13 Nov 2016

An Open Letter to Donald Trump

Mr Trump,

While I sincerely believe that your election victory was a travesty of democracy because only 26.3% of eligible voters wanted you as president, and 600,000 more people would have prefered Hillary Clinton, there is no doubt that you will be the president of the most powerful country on the planet as of the 20th January 2017.

While I am no fan of your style, there is no doubt that you are not afraid to take unpopular decisions and stand up against the lobbyists who normally dictate Republican party policies. So, for me, it is just possible that you might be the person who could really change things for the good.

That is why I am writing to you now, before you appoint yet another long list of Goldman Sachs and JP Morgan bankers to run the US economy. Because I believe that there are a number of things that you should consider if you are serious about your desire to
  • Reduce taxation
  • Increase public spending on infrastructure
  • Get jobs for US workers
  • Get the millions of illegal immigrants from Mexico and elsewhere to go back home
Here's how you could do this.

Firstly, you have to ignore the Wall Street bankers who will tell you that any form of financial transaction tax will make the sky fall in. It won't.

The Bank for International Settlements details some $30.9 quadrillion in financial transactions in the US over the past ten years, as shown in this table:

Donald, in case you haven't come across quadrillions before, a quadrillion is $1,000,000,000,000,000.

As you can see, the US-based Fixed Income Clearing Corporation handled nearly $11 quadrillion in transactions in ten years, Fedwire handled nearly $7 quadrillion, CHIPS over $4 quadrillion etc etc.

But even these figures that added up to over  $3.1 quadrillion in 2016 are actually massively underestimated, because BIS doesn't include some of the major US based players. For example, they apparently haven't heard about the Chicago Mercantile Exchange (CME) which handled a record 13.9 million contracts a day in 2015 which, with 252 trading days per year, means about 3.5 billion contracts in all. Unfortunately, they don't give numbers for the total value of those contracts, but it is undoubtedly a large number.

Nor does the BIS  include the Options Clearing Corporation, which handled over 4.2 billion contracts in 2015. Again, OCC doesn't give the total value of all those transactions,  but it does give numbers for the premiums alone, which total about $1.2 trillion a year. Donald, maybe you know the ratio between premiums and the value of the transactions themselves. But my guess is that we are talking about several quadrillions of dollars on top of the numbers provided by BIS.

But let's just stick with the "official" numbers provided by BIS - over 3 quadrillion a year. Compare that with the total tax take of the entire US government, estimated to be $3.6 trillion in fiscal year 2017. Transaction volumes within the US alone are thus at least 1000 times larger than total tax revenue. It follows that you could replace ALL existing taxes with a universal flat rate financial transaction tax of just 0.1%. And if the CME and OCC figures were included, the rate could be just a fraction of that.

Now your banker friends at Goldman Sachs and JP Morgan will no doubt tell you that if you dared to put a 0.03% tax on financial transactions, then all the traders would leave to work in Singapore, Hong Kong or Europe. But you have another trick up your sleeve. You could say that any US dollar denominated transactions would have to pay the tax, wherever they occur. If people want to trade in dollars, they pay the tax. Or they go to prison. In that way, you could get revenue not just from dollar denominated transactions in the US, but also those in other locations. For example, according to the BIS's triennial report, 37.1% of Foreign Exchange trading takes place in the UK, but 87.6% of that total (around $11.1 trillion) was denominated in US dollars. That would be easy to tax. And if you did this, then it would allow all the other Central Banks around the world to do the same thing.

So, now I have explained to you where you can go to replace the existing taxes, just imagine the effect on the US economy of abolishing sales taxes, income taxes and taxes on company profits. You have been complaining about US-based multinationals like Apple and Google who keep a large slice of their profits in offshore tax havens to avoid paying the (very high) US tax rate of 35%. Reduce it to 0%, and all those trillions could be brought back into the US economy where it would give an immediate boost to the economy.

And if people no longer had to pay taxes on there personal income, like you, they would be able to spend a lot more, again boosting the economy.

And if there were no sales taxes, again this would directly boost the economy.

The next time Goldman Sachs and JP Morgan bankers try to tell you why it is better to tax everyone except bankers and the financial markets, just try and understand that their interests may not be exactly aligned with the interests of the people who voted you into office.  The fact is that a lot of Republican party people, including Tea Party supporters could not possibly object if you were to do what I suggest and replace the existing tax system with a single, fair, automatic and painless tax that absolutely everyone would pay.

Oh, and by the way, adminstration of such a tax system would cost the government next to nothing. You could fire the 80,000 people currently working for the IRS, and save around $12.5 billion a year. Your Republican friends will love you for that.

And what about the huge number of US citizens who currently have to employ tax consultants to fill in their tax returns - which simply results from the US's ridiculously complicated tax code which runs to 74,608 pages. All that could be trashed with a stroke of the presidential pen. Ok, you would lose the support of the entire industry of tax advisors and lawyers. But you would be very popular with the other 99% of the population.

OK, Donald, so if you have followed the argument so far, let's take the story a bit further.

You want US industry to be competitive with goods produced in China, Mexico and elsewhere, and your "solution" is apparently to slap a 35% tax on Ford cars imported from Mexico. Do you seriously think that you could get that through a Republican controlled Senate and House of Representatives? These people are ferociously strong supporters of free-trade. I wish you luck.

But there is a better way.

I've already provided you with a way to increase the competitivity of US industry by eliminating taxes on company profits, personal income and sales taxes. The result will be that US companies could get away with paying their workers a lot less than they currently have to - and since those workers will not have to pay taxes, they will be better off anyway.

But we can go further. You are proposing to scrap most of Obamacare and force US workers to find their health cover on the commercial health insurance market. In case you didn't know this, the US's private health care system is incredibly expensive, as shown in this figure from Wikipedia - way more than any other country, despite the fact that 13.4% of the US population had no health cover at all in mid 2014 (down from  18.0% before the introduction of ObamaCare in 2013).
Not only is the US system outrageously expensive, it's not even much good. A report from the Commonwealth Fund shows that it ranks bottom of 10 major countries, and life expectancy in the US ranks 43th in the world.

This expensive health system is yet another reason why US Companies cannot compete succesfully with companies based in other countries. They have to may their workers far more just so that they can provide basic health care for themselves and their families - all money that is taken out of the companies potential profits (and shareholder dividends).

There's a simple solution. Just switch all the health costs to a state-funded program (a sort of Super ObamaCare) that would remove the health costs from the payroll costs for manufacturers. You could, if you insist, still have health care provided by private commercial companies. It's just that the costs would be paid for from taxes rather than added to the production costs for industry. And, of course, I've already told you where to get the tax revenue from. Just add another 0.1% to the FTT and you could pay all the $3 trillion that health costs in the USA without putting a drain on productive industry.

But we don't even have to stop there. Why limit the off loading of industry costs to just health? A lot of people are talking about the idea of giving people an Unconditional Basic Income, whether or not they are in work. Interestingly this actually exists in Alaska, where there is a Permanent Fund Dividend to every citizen that could be $2052 in 2016 (it was actually $3,269 in 2008 because the State added an extra $1200 to each check as a rebate from the state's budget surplus). This is a graph of the amounts paid since 1982 when the scheme was introduced.

Now, if Sarah Palin can do it, why can't you? Imagine what would happen if every US citizen got $2000 as a basic right. That could be $10000 for a family of five - and that's before anyone has gone to work. That means that an employer wouldn't need to pay workers as much as they currently do, because their employees would be able to live comfortably on less pay. That would immediately make US companies more competitive.

And where would you find the $650 billion needed to hand out $2000 to each of your 320 million citizens as a Universal Basic Income? Hopefully you can guess by now - just slap another 0.01% on the FTT. Easy. Make it 0.025% and you could make the payout $5000 each.

Would the people who voted for you thank you for giving everyone a big fat check every year? You bet. And the people who are opposed to big government wouldn't be able to complain either, because the administrative costs of such as scheme are next to zero.

And here's the final killer argument, that should be the clincher.

You want to get rid of the millions of illegal immigrants? OK, well just arrange things so that only bona fide US citizens or legal migrants get the Unconditional Basic Income. If you are an illegal Mexican immigrant who is currently prepared to work for crappy wages and thus undercut the local workers, you will have a much tougher time if those local workers were all getting thousands of dollars from the US government (plus free health care). My guess is that the attraction of working illegally in the US would suddenly be much less clear. People would go back home spontaneously, and you wouldn't even need to build your wall.

So, there you have it, Donald. If you are serious about doing something for the people who voted for you, you now know what you can do. But the most important thing of all is not to let the lobbyists for Wall Street anywhere near the White House.

Donald Trump and the failure of democracy

It is terrifying that the American People could have elected someone like Trump, who clearly has a list of personality traits that should normally rule him out for any high office. He clearly managed to press a lot of buttons that worked with some Americans. Almost nobody predicted the result - except Michael Moore, who back in July gave us 5 reasons why Trump was going to win.  Here they are:
  1. Midwest Math, or Welcome to Our Rust Belt Brexit.  
  2. The Last Stand of the Angry White Man. 
  3. The Hillary Problem. 
  4. The Depressed Sanders Vote. 
  5. The Jesse Ventura Effect. 
I think he was spot on. Why did no one else manage to take into account these important factors?

Incidentally, I strongly recommend Michael Moore's recent stage show "Michael Moore in Trumpland" which I have downloaded from the iTunes store. Very very good - very funny, but tragic at the same time. He really did everything he could to get America to wake up. Unfortunately, he failed.

But the amazing truth is that voter turnout was at a 20-year low in 2016 and only 26.3% of eligible voters actually want Trump to be president. Here are the figures:

The American electoral system has yet again proved that it is unfit for purpose.

Why do 46.6% of eligable voters not even bother to vote at all, even when the future of the whole planet depends on their choice? When I think that Trump is planning to start burning more coal, when everyone with a brain knows that this is insanity, I honestly despair. Clearly the power of the fossil fuel lobbies is unstoppable, or Trump is truly stupid.

For me, one of the reasons is clear. Take a look at the map of voting districts from the Guardian's election website.

If you live in any of the huge number of counties where Trump has a 15% lead (the dark red stuff), you can be absolutely sure that your vote won't have any effect, even if you did vote for Clinton. So why bother voting? Unless you are a big fan of Clinton (and many people weren't) you won't make the effort. 

Effectively, your vote will really count if you happen to live in one of the Swing states.  And, not surprisingly, it turns out that 2/3 of the presidential campaigning took place in just 6 states
(Florida, North Carolina, Pennsylvania, Ohio, Virginia, and Michigan) as shown in this figure from the NationalPopularVote website.

Furthermore, even without the Swing State effect, the weighting of each state is not fair. There's a campaign for fair voting in the US website that notes that "on average a state is awarded one electoral vote for every 565,166 people. However, Wyoming has three electoral votes and only 532,668 citizens (as of 2008 estimates). As a result each of Wyoming's three electoral votes corresponds to 177,556 people. Understood in one way, these people have 3.18 times as much clout in the Electoral College as an average American".  And they have a pdf with all the gory details that you can download.

Even if you wanted to maintain the present electoral college system, surely you don't have to be a genius to realize that you could fix that by just multiplying the number of electoral college members by 100 to get a better balance. In case nobody has realized this in the US, you no longer have to send the electoral college members to Washington on horseback. 

Because of this insane system, you can almost guarantee that democracy will fail. How can anyone defend a system where Hillary Clinton gets 60,955,981 votes and Trump gets 60,325,005 votes and yet Trump gets to be president? (those numbers will change a bit, but we can be confident that Clinton really did get about 600,000 more votes than Trump). 

I think that every US citizen should have a moral obligation to get their stupid system fixed. It would take just a single measure to make the US elections fair. Just count the number of people who voted for each candidate. Simple. It's not rocket science. 

Of course, I'm not saying that the electoral systems elsewhere are perfect - certainly not in the UK. But the French system for electing presidents with two rounds of voting is way better. 

NOTE Added 26th November 2016. As of November 25, 2016, Hillary Clinton had received 2.23 million more votes in the general election than Trump, giving Clinton a 1.66% popular vote lead over Trump. It is the worst ever travesty of electoral justice. But it is not unique. In the 2000 presidential election, despite Al Gore receiving 543,895 more votes (0.51% of all votes cast), the Electoral College chose George Bush as president.[7]

30 Oct 2016

The "gig" economy, why we need a Universal Basic Income now, and how to pay for it

In a landmark legal decision, an employment tribunal has ruled that the UK's 40,000 Uber drivers are not self-employed. Instead they are indeed employed by Uber, and are therefore entitled to holiday pay, pensions and the other workers’ rights that apply to normal workers.

It's essentially good news. Many people are having to resort to working in a "gig" economy, where there is zero security, no unemployment protection, no pensions, no holidays. This new economy means that a large number of people are fighting to undercut each other to get the work. And while in principle, having the choice to work when you want may seem a plus, when you are forced to work 50 hours a week just to pay the the bills, the Uber economy is a total disaster for the majority of the population. The exception, of course, are the consumers who are happy to be able to get a Uber driver to take them from A to B for a great price.

But, for me, it seems that we can have the advantages of a Uber-ised gig society, and a reasonable deal for workers.


Simple. We just need to implement a Universal Basic Income so that people would have a basic level of income on which the extra "gigs" could be added if needed. Thus, noone would have to work 50 hours for Uber unless they really wanted to (to pay for that new car, or vacation). Most people would just work the amount they want to - 10 hours, 20 hours or whatever?

Uber (and it's equivalents) would be perfectly happy, because they would have access to a large and flexible work force. Customers would also be be happy, because those Uber drivers would be plentiful. But the workers who are doing the driving for Uber and its customers would be in control. If the pay rates were not good enough, they would simply not bother to work. The supply and demand mechanism would work as it should - but without the desperation that currently means that workers are obliged to take crap wages just to pay the basics.

So, why don't we do it? Well, the standard answer is that there isn't any money to hand out  to citizens in the form of an Unconditional Basic Income.

But, if you have been reading my recent posts, it will hopefully be blinding obvious where the money can be found. With at least $100 quadrillion of financial transactions over the past 10 years, it seems obvious to me that a trivial universal and automatic tax on those transactions could easily provide the money needed to fund a Universal Basic Income. And remember, that money would not be removed from the real economy. Instead, it would be going directly into stimulating the stuff that is worth stimulating.

When I think of the world that I would like my children and grandchildren to live in, it really does seem to me that a complete break with the current model would be a great advantage. Freed up from the need to go out and find a 40 hour a week job just to pay for the basics, people would be able to spend their time doing what they really want to do - volontary work, art, theatre and music, education, caring etc, and just do the amount of Uber driving (or its equivalent) necessary to pay for the extras. Sounds pretty good to me.

29 Oct 2016

The $100 quadrillion question : where do the transactions occur?

Now that I have compiled all the data from the Bank for International Settlements on Financial Transactions in the 10 year period between 2006 and 2015, I can now give you all the gory details of where most of the action is. As noted in my earlier post, the BIS data sums to around $105 quadrillion - $105,206,803,900,000,000 - a one with 17 zeros after it. Call it 100 petadollars if you prefer.

The BIS data sets can be broken down into 326 different streams, involving the 23 countries that are covered by the CPMI (Committee on Payments and Market Infrastructures). The full data set can be downloaded in the form of an Excel file here,

Here, I will just give you the top of the table - namely the places where, in the last 10 years, over $1 quadrillion in financial transactions have occured.

As you can see, just 23 sites and platforms accounted for over 80% of the over $100 quadrillion in transactions that have occured in 10 years. The other 300 or so, only involved about €21 quadrillion. So let's look at the big guys.

CLS group, which describes itself as the world's largest multicurrency cash settlement service, settling foreign exchange (FX) trades across 18 currencies, has processed over $11.4 quadrillion in transactions over the ten year period. It was set up in 2002, and currently settles around $5 trillion every day. The peak values reached $10.7 trillion in a single day in 2014 - see the 2015 annual report for more details.

The next biggest player is the Government Securities Division (GSD) of the Fixed Incorme Clearing Corporation (FICC) in the USA which handled over $10.1 quadrillion in ten year.

The European Central Banks TARGET system has done over $8 quadrillion .

Next comes Fedwire, which used to be called the Federal Reserve Wire Network, and is a real-time gross settlement funds transfer system operated by the United States Federal Reserve Banks that enables financial institutions to electronically transfer funds between its more than 9,289 participants. Fedwire handled nearly $7 quadrillion over ten years. 

Number 5 in the list is a really intriguing one. Based in the UK, LCH Clearnet Ltd was handling over $1.5 quadrillion a year in 2008, but mysterioulsy, their figures have been "nav" (not available) for the BIS since 2010. As a result the total over ten years is a mere $4.7 quadrillion, but the real figure could is probably huge.

In fact, it's not that difficult to find figures from LCH. For example, just go to their website and it's not difficult to learn thatSwapClear service handled 26.8 million trades in the past year, with a notional value of over 3.2 quadrillion - $3,275,974,000,000,000 to be precise. Here's the summary

And that's just SwapClear. Go to LCH's Repoclear page, and you can see that there have been another €1.28 quadrillion in trades in the last ten years - note those are euros, not dollars.

LCH's CDSClear Volumes page proudly takes about a Gross Notional of
€879,584,202,352 since its inception. Add in the numbers of CommodityClear, ForexClear, and EquityClear
and it is clear that LCH is handling a truly mindblowing volume of financial transactions. Shame that BIS doesn't think it necessary to ask them for the details. 

The list goes on : EuroClear in Belgium has done over $4 quadrillion, so has the CHIPS system in the USA (Clearing House Interbank Payments System) which is a bank-owned privately operated electronic payments system. 

If you go to the bottom of the file, you will see that the following key players have figures that for BIS have been "nav" (Not available) every year since 2006. 

Surely, BIS could do better. Can't they just ask the London Stock Exchange, the Australian Stock Exchange and the American Stock Exchange to provide the figures? And it it's not possible, why do they even bother to include the "nav" figures at all? 

And of course, do I have to remind you that the $100 quadrillion in the BIS dataset fails to even mention what is quite probably the biggest player of them all - the Options Clearing Corporation, based in Chicago, that has been handling  4 billion transactions a year since 2012. The premiums alone on those transactions in 2015 totalled $485,268,422,301. I'm afraid I don't know the ratio between the premiums and the actual transactions, but I suspect that we are talking about incredible amounts.  OCC doesn't even get a mention in the BIS data set. Incredible.

The details may be tedious, but for me, the bottom line is simple. There are collosal amounts of money being moved back and forward by the financial markets everyday. None of this is subject to taxation.  Why is it that the traders and bankers that have bought and sold over $100 quadrillion dollars worth of something or other never have to pay any tax, while you and I have to pay 20% or more in sales taxes for things that are actually useful. 

Surely, the conclusion is simple. We should abolish essentially all the existing taxes on sales, incomes and profits, and simply tax every single financial transaction. The same rate should apply to all transactions. You and I would pay the same to use the money system as everyone else - including bankers and traders. Believe me, if those $100 quadrillion in transactions over the last ten years (massively underestimated!) had been taxed at even 0.05%, we would all be much better off. 

See my TEDx talk (in French) if you want to know more. And if you would like to hear an updated version in English, let the people at TED know! This message needs to get out. We are stupid if we let the current system continue.

23 Oct 2016

BIS Transaction data : $9.765 quadrillion in 2015, over $100 quadrillion over 10 years

Isn't the BIS great? Not only is the Bank for International Settlements the place to go for the Triennial report on the levels of transactions in the Foreign Exchange and Interest Rate Derivatives markets (see my latest posts), it's also a place where I have been going for hard numbers on levels of transactions in 23 major countries. Their preliminary data for 2015 came out in September and, as usual, I downloaded the whole dataset so that I could get an idea of how transaction volumes have faired over the past year.

You can check out their webpage on "Statistics on payment, clearing and settlement systems in the CPMI countries" which has the preliminary data for 2015.

The full report (597 pages) can be found here but I find the Country Tables and Comparative tables  particularly informative, because they can be downloaded as Excel files - Country tables or Comparative tables.

I've been scrutinizing the BIS figures for several years now, and so I can see how total levels have changed over the years. Here's a table with the total value of Financial Transactions according to BIS since 2006.

As you can see, the total value appears to have dropped back somewhat in 2015, down to about $9.8 quadrillion form $10.9 quadrillion in 2014. But it's still a very large numbers.

But I find it remarkable just how stable the numbers have been. Over the last 10 years, the value has fluctuated between a minimum of $9.5 quadrillion in 2006 to a maximum of $11.5 quadrillion the following year. The really impressive figure comes from the total over ten years - the number exceeds  $100 quadrillion. That's a 1 with 17 zeros after it.

For me, what is truly impressive is that all that frenetic financial activity is totally untaxed. When I spend money, I generally pay VAT at around 20%. And that is after I have already paid Income Tax. But the $100,000,000,000,000,000,000 that has churned through the financial markets has done so without anyone taking an interest at all.

I will also note that while the BIS's figures look impressive, they are notoriously underestimated. In many cases, their tables report that figures for particular players are "nav" (not available).  For example, the figures for a certain LCH Clearnet Ltd, which processed $1.58 quadrillion in transactions in 2007 have been "nav" since 2010.

BIS apparently doesn't know about the Options Clearing Corporation in the USA with handles more than 4 billion transactions a year (4,210,542,258 contracts in 2015 to be precise). It is quite possible that OCC alone could add a further $10 quadrillion to the figures provided by BIS.

But the bottom line is that, if ever any Central Bank decided to impose a Financial Transaction Tax on this activity, the revenue stream could be very impressive. And that revenue stream could be used to directly finance direct injections of money into the real economy - for example, by paying all citizens an Unconditioanal Basic Income. Remove money from the financial markets, and put it into peoples' pockets. Makes good sense to me. 

BIS Triennial Report on Interest Rate Derivatives Turnover in 2016

The other part of the Bank for International Settlement's Triennial report on activity in the financial markets concerns turnover in Interest Rate Derivattives. You can download the main report yourself here, and the numbers are all provided in an Excel file that you can download here.

This table provides the key figures

As you can see, daily turnover was $2.7 trillion, up from $2.3 trillion a day in 2013. If we assume roughly 250 trading days per year, this means that the total for 2016 will be around €667 trillion - about 2/3 of a quadrillion dollars worth.

Of course, I would never wish to suggest that all this frenetic activity is not incredibly important for the functioning of the world economy. I will note, however, that none of this is taxed at all. When I buy things, I nearly always have to pay Value Added Tax. And yet when the traders do all their interest rate swaps, they pay nothing. I suppose that makes sense in that even the traders will presumably accept that their activity adds no Value at all, and so the absence of VAT is natural.

But, as you may be aware, I have been arguing for about 6 years that we could have a much simpler system if we replaced the vast majority of taxes by a flat rate financial transaction tax on all electronic trading - including everything that you and I do to, of course.

The trick is that the tax should not just benefit the government in the place where the trading is supposed to occur. As you can see from this table, if you did that, the US would get 41% of the revenue, and the UK 39%. Since US dollars are the base for 50.9% of the trading, 41% is not so far off being proportional. But the fact that 39% of the trading takes place in the UK, despite the fact that Sterling only accounts for 8.9% of the total, means that it would be quite ridiculous to allow the UK government to reap the benefits of such a flat rate FTT. And, as the lobbyists would point out, any attempt by the UK government to impose such as tax would immediately be followed by vast majority of the trading moving somewhere else. And as long as there was a rock somewhere where no FTT applied, the traders would find some way to do their $2.7 trillion of trading somewhere else. In the end, we might find that all the trades were being done on some satellite, or on the moon!

But there's a simple solution. The tax should be applied by the Central Banks. Any trading in a given currency that did not pay the tax to the relevant bank would be illegal, and anyone found attempting to do it would be immediately arrested and locked up. After all, it would be no different to someone doing blackmarket dealing in an attempt to avoid paying VAT or other sales taxes.

Each Central Bank would be free to set whatever tax rate they want. Indeed, if a particular Central Bank wanted to set the tax at 0.0000001% that would be their right.  And I suppose that there may be some obscure advantage of having a rate that was a fraction of the tax levels imposed for other currencies. But the sorts of rates that I am talking about are so low that I really don't think that it would be a big deal.

Imagine what could be done if the European Central Bank was to impose a 0.3% tax on all Euro-denominated Interest Rate Swaps. With $159.4 trillion of trades in a single year, that would genrate a very handy €500 billion in income. Add that to the €1 trillion a year that would be generated by the Foreign Exchange Markets (see yesterday's post), and you can see that this would enormously increase the ECB's power to regulate the amount of money in circulation.

Effectively, Central Banks could have two levers - one to pump money directly into the economy using one of a range of methods that include providing a direct Unconditional Basic Income, and one to remove money from the system via a simple, painless and scrupulously fair Financial Transaction Tax that would be paid by everyone - including you and me. The critical point is that while everyone would be paying the tax, the ridiculous levels of trading in the Foreign Exchange and Interest Rate Swap markets would mean that the bulk of the tax would be paid by the financial markets themselves.

Seems perfectly fair to me.

If you are interested in this idea, you might like to watch the talk that I gave at the Toulouse School of Economics in February 2015, and which includes a discussion of the two levers that Central Banks could use to regulate the amount of money in circulation.

22 Oct 2016

BIS Triennial Report on Foreign Exchange Trading in 2016

My apologies to the large number of people who have been following my Economics Blog and who have had nothing new to read since the Brexit vote in June. Apparently, the fact that I haven't said anything has stopped people (or robots?) checking out my blog. Last month, there were 10,618 visits, bringing the total to a impressive 336,352 pageviews since I started the blog in October 2010 - six years ago.

But when I saw that the Bank for International Settlements (BIS) has published their Triennial surveys of activity in the foreign exchange and OTC (over the counter) interest rate derivatives markets for the month of April 2016, I thought it was time I broke my silence. After all, they only do this once every 3 years, the last one being in April 2013.

So, first lets look at the report on Foreign Exchange, which you download yourself here. You can also get an Excel file with all the numbers here. The bottom line is that there was an average of $5.1 trillion of foreign exchange per day. If you suppose that this level is typical, then we can estimate that in a year with 250 trading days, the total will be $1.275 quadrillion in a year. Here is a summary of the key numbers
 A staggering 37.1% of this foreign activity goes through the UK's financial markets, nearly twice that in the next largest player, namely the US (19.4%).  Next come Singapore (7.9%), Hong Kong (6.7% ) and Japan (6.1%). Counties like  France (2.8%) and Germany (1.8%) are almost insignificant.

Those who know my blog will know that I have been arguing that it would be very sensible if governments and central banks  imposed a flat rate financial transaction tax on this sort of activity. Even a tax of only 0.3% on this would generate over $3.8 trillion in tax revenue - enough to scrap many of the taxes that the average citizen has to pay, including VAT and Income tax.

Obviously, no country is going to impose a tax locally, because the traders would simply move somewhere else. And that's why there is little chance of the UK imposing such a tax, despite the fact that with 37.1% of the $1.275 quadrillion occuring in the City - namely $473 trillion, it could be enough to avoid UK citizens paying tax at all.

No, the solution is not to impose taxes locally. Instead, each Central Bank should impose a tax on all transactions involving their currency. The Federal Reserve could tax the $1.1 quadrillion in foreign exchange involving dollars. The European Central Bank could impose a tax on the roughly $400 trillion that involve Euros, and the Bank of England could impose a tax on the $162.4 trillion in exchanges involving sterling.

It doesn't have to be a large tax. Obviously, it might be thought fair if the Central Banks charged the same "International Fees" imposed by the vast majority of Credit Card companies we people like you and I need to change from one currency to another. This figure, which is charged for multiplying the number in one currency by the current exchange rate  is typically between 2.5% and 2.75%. So if I pay a $100 restaurant bill in the USA with my French Euro Credit card, I get charged a 2.5% fee. That's very expensive for just doing a multiplication. A typical PC or Mac will do billions of such multiplications for second, with no labour costs whatsoever. And don't forget that this is in addition to the merchant fees of roughly 3% that you the shop or restaurant owner has to pay.

No, I don't insist on applying the number used by the commercial banks and credit card companies - that would be greedy! No, just a tenth of that would be fine, thanks. In the case of the European Central Bank, a 0.3% tax would generate over $1.4 trillion a year - roughly the amount of money that Mario Draghi pumps into the financial markets in the form of "Quantitative Easing". He could just give that money to Eurozone citizens in the form of an unconditional basic income, for example. That would get the economy going.

24 Jun 2016

The end of the UK in Europe and the end of the UK

I've just been trying to digest the decision of voters in the UK to leave the European Union. The first point is that while England and Wales voted to leave, Scotland and Northern Ireland voted to stay. A breakup of the United Kingdom seems almost inevitable. Well done David Cameron - the UK prime minister who led to the end of the UK.

The Guardian has posted a fascinating set of graphs that show the demographic factors that are linked to the choice of voting leave or remain in different local authority areas. Here they are:

The relation between the proportion of people with higher education and voting choice is stunning. Rarely do you find such strong negative correlations.  The relation with the percentage of residents with no formal qualifications is also clear, as in the link with median income. Yes, there is a link with age - young people were more likely to vote remain. But the really strong links are with education and skills.

The message seems clear. This is the mass of the people telling the elites that they won't take anymore. They no longer believe the story that the politicians and the business lobbies are working for them. They don't believe that the European Commission, led by Jean-Claude Juncker, the guy involving in setting up tax systesm in Luxembourg that allowed multinationals to avoid paying their fair share. It's exaactly the same phenomenon that has led Donald Trump to become the Republican candidate in the States.

What will happen now? Well, if nothing changes, the example set by UK voters will propagate across Europe. France could end up with Marine LePen as president next year and could end up leaving too. And of course, voters in countires like Greece, Spain and Portugal could easily also decide that they want out too.

But things could easily change. Suppose that Mario Draghi and the European Central Bank decided that rather than pumping €80 billion a month into the financial markets, they should simply put €240 euros into the pockets of every man, woman and child in the Eurozone. Would that change things? You bet. People would say that, yes, the European Union does care about the people. They don't only care about making the system work for big business, the multinationals. So, if the Brussels Technocrats want to stop the rot, there are ways they could change the course of events.

In the end, while I am incredibly worried about the implications of the UK's decision for both the UK and Europe, I see a  possible positive effect. It could be the start of the revolution that will change the entire economic system so that it works for the people - not just for the elites.

22 May 2016

All the increase in Eurozone Public Sector Debt since 1995 is due to Interest Payments!

This is a real bomb-shell.

We are continuously being told that Public Sector Debt is the result of governments spending too much on health, education, social services etc. Austerity is essential to balance the books.

Here is the proof that this is a total myth. The real culprit is the insane system, built into the Maastrict and Lisbon treaties that forces our governments to borrow money from Commercial Banks, who can create the money they lend out of thin air, and then charge taxpayers interest.

I took the latest data from Eurostat, which provides information about the level of Public Sector debt for nearly all European countries since 1995. It also provides details of the amount of interest paid on Public Sector debt every year for the same period. I've already had a series of posts on the data since they came out on the 21st April. The first post listed the levels of Public Sector debt for Eurozone Countries which had increased to nearly €12.5 trillion at the end of 2015. A second post looked at the interest payments which totalled over €335 billion in 2015, and brought the total since 1995 (when Eurostats figures start) to nearly €7.2 trillion. A third post looked at the effective interest rates we have all been paying since 1995, and noted that taxpayers have been paying way above market rates for years.

But the current post really puts a finger on where it hurts most. Specifically, the following table provides what I consider to be the ultimate demonstration of the stupidity of the system.

The first line shows that total public sector debt across the 28 countries of the European Union stood at nearly €12.5 trillion at the end of 2015. If we compare this number with the total debt at the end of 1995 (it was over €4.75 trillion), we can calculate the increase in debt over that 21 year period - namely €7.73 trillion.  The next column gives the total cost of interest periods for the same period - €7.18 trillion. And that means that 93% of the increased public sector debt was used to pay the banks.

The second line shows that the situtaiton for the Eurozone is even worse. Since 1995, public sector debt in the 19 Eurozone countries has increased by over €5.37 trillion. But the interest payments for the same period now total over €5.7 trillion, meaning that 106.3% of the increase in public sector debt was used to pay the banks.

The rest of the table shows how the figures breakdown country by country. Things are complicated by the fact that there are some holes in the Eurostat data. Specifically, figures for debt in Denmark are only provided since 2000. During that period, Denmark's public sector debt only increased by €13.8 billion, and yet during the same period Denmark's taxpayers handed over 5.5 times more money in the form of interest payments.  Very generous of them.

Norway's figures only start in 2011. Since then, public sector debt only increase by €4.3 billion. But Norway's taxpayers nevertheless handed over 3 times as much money in interest payments.

Neverthless, for most countries, the Eurostat data provides both Public Sector Debt and Interest Payments since 1995. And the results are a real surprise.

In the Eurozone, Belgian public sector increased by 50%, but if they had not been paying the interest charges, public sector debt would be just €117 billion, 27% of what it is today.

In Italy, if taxpayers had not had to pay over €1.65 trillion in interest, their public sector would  be a mere €517 billion, instead of getting on for €2.2 trillion.

Without interest payments, Germany's mountainous €2.15 trillion of public sector debt would have dropped to €820 billion.

And so it goes on.

Isn't it time that we changed the system?

How could we change it? Just put an end to a system where commercial banks lend our goverenments money and charge interest. Central banks like the ECB and the Bank of England should lend to goverenments at the same rates they charge the financial markets.

5 May 2016

Effective Interest Rates on European Public Sector Debt 1995-2015

Here's something I wanted to do when Eurostat released the figures for European Public Sector Debt and Interest charges on the 21st April. Unfortunately, I was very busy putting together a €11.4 million project to create the Toulouse Mind & Brain Institute (TMBI). I finally got the thing submitted yesterday, having managed to round up well over 300 members from 25 different labs in Toulouse, of whom 240 have permanent positions. If you are interested, feel free to download my handiwork here.

But now have a bit of time for some more fun things ;-)

I did something pretty simple, given that the Eurostat gives an almost complete set of data for Public Sector Debt and Interest payments for every EU country since 1995.

So, if you know how much the government owed at the end of a particular year, and how much tax payers money was handed out during the year, you can easily calculate the effective interest rate that was being paid. Just divide one by the other. Here's the result.

The good news is that the average rate has been dropping. In 1995, we were paying nearly 8% interest on public sector debt, with some countries (Greece, Hungary, Romania, Slovakia and Slovenia all paying over 10%. The Romanians win the prize for the highest rates, because they were paying interest at nearly 24%. Were they using a credit card maybe?

But, rates over 10% have been a thing of the past since 2003, and in 2015, the average rate was a bargain 2.7%. Only Croatia, Hungary and Romania were paying over 4%. Wondeful, right? We should all be celebrating.

But then there is the bad news. Haven't we all been told that Central Banks have been offering money at knock down prices to anyone in the Financial Sector who can be bothered to ask. The list of current rates for European countires can be found  here
  • Eurozone : 0.0% 
  • Czech Republic : 0.05%
  • Denmark : 0.05%
  • Hungary : 1.05%
  • Norway : 0.5%
  • Poland : 1.5%
  • Sweden : -0.5%
  • Switzerland : -1.25% 
  • UK : 0.5%
You can find the historical information here where you can see the historical evolution of rates for 1 year, 2 year, 5 year and Maximum duration loans from the Fed, ECB, Bank of England and so on.

Here's the ECB 5 year loan rates since 2000 - well under 1% since 2011.
And here are the 5 year rate at the Bank of England since around 1990 - 0.5% since 2009 or so.

In both cases, it is clear that taxpayers in the Eurozone and the UK have been paying way over the market rates on Public Sector Debts. Why?

If you've got a mortgage, and they are charging you 10%, but you can get loans at 2%, you renegotiate, and pay off the 10% loan with the 2% right?

So, why don't our governments do the same thing? Why don't they just say to the Primary Markets or the GEMMS (the banks that have a monopoly on lending our governments money), that they will not pay more that 1% above the market rate. When the market rate is 0%, that's 1%.

Are we being ripped off? You bet we are.

But this racket has been going on since 1694 when the Bank of England (a private bank) discovered that the King was too stupid to realize that when they lent him money to fight wars, they just invented the money out of thin air. UK taxpayers have been paying an average of 4.4% in GDP every year since 1694 with peaks of 10% of GDP following the Napoleonic wars, and around 9% for an entire decade after World War 1. The roaring twenties really were roaring if you were anywhere near the bankers who had lent the warring nations non existent money for fighting the war. Of course, as we know, they couldn't keep it going, and things went belly up in 1929.

This wonderful system, invented by my compatriots I'm ashamed to say, got foisted on the rest of the world from the 1970s onwards. And now, with the Lisbon treaty, no government is allowed to borrow directly from the central banks at the market rate of 0% (or whatever). Instead, they have to go via our friends in the Banking system who impose a slight markup. Currenly, in the Eurozone, that slight markup is 2.66%. That racket cost Eurozone taxpayers €250 billion last year - equivalent to 2.4% of GDP.

Does anyone else think that this is insane? Does anyone else think that this racket should be stopped immediately? No government should ever pay interest at a rate above the one provided by Central Banks to commercial profit making banks. Full stop.

21 Apr 2016

European Public Sector Interest Payments in 2015 - over €335 billion. €7.18 trillion since 1995.

The other fascinating data set released by Eurostat this morning concerns the amounts of money paid by European Governments in Interest payments on Public Sector debt.

I've compiled the numbers in the following table.

Together, the goverments of the European Union handed over €335 billion of taxpayers money in interest payments in 2015. For the Eurozone countries, the total was well over €250 billion.

The Eurostat data set provides information for interest payments since 1995, so that I have been able to calculte the total amount of interest paid by most countries in that 21 year period. By comparing that total with the level of Debt, you can work out what percentage of the debt is simply due to payments of interest charges. For three countries, shown in red, the  figures don't go all the way back to 1995.

Overall, for the Eurozone, 60.5% of all Public sector debt has been used to pay interest charges. The percentage varies quite a bit between countries, from a minimum of 21.9% for Luxembourg to 76.7% for Italy. In France, where I live, 46.5% of the total debt of nearly €2.1 trillion is simply the result of interest payments. And over €44 billion of French taxpayers money went to pay the interest in 2015.

Outside the Eurozone, one country can proudly say that it has paid out 106.5% of its national debt in interest charges - well done Denmark.

And the big number is the amount that collectively, European Governments have paid in interest since 1995. The total has now reached €7.185 trillion - and this amounts to 57.6% of all government debt.

Now, readers of my blog will hopefully be aware of the fact that all these interest payments are stupid. The banks that lend our governments money don't even have the money they lend. As admitted by the Bank of England commercial banks can just invent money to lend out of thin air. That system is absurd. But when the money creation system is used to rip off  trillions of taxpayers money, I think that it cannot be thought of as anything other than a criminal racket that has allowed the richest people on the planet to exploit every one of us.

Does anyone reading this blog not believe that our governments could do something more intelligent with €335 billion?

European Public Sector Debt in 2015 : €12.48 trillion - up 3%

Eurostat has just released the figures for European Public Sector Debt and Interest payments for 2015. You can find the details here. If you want to do the analysis yourself you need to go to the tables of Government Finance Statistics, and then Government Deficit and Debt (t_gov_dd).

But I've extracted the key numbers here.

Overall, EU public sector debt has gone up by over €360 billion (3%) to €12.48 trillion. For the Eurozone, debt went up by €133 billion (1.4%) to reach €9.44 trillion.

But there are large variations between countries. For example, within the Eurozone, seven countries actually got their debt levels down a bit - Greece was down by 2.6%, and Latvia even managed to lower debt by 7.7%.  But some other counties went up a lot - Finland by 7.4%.

Outside the Eurozone, and measuring debt in the National Currency Units, only one country - Denmark - actually reduced debt (8.3%). Other countries like the UK were up 3.8% to £1.66 trillion - well done George Osborne. And Norway increased its debt levels by 15.2%.

Overall, I think it is fair to say that there is no evidence that governments are really making appreciable progress on Debt levels.

27 Feb 2016

More detail about Draghi's €60 billion a month of money creation - and why he needs to change his methods

Following my other recent posts I'm getting increasingly interested in understanding the details of how Mario Draghi and the European Central Bank have decided to use their ability to create €60 billion a month until at least March 2017. A first point is that there are currently three different programs parts to its Expanded Asset Purchase Programmes (APP) :
  • the third covered bond purchase programme (CBPP3) which started in October 2014
  • the asset-backed securities purchase programme (ABSPP) which started in November 2014
  • the public sector purchase programme (PSPP) starting in March 2015
I've extracted the monthly status of all three programs from files that can be downloaded from the ECB's website and the results are shown in the following table.

As you can see, the ECB had already generated over €712 billion by the end of January 2016, with over three quarters of the money creation (over €544 billion) used for buying up public sector assets - essentially government bonds.  You can see that indeed, since March 2015, the ECB really has been buying up around €60 billion a month.

What possible benefits could these massive purchases have?

According to Mario Draghi, one beneficial effect of buying up bonds could be to reduce the cost of interest payments for governments. We have not yet access to the Eurostat figures on the cost of interest payments in the Eurozone for 2015 - these generally appear in mid April of the following year - see my analysis in 2012, 2013 and 2014.  But we can look at the how long term interest rates on public sector debts have evolved over the past year by looking at the ECB's own figures. The following table compares the rates for all Eurozone Countries in January 2015 and January 2016.

There are variations - but there are as many countries where the rate actually increased as there were where the interest rate dropped. There is thus no evidence that Mario Draghi's €544 billion in bond purchases has done anything to help governments.

I also got an email two days ago from the Banque de France in response to a mail in which I asked whether its bond purchases has had any effect on French Public Sector debt. The reply was clear - the Banque de France is completely independent of the Government, and so buying up bonds has no effect on Public Sector Debt.

Mario Draghi has also argued that buying up bonds and other assets can increase lending in the economy. But Frank van Lerven, who gave an introductory presentation on QE at the QE4People conference in Brussels last week (you can see his presentation here and he starts after about 5m:20), nailed that one on the head. He showed the results of the ECB's own Bank Lending Survey into whether or not the assets purchasing programme had been effective. Here's the slide.

I rest my case.

If governments get no direct benefit from all that freshly minted ECB money, and there is no improvement in lending into the economy by banks, who is benefitting?

To me, the answer seems clear. Since commercial banks have an effective monopoly on buying government bonds on the primary markets, and it is typically the same banks that sell to the National Central Banks via the secondary markets, it seems highly likely the the direct beneficiaries of the whole system are those commercial banks.

I would even go as far as to suggest that since commercial banks can create the money they use to purchase government bonds out of thin air, with no need for capital to back up those purchases (since government bonds are typically considered to have zero or very low risk), it is quite possible that the ECB's massive €60 billion a month program is going directly into the pockets of the commercial bankers.

I may be wrong. Maybe the National Central Banks are going through the Commercial Banks that are the secondary dealers to buy up bonds belonging to third parties - such as pension funds. But since the majority of those bond holders non-resident (62.8% of Negotiable French Debt for example, at the end of Q3 2015), it means that the ECBs cash injections could be ending up in the hands of US and Canadian Pension Funds. Again, it seems almost stupid to do things this way.

Many reputable economists are saying more and more loudly that Mario Draghi's methods for trying to get the economy moving are doomed to failure, and that he should start putting his €60 billion a month directly into the economy. Lord Adair Turner made a very strong case for such a change in his book "Between Debt and the Devil : Money, credit and fixing global finance". And just a couple of days ago, Martin Wolf, the chief economics correspondant of the Financial Times argued that "Helicopter drops might not be far away".

24 Feb 2016

More on the ECB's €60 billion a month - and the possibility of an even more lucrative racket for the bankers

Following up from my post yesterday about the way the ECB's €60 billion a month of quantitative easing has been used, I discovered some more details by exploring the ECB's webpages on the subject, and in particular the details of the monthly statements. For example, you can download a file with the History of Cumulative Purchase Breakdowns under the PSPP (Public Sector Purchasing Program). Using such information, I have been able to generate the following table showing assets purchased by each Central Bank in the Eurozone since the start of the PSPP program in March 2015.

As you can see, from the word go, Germany has been taking full advantage of the new ECB program, with an average of well over €11 billion of purchases a month. And, between them, the central banks of the various Eurozone countries have managed to buy up over €545 billion in assets - essentially government bonds - since the start of the program.

Given that this table shows  essentially the purchases of government bonds by central banks of the Eurozone countries, you might be tempted to think that the result of this could be a reduction in the level of public sector debt in those countries. After all, isn't it almost as if the ECB had authorised the National Central Banks to buy up the debt of those countries?

To check on this possibility, I looked at the latest figures from the Eurostat website on the level of public sector debt in the Eurozone countries. Eurostat provides the numbers every quarter, and the latest figures are those for the third quarter 2015. Here are the official figures for the last 8 quarters.

As you can see, total Eurozone debt at the end of the third quarter 2014 did drop a bit- by about €700 million, but this was absolutely trivial relative to the total level of debt - namley €9.68 trillion - a value that has stayed almost exactly the same for the past three quarters. In other words, is doesn't appear to be the case that Mario Draghi's €60 billion a month is being used to reduce the levels of public sector debt in the Eurozone countries. So what is it doing?

If I have understood correctly, our governments are still borrowing like crazy by selling bonds to the commercial banking system. The only difference is that now, those banks can sell those bonds to National Central Banks who have been authorized by the European Central Bank to create around €60 billion a month. In effect, rather that using that money to finance governments, the current mechanism means that the new ECB money appears to be going directly into the pockets of the bankers.

I've not yet got a full understanding of the underlying mechanism, but in the case of France, I have seen that the French government has been emitting new long term bonds as frenetically as ever. You can see this by checking out the activities of the Agence France Tresor, the official organisation that is charged with handling French Government Debt. On their website, you can find details of all the operations that they were involved in during 2015. I've downloaded all the monthly files and found no evidence whatsover for a slow-down in the rate at which they have been emitting new government bonds (or OATs, to use the term used by the French Authorities) during 2015.  It's not possible to know exactly who has been buying French bonds, but we know that only authorized primary dealers can buy up such bonds. There are 18 of them - and they are all commercial banks - and the list of those primary dealers can be found here. 

However, while we don't know exactly what each of those banks has been doing, we do know the list of the most active primary dealers, because this information is provided on the AFT site.  Here is the list of the most active primary dealers in 2015:
  • 1 BNP Paribas
  • 2 Morgan Stanley
  • 3 Crédit Agricole
  • 4 Société Générale
  • 5 HSBC
  • 6 Barclays
  • 7 Natixis
  • 8 JP Morgan
  • 9 Royal Bank of Scotland
  • 10 Citigroup 
The AFT site also gives a ranking for the 10 most active secondary dealers:
  • 1 BNP Paribas
  • 2 Société Générale
  • 3 JP Morgan
  • 4 Crédit Agricole
  • 5 Barclays
  • 6 Nomura
  • 7 HSBC
  • 8 Morgan Stanley
  • 9 Citigroup
  • 10 Royal Bank of Scotland
As you can see, the group of banks doing the primary bond dealing is effectively the same group doing the secondary dealing too (only Nataxis and Nomura differ). So, it would appear that a bank like BNP Paribas has not only been very active buying up French Government bonds as a primary dealer, but it has also been very active on the secondary markets,  presumably selling those bonds  to the Banque de France which has been authorized to create money to make those purchases. As we can see from the ECB data, the Banque de France has apparently bought back around €102 billion in bonds since the start of the ECB Public Sector Purchase Programme in March 2015. That's one hell of a lot of money.

You might wonder why the Banque de France doesn't simply buy those bonds directly from the French government. I suppose that the reason is that article 123 paragraph 1 of the Lisbon Treaty forbids such purchases.

But here's the really intriguing question. When banks like BNP Paribas buy French government bonds, do they make those purchases with pre-existing money - i.e. money that has been deposited with them by savers? Or could it be that, since commercial banks like BNP Paribas can create money out of thin air (as revealed by the Bank of England), that they actually buy up those French government bonds with newly created money?

If that is true, it seems to me that this wonderful new system invented by Mario Draghi and his collaborators at the ECB may potentially be the most incredible racket yet devised. Commerical Banks like BNP Parisbas, Morgan Stanley and Crédit Agricole, may be in the process of  buying billions of euros worth of government bonds using non existent money, which they can then sell to Central Banks in exchange for real money - freshly minted with the authorisation of the ECB.  If this is true, it is a truly amazing way to transfer Central Bank money directly into the pockets of some of the richest bankers on the planet.

Methinks that it is time to put an end to this. We need QE for the People - now!

23 Feb 2016

What has the ECB been spending €60 billion a month on?

One of the questions that emerged during the four day IMMR training program concerned the use that the European Central Bank has been making of its ability to create €60 billion every month of new money.

With a bit of investigation, I think I have found out.

If you look at the ECB's website, you will find numbers for the total amount of newly created money that it has been injecting into the economy since they started the so-called Expanded Asset Purchase Program in January 2015. There are three components:
  1. The third covered bond purchase programme (CBPP3) amounted to €17,586 million at the end of January 2016
  2. The asset-backed securities purchase programme (ABSPP) stood at €150,337 million
  3. The public sector purchase programme (PSPP) amounted to €544,171 million. 
Together, the three components make up a total of €712,294 million - a number that effectively means that in 12 months the ECB has indeed been injecting around €60 billion a month - as promised.

The overwhelming majority of that money (over 76%) results from the PSPP program, so let's have a look at that in more detail. The ECB website provides figures for the amount of asset purchases that have been made by each country in the Eurozone. Here they are, ranked according to the value of those purchases.

As you can see, Germany has bought up the most - with nearly €128 billion of purchases authorized by the ECB, followed by France with nearly €102 billion.  It is almost certain that these purchases consist of government bonds, which indirectly means that the ECB has been financing those governments. Despite Germany's tendency to disapprove of ECB money creation, it looks like they don't turn their noses up when they are given the option to do some money creation themselves. And it looks like all the Eurozone countries have been having a go, with the notable exception of Greece, which apparently has not been allowed to buy any assets at all.

In principle, I suppose that I would be in favour of having the ECB financing governments in the Eurozone, even if the mechanism is rather convoluted. However, I must say that I would have thought that the obvious way to do that would be simply to provide each nation with an amount of funding that depended on the population size in each country.

That's why I thought it would be interesting to compare the way the ECB has divided up the €60 billion with the split that would be expected with if each eurozone citizen was treated equally. In the next table, I have removed the €66.1 billion that was used for purchasing "Supranational" assets so that we can see how the ECB's money was split between countries.  I also included the split that would be expected based on population size in each country. That way, I was able to determine what I call an "ECB bias" that reflects the degree to which each country is favoured (or discriminated against) by the ECB.  Here are the results.

As you can see, the country that got the best deal was Luxembourg which was allowed to purchase 58% more assets than it should expect on the basis of its population. Ireland, the Netherlands, Finland and Austria all get a particular good deal. In contrast, countries like Greece (of course) but also Estonia, Cyprus, Latvia and Lithuania all got a bad deal - with far less asset purchasing than would be expected on the basis of population size.

I have written to the ECB to ask them to justify their choices, and to ask them what would be so terrible if each Eurozone country was simply allowed to buy its own bonds to a degree that depended on population size. I'll will let you all know what the ECB has to say.

It's interesting to note what this level of money creation corresponds to at the level of individual citizens. For example, in the case of France, the Banque de France has purchased €102 billion worth of bonds from the secondary markets in 9 months. That’s the equivalent 170.2 € per month for every man, woman and child in France.

In the case of the Netherlands €28.5 billion in 9 months for a population of 16.9 million works out at €186.7 person person per month.

The obvious question for the ECB is this - why not simply put that much money into peoples' pockets, rather than throwing the money at the financial markets? Can anyone seriously claim that it is more "efficient" to inject all this newly created money into the financial markets, than giving the money to the Eurozone's citizens?  The case for QE4People seems overwhelming.

Note added on March 7th 2016:
The figures for the PSPP program at the end of Feburary show that the total has now reached €601.2  billion.  Germany now has a total of €140.4 billion in cumulative monthly net purchases.


I've been a bit quiet recently, but things have nevertheless been moving. I have just returned from a four day training program of the IMMR (International Movement for Monetary Reform). The event took place in Brussels and was organised by Stan Jourdan and other members of Positive Money. It was very well organised, good fun, and was an opportunity to meet other reformers from a wide range of countries - UK, Belgium, Bulgaria, Denmark, France, Germany, Greece, Iceland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland and well as South Africa and the USA.

We kicked off with a special conference on QEforPeople that was held in the European Parliament on Wednesday the 17th of Febraury. It was introduced by Molly Scott Cato (MEP for the UK Green Party) and featured talks by Richard Werner (Director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton), Eric Lonergan (a macro hedgefund manager, economist and writer), Frédéric Boccara (a member of Les Economistes Atterés), Frances Coppola (who has worked in banking for many years) and  Frank Van Verven and Fran Boait who are both from Positive Money. You can see interviews with a journalist during the meeting for several people at the meeting : Molly Scott Cato, Eric Lonergan, Frances Coppola and Fabrio De Masi (MEP) in which they talk about the basic ideas.

The arguments presented in the debate were pretty convincing. We know that since march 2015, the European Central Bank has been trying to get the Eurozone economy kickstarted by injecting €60 billion a month into the financial system by using a range of measures known collectively as Quantitative Easing. However, as argued by Frank Van Verven, these measures have been remarkably ineffective, and in general have mainly led to increase in asset prices - thus increasing inequality by putting money in the pockets of people who are already wealthy.

People at the meeting were arguing, quite rightly, that it would make far more sense to simply put those €60 billion directly into peoples' pockets - for example with a citizen's dividend.

Note added on 25th February: There's a short description of the meeting that you find here. A full two hour video of the entire conference has now been uploaded to Youtube.