from their creation of money. It's called seigniorage and it is a real cost to the users of that money.

    3. But, that seigniorage belongs to we the people, doesn't it? It goes to the Treasury (I assume) because the BofE is ours, supposedly. Unlike the seigniorage when the private banks create money which they retain. As the proportion of central bank money created into circulation to private bank money has decreased over the years, so our portion of the overall sseigiorage has similarly decreased. Why are we letting private banks take over a national asset? We need that money for us! No wonder we keep being told we're skint!

  2. Frances
    One thing that bugs me is that, if the BOE has created 325 billion plus reserves under QE, how come the BOE only shows 231 billion as of a few days ago. Notes and coins haven't gone up that much. Where is the missing 100 billion?

    1. Great question, Andy (admittedly I say that because the same question has occured to me)! I was hoping someone else would answer you, because I am not sure I know the answer myself and I would like to know more. Anwyay, it seems to be to do with some process that gradually unwinds the reserves effect of QE after the initial gilt purchases. Somehow (eg expanded treasury bill sales?) some of the bank reserves end up with the government, and hence as DMO deposits with the BoE, perhaps with a view to repaying the gilts as they mature - see here: http://www.bankofengland.co.uk/markets/Pages/apf/balancesheetimpact.aspx

  3. A LOT of people don't have private or corporate pensions. Do they profit from banking? No, but they still need to trade so essentially banking leeches from them and that shouldn't be happening. Is there a bank we can go to which puts its profits back into the community rather than into private pockets? Is there a bank of Elmbridge, for example, which returns profits to Elmbridge meaning it can fund local amenities and infrastructure, road-mending etc? No there isn't. There's not likely to be in the current political climate either, which is more than a shame.

    1. Hmm. Banks do pay tax, of course. In fact at the moment they are liable for more tax than any other type of private enterprise, because of the bank levy. I rather think that might fund road-mending etc. if the government wants it to.

    2. It's often said that the tax the banks pay is vital to our economy as they pay such a lot compared to the other sectors (they don't, but that's another story). However, with the exposure of the swaps swindle that the banks have been using to leech off small businesses in some cases bleeding them all the way out of business, we have clear indication that the banks are making at least some of the money they're paying taxes on by destroying the SME sector, the very cradle of our economy. Get rid of the corrupt bankers and there's every reason to believe the SME sector will flourish, indeed, it always would have been were it not for the crooks in the financial sector.

    3. @Frances:
      "Hmm. Banks do pay tax, of course. In fact at the moment they are liable for more tax than any other type of private enterprise, because of the bank levy. I rather think that might fund road-mending etc. if the government wants it to."

      In 2010 the Bank of England estimated that UK Banks received a subsidy of between £30 billion and £120 billion pounds, depending on the method of measurement.
      The City of London maintains that it contributed £53.4 billion in Tax Revenues to the Treasury in 2010.
      In 2008, road users paid £45 billion in motoring related taxes. The cost of running the road network was only £10 billion. I would assume that both these figures are slightly more in 2010 but with a similar proportion.
      I would suggest that it is more likely that Road Users are subsidising Banks, rather than the other way around.

  4. Frances, I support Positive Money because I think they are fumbling their way in the right direction, but you are quite right on the 97% point. That is, Pos Mon ignore reserves held by commercial banks at central banks. I.e. the 97% is too high, as you say.

    However I suggest you fail to deal with some of the valid criticisms that Pos Mon and others have made of fractional reserve, i.e. the production of money by private banks. One big problem here is that private money production is PRO-CYCLICAL. Where did the money come from to boost house prices prior to the crunch? It came from private banks.

    There is a chart showing the rapid expansion of private money relative to central bank money in the three years prior to the crunch. Scroll half way down here:


    Steve Keen has pointed to the feed-back mechanism here: house price increases make houses better collateral, which encourages more borrowing, which boosts house prices, etc etc. Same thing happened in 1929 in respect of shares.

    Another problem is that I suspect the ability of private banks to produce “savings” from thin air and lend them out leads to an artificially low rate of interest. Another problem is that private money production boosts demand, and assuming the economy is already at capacity, that means government somehow has to rein in demand: perhaps by spending less on health, education, roads, or whatever.

    The logic there eludes me.

    1. Leaning against pro-cyclicality is the job of monetary policy. As is demand constraint when money supply increase creates inflationary pressures. The MPC ignored inflation in house prices because it was targeting CPI inflation, not because it did not have the tools to deal with it. It wasn't looking at the right measure.

      There are numerous monetary, fiscal and regulatory tools that could be used to discourage excessive and unproductive lending. It really isn't necessary to completely reinvent the financial system to achieve this and it distracts attention from the real job of government, which is to ensure the welfare of all its citizens.

    2. I agree that it’s the job of the government and central bank to “lean against pro-cyclicality”. But they failed catastrophically: we’ve just had a credit crunch followed by the worst recession since the 1930s.

      Problem was that a lot of demand was coming from the property boom and when that collapsed, demand collapsed, plus a significant proportion of bank assets (loans to property ventures) turned out to be worthless.

      Under full reserve, that would not happen to such an extent. That is, increased demand for loans would drive up interest rates which would ameliorate the bubble. But I’m not suggesting that is a clinching argument. The fractional versus full reserve argument is extremely complicated.

      On a separate point, seems to me one can’t deduce the total amount of money created by a central bank by taking just cash and reserves, as you have done (though that’s an improvement on Positive Money’s methodology). Reason is that as soon as a private bank thinks it has excess reserves, it tends to invest the excess in something that brings a better yield, like Gilts. Thus to get that the proportion of money created by a central bank one needs to add physical cash to deposits and subtract loans. I’ve gone into the reasoning a bit more on my own blog:


      On that basis, I get a figure of about 20% of money created by the central bank (at least in the U.S.).

    3. Reserve Accounts of Private Banks are not taken into acount as these are not available to the General Public.

      I expect you've been to the BoE Statistics Site coutless times, but I just wanted to show this to others who may be reading this who have not and would like to try it.

      Calculation of percentage of money created by private Banks IN CIRCULATION with the general public.

      I calculated this as follows:

      1. Go to the Bank of England website: Interactive Database.
      2. Select "Tables"
      3. Select "Notes and Coin and Reserve Balances"
      "Notes and coin in circulation outside the Bank of England", "Not seasonally Adjusted" (similar to the old M0 - abandoned in 2006) LPMAVAA - Monthly
      4. Select "M4 and M4 lending excluding intermediate OFCs", "Aggregate M4", LPMAUYM - Monthly

      5. Select "Show Data" from the top of the web page.
      6. Select "Excel" to download both columns of monthly data.
      7. open the excel file and type in "=(C192/B192)*100" in the next column to calculate the percentage from 1982. This starts at 8.06% and ends with 3.05%. In february 2010, the figure reached a Low of 2.51%.

      Reserve Balances are excluded as only private banks have access to them. For you and me, the Reserve amounts at the Central Bank are irrelevant for our day-to-day business transactions.

      Reserves are not irrelevant when considering the affect they have on the solvency of the Bank - if they allow their Reserves to be too Low (which they did in 2008), they then get into difficulties settling interbank transactions at the Central Bank.

      But Banks wanted smaller and smaller Reserves in relation to the quantity of their Loans in order to increase profits. The Government Bailout proves that this Strategy worked as they were bailed out by Tax Payers, who have ignored the ever declining Reserves that Banks have covertly operated for decades since we left the Gold Standard.

      Either the Banks did this deliberately - knowing that they could get a bailout or they are incompetent idiots, blinded by Greed. Th expansion of credit has made Home Prices double the cost they were a generation ago, increased Rents, and drained Government funding into Housing Benefits. These are the Social Consequences of the Banks Actions over the last 40 years or so, helped by slack Government Financial Policies which gradually released Banks to do what they wanted, which was to line their own pockets.

      Conrad Jones (Cheam)
      (The other anonymous comment is also mine)

      Note: You have not responded to my comment regarding Road Taxes?

    4. Conrad,

      I don't check comments on old posts regularly, and I don't reply to every comment. And I'm not going to get into a discussion about the financing of transport systems, if that's ok with you.

      I had a conversation with Ben Dyson about the proportion of TOTAL money in the economy that is bank reserves. He checked with the Bank of England who provided some figures, which are a little lower than mine. That's fine.

      The BoE distinguishes between the monetary base, M0, which is notes & coins in circulation plus positive balances in bank reserve accounts, and broad money (M1 to 4), which is positive sterling balances held by individuals and corporates - including holdings of such things as commercial paper and certificates of deposit. Base money and broad money TOGETHER make up the total amount of money in the economy.

      Like many people, you confuse liquidity and solvency.
      Insolvency occurs when the value of assets is lower than the value of debt on a balance sheet, not when banks have insufficient money to make payments - that's lack of liquidity.

      What happened in 2008 was two things: 1) banks stopped lending to each other, so banks such as Northern Rock and Lehman were unable to get overnight funding to settle payments 2) the value of certain assets on bank balance sheets crashed, wiping out their capital and reducing the value of their debts - including customer deposits. The first of these is a liquidity problem and was solved by the central bank providing funding. The second is insolvency and was solved by forced mergers (e.g. HBOS/Lloyds) and as a last resort by nationalisation.

      It is lack of CAPITAL (shareholders' funds) that puts deposits at risk. Lack of liquidity prevents depositors REMOVING their money, so puts payments at risk, but it doesn't reduce the value of those deposits as insolvency does. That's why the focus of regulation is on increasing bank capital.

      Increasing reserves neither reduces credit creation - since banks create the money they lend - nor protects depositors from loss. All it does is help ensure that people who want to withdraw their money and/or make payments, can do so. But guaranteed central bank funding can do the same.

      Banks can run daylight overdrafts at the central bank and clear them at the end of the day through interbank borrowing and/or discount window borrowing from the central banks. They pay for this, of course, but the rate is lower than they pay on customer deposits. At the time of Northern Rock's failure there was no guaranteed central bank funding in the UK, unlike the US. That has now changed. And in parallel with that, new regulations require banks to hold higher levels of collateral acceptable to the Bank of England for repo funding, thus ensuring that banks don't end up unable to obtain BoE funding because of collateral shortage. The result is already a much safer payments system than we had in 2007. Sadly Positive Money choose to ignore these changes.

  5. Related: RT @izakaminska: Time and interest are not so interesting - Interfluidity http://t.co/xFoKe9DL

  6. Speaking of "the rapid expansion of private money relative to central bank money" there's a little booklet published by the Economic Research Council back in 1981 which gives facts and figures on the expansion of private credit over govt credit, called 'Government Debt and Credit Creation'. The foreword states, "The inspiration for this paper came from the feeling that there is something wrong with Government financing when as much is spent on paying interest on the National Debt as on Education or on Health". Worth seeking out in this context.

    1. Government is paying far less on debt now than it was in 1981. Look at interest rates on gilts.

      This booklet was also written long before the huge expansion in non-bank savings that rely very much on "safe" assets such as government debt. Governments primarily borrow from their populations, and people are willing to lend to them because they regard investment in their own government as safe and productive. Why is that a problem?

  7. People get exercised about this because they see "Banks create money" and they think "Banks benefit from seigniorage". You need to make it clearer that a bank that adds £1,000 to the money supply doesn't actually profit by £1,000 from doing so.

    1. It does when the £1000 gets given to it though, doesn't it? Unless you believe the bank destroys that money, in which case it only benefits from any interest it receives. If a private bank can benefit from that interest, though, then so could a public bank set up to serve the community rather than private interests.

    2. No, it doesn't profit by £1,000. It profits by whatever interest it can charge on the £1,000 minus the amount of interest it has to pay to the owner of the £1,000. That's how banking works.

      This post is not about ownership of banks. It is about ownership of the right to create money. Nationalisation of banks alone would not create a single central publicly-owned money source, as Positive Money propose. Publicly-owned banks can create credit like any other sort of bank - as the Spanish could tell you.

    3. "It profits by whatever interest it can charge on the £1,000 minus the amount of interest it has to pay to the owner of the £1,000." Ah, but this is not the case! Krugman (and all who do not believe in endogenous money creation) believes indeed the same: a bank only intermediates between lender and saver. But as Steve Keen and other bankers state: money for a loan is created out of thin air and not coming from a saver. So banks can earn interest times de money multiplier (exogenous money creation) or even more (endogenous money creation http://en.wikipedia.org/wiki/Endogenous_money ) And they pay interest to savers in order to fool us that they need the money for all the loans!
      When a loan is paid back the money is actually distroyed as is an IOU that is given back to the issuer.
      And only the bank licence gives the right to creaate money out of thin air.
      Now what happens if a loan is not paid back? Is it a loss for the bank? If you do not know that is was created out of thin air you would agree. But if a bank can create it out of thin air is it still a loss for the bank? So normal accounting rules (who state that accounts receivable that are not paid are a loss) should also apply for "products" created out of thin air?

    4. No, this isn't right. Even Steve Keen and the MMT theorists would not argue that banks don't have to fund themselves. They do, and there is a cost to that funding. If banks didn't have to fund themselves Northern Rock and HBOS would not have needed bailout, since both of these failed due to lack of access to wholesale funding.

      The profits banks make are the difference between the interest income and fees on lending and the cost of funding that lending. It's called the spread.

    5. You're correct: the Basel rules make it impossible to create out of thin air indefenitely. They only have to fund a percentage of the money they created. Funding costs are a lot lower this way then what they pay on interest on savings.

      Still, they created a large portion of a loan out of thin air and are able to take a haircut to that level without actually making a loss on the loan. The loss they do have is the interest payments they will not receive anymore = future profits.

    6. Wil, it's not the Basel rules that impose funding costs. It's the fact that central banks won't allow negative balances on reserve (settlement) accounts. All movements across central bank reserve accounts have to be fully funded - so all deposit drawdowns, including deposits created as a consequence of lending, need funding. That's the "percentage" of commercial bank created money that has to be funded.

      Commercial banks can't create central bank reserves: if they haven't got enough they have to borrow either from other banks or from the central bank. When the interbank markets froze in the financial crisis, banks such as HBOS couldn't borrow to fund their reserve accounts and had to be rescued by central banks. Banks have to pay interest on borrowed reserves, whether they borrow them from other banks or from the central bank. That's their cost of funds, and it is a real cost that reduces their income from lending.

    7. This comment has been removed by the author.

    8. I've found a similar explanation on the necessity to fund central bank reserve accounts: http://www.positivemoney.org.uk/2012/07/if-banks-can-create-money-how-come-northern-rock-went-bust/

      So, yes these funding costs are there but that is only a fraction of the costs they would have to make if banks were no longer allowed to make money out of thin air = 100% funded by money from savers.
      Therefore theoretically they could lend for 5% interest to the state and give 6% on savings and still make a profit :-)

    9. This comment has been removed by the author.

    10. I'll try again!

      They do lend to the state, for considerably less than that - the yield on gilts is considerably less than 5%. But it is completely wrong to believe that banks can lend at less than they pay to depositors. This is not to do with their funding costs. If you look at the comments on that Positive Money link you will find an example from me of how payments through reserve accounts work. If you follow the accounting entries through it should become evident that a loan in one bank becomes a deposit in another when the loan is spent. If the receiving bank has to pay more in interest to that depositor than it can make on interest on a loan it grants, it will go broke. This has nothing whatsover to do with funding and everything to do with expenditure exceeding income.

    11. You are correct "If the receiving bank has to pay more in interest to that depositor than it can make on interest on a loan it grants, it will go broke." So in this case the loan is 100% paid for by the deposit: NO MONEY CREATION involved! But this is not the case in most loans: they are created out of thin air. No deposits involved from savers(!) who ask for interest. It is the banking licence that permits the creation of money out of thin air and therefor the banking licence is an untangible asset (like for example goodwill) for the bank that grows with the creation of the loan.
      What complicates it is not seeing all banks as 1 virtual bank what, thanks to the system with a central bank, it actually is.
      If only banks have the right to create money the state has to lend it against an interest. If only the state has the right to create money (as was the case during a short period in US history as shown in the documentairy "The Secret of Oz") the state does not pay interest, and the money it creates is used for expeditures without debt. It gets "repayed" via taxes to control the amount of money in circulation.

    12. No, Wil. This has nothing to do with funding loans. This is about simple profit & loss. If I take a deposit on which I pay 6%, and I make a loan on which I receive 4% after funding costs, then even though I may have created that loan out of nothing I am still paying out 2% more to my depositor than I am receiving from my borrower. You are confusing the cost of funding lending with the paying of interest to depositors. It is not the same thing.

    13. If you take a deposit of 100 at 6% and create a loan of 1000 of 4% you'll earn: 40-6=34 That's what money creation is about otherwise no money is created at banks. Wat else does "I may have created that loan out of nothing" mean?

    14. The bank does not benefit from the money creation. It is not part of its profits. The created money is a DEPOSIT, remember, which is then spent so ends up as a deposit somewhere else. At no stage do banks benefit from created deposits - in fact they pay interest on them.

      "Money creation" is simply a factor of the fact that loans create deposits (double entry accounting) and we count ALL deposits, however generated, in our measures of money.

      The profits of the bank are as I described. In this case that means a loss of 2%.

    15. "in fact they pay interest on them." Who gets this interest? I get a loan from the bank to buy a house: 100.000 I pay the bank interest. They create a deposit of 100.000 Who do they pay interest to?

    16. Loans create deposits, which are ordinary deposits in current or deposit accounts. Banks pay interest on the balances in those accounts. While the deposit from the created loan is sitting in the customer deposit account waiting to be spent, the bank that issued the loan pays interest on the deposit it has created to the customer who has borrowed the money. Once the deposit has been spent, it becomes a deposit in someone else's current or deposit account, and the receiving bank pays interest on the balance in that account to the customer who has received the money.

    17. Correct, but usually the current account does not generate interest for clients and if he transfers a part of it to a deposit account it generates indeed interest. But all the time the bank gets 4% of 100.000.
      So thank you for clearing this up for me :-)

    18. Current accounts do usually bear some interest - pitiful, admittedly.

  8. I'm sympathetic to PM, they have a good description of the monetary system. What they propose would prevent much of what's gone wrong with the modern monetary system. Whether it would prevent what went right with the modern monetary system is another question. However I also think you have to be careful not to overly correlate an increase in the standard of living with with the current credit based system or that the current standard of living is real - I think much of it was sustained by misallocation of credit and that is now crumbling.

    All that said "grand schemes" frighten me. So while I'm sympathetic to their story part of me is somewhat grateful for my skepticism it has a cat in hells chance of being implemented.

    I think more realistic is to hope for some for of intelligent credit guidance. The risk weighted assets approach described here http://www.golemxiv.co.uk/2012/03/propaganda-wars-our-version-toxic-bloom-of-lies/ seems to be benefiting the wrong folks..

  9. Nicely done, Frances.

    You take the bad with the good, I guess. The dangers of debt are by now readily apparent; the dangers of hoarding a distant memory. But both are the hazards of the monetary system you choose. Pick your poison, so to speak.

    Seigniorage is a great subject. I talked about it in January:


    Large seigniorage fees might lead to a better monetary system, with the government as the lender instead of private banks, and gold redeemable money. The seigniorage charges would generate the loanable funds. No fractional reserve practices would be necessary or desirable.

    Besides, as a central bank system matures it seems there is little difference between the banks and the government anyway. Might as well have the government just get into lending directly, without the overpaid middlemen.

    One thing I think we all should ponder: how can "money" be a promise to pay that is not ultimately redeemable? Promises that are not redeemable are illusory. After a while the whole economy begins to reflect this basic falsehood, and you get Bernie Madoff. And worse.

    1. The value of money should reflect the wealth of the commmunity which created it.

    2. In a fiat currency system, it does.

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  11. Fact is 0,5 to 1,5% of the 'money' transactions' value is used in order to exchange goods. This a bank's job. The absence of 'money' cannot be the problem.

    The crucial points are

    a) distribution of income and wealth
    b) amount of useless work organized in an economy (most of our jobs are useless and the time spent is wasted)
    c) Compound interest
    a) + c) force a redistribution of wealth from the 'poor'/working to the enormous rich. Those who hold (monetary) assets that are no longer used in real world economy.

    In short - neither a government nor the finance system are going to solve this issue, are willing to do so or can do. What they can do is to keep alive money in the sense of being in the position to keep alive the 'money's' ability to be usable for payments. If someone is talking about money assets the story is going to become complicated, because this leads us very quick to law of property and this leads us very quick to constitutional law. The interpretation of property + economy + money is a matter of thinking.

    If we listen to the communication in Europe currently - If you believe in the EURO it will work, does mean, you will be in the position to pay. This does not mean that the value represented by a certain amount today will remain the same/similar in the future. This does have impact on the quality of consumption (investment vs. simply spending)

    I know people that created foundations in Scotland and separated themselves from FRG. Be very careful with alternatives to the current money system. Most of these alternatives do arise from autarky movements. Don't be inspired by videos ... Changing the money system does mean to build a state from ground up totally new.

    Every Fiat Money system under the influence of a government/politics failed. One day all of them started printing money ... the problem is the currency's underlying + politics, so the solution is imo. value-neutral money without interest and politics. The main purpose of money is payment - more money simply does mean less value - it is a matter of time until the money currently hidden from the real world economy will become expressed in higher prices. Higher price level is simply loss of money's value. Price is simply the value of good expressed (measured) in money. 1 kg Gold is 1kg Gold ... it is not 1585 USD.

    Increasing prices are not the rule in general - the times the positive money people refer to is a time of about 120 years with no increase of prices in U.K, same counts for the Dollar (the one defined in the constitution). The problem of the Dollar before Jekyll Island has been the attempt to take over the responsibility for other countries (parts of the economy's) debt.

    It makes a difference who creates the money, but it does not make a difference who creates it in the current way the world works. As long as people consider, money system will become restarted due to a political decision (it is only a political one) after about 70 years and don't rely on money assets - it does not matter. Maybe it does make sense to rethink overtime at work. - Enjoy Life as long as you can:) Allen Greenspan.

  12. The banks the finance sector get their income from rents (of money) rather than providing goods or services. Although the general public are materially richer than 50 years ago more of our income goes on (economic) rents. This is what is destabilising the economy and increasing the gulf between rich and poor. Given half the chance any one will opt to take the easy route of collecting rents rather than gain a living by working to produce services and commodities. This is where the state needs to step in...