26 Jul 2015

Global Household Debt at the end of 2014 - Over $39 trillion

In my last post, I used the Bank for International Settlements data on credit to the non-financail private sector to show that Private sector Debt had exceeded $100 trillion at the end of 2014. For most of the countries, the dataset allows that Private sector Debt to be divided between "Non-financial corporations" and what is described as "Household and NPISHs" where NPISH refers to "Non profit institutions serving Households". The exceptions are Argentina, Brazil, Malaysia, Russia and Saudi Arabia.

Nevertheless, the Figures for Household debt for the remaining 34 countries makes for fascinating reading. I've compiled the figures for debt at the end of 2014 in the following table. At the top of the table I give the data for 12 of the 19 Eurozone countries individually, as well as the number for the entire Eurozone. I provide the numbers provided by the BIS (in Local Currency Units), but I also use the dollar exchange rate to calculate the amounts of household debt in millions of dollars.

As you can see, you can find debt levels for households including nearly 4.3 billion people on the planet. That's a fairly substantial proportion of the total population that was estimated to be 7.2 billion in 2013. Together those 4.3 billion people have accumulated over $39 trillion in personal debt - averaging $9113 per man, woman and child.

The table includes population sizes for each country, and this allowed me to calculate per capita debt levels for each country.

The winners are the Swiss who have managed to rack up over $102,000 of personal debt each. They are followed by Norwegians, with nearly $86,000, the Danes with $77,000 and the Australians with nearly $72,000 each.  Luxembourg's residents each have over $64,000 of debt, and the Dutch $55,000.

And so it goes on. An important figure concerns the USA, where the average debt level is nearly $42,000 per person, followed closely by the UK at nearly $40,000 each (over £24,000).

It was relatively reassuring to see that my compatriots in France are relatively frugal with $18,400 in personal debt each (€14,700). But the most sensible people in Europe are, would you believe, the Greeks who each only owe around $13,000 (€10,300).

So, would anyone like to estimate how much interest we collectively pay on this $39 trillion of debt? Again, using a 5% interest rate is just guesswork, but that would already mean around $2 trillion a year.

Oh, and remind me once more where the Banks that lent out this €39 trillion get the money from? Was it from the man in the moon? Or someone on Mars? No, they just created all of it out of thin air with the wonderful magic money tree that they all have in the back of the bank.

So, how hard are they working to earn the $2 trillion a year in interest? Are they working at all?

Is anyone out there still trying to understand how it is that 1% of the worlds population owns half the world's wealth? I would have thought that the answer is blindingly obvious. It is all a direct result of the totally insane way in which we have given commercial banks a monopoly on the ability to create the monetary tokens that we are all forced to use.

Methinks it is time for a change.

25 Jul 2015

Global Private Sector Debt at the end of 2014 - over $100 trillion

The Bank for International Settlements compiles data about the level of Private (Non-financial sector) debt for 39 different countries every quarter. The latest set of data (published as an excel file on the 8th of June 2015) covers the period until the end of 2014.

It's a pretty complicated set of data, but I have extracted the main numbers in the following table which provides information for 39 countries. 12 of them are in the Eurozone countries, but BIS also provides a figure for the entire Eurozone - only 7% of the debt is held by the other 7 countries. The table also includes another 27 other countries, and I have converted all,the debt values into dollars using the exchange rate for 2014 from the World Bank.
You can see that Private Sector Debt is highest in the US, where debt had reached $25.5 trillion, followed by China with $19.8 trillion, and Japan with $7.9 trillion. Then comes a series of European countries - France with $4.8 trillion, the UK with $4.7 trillion, Germany with roughly $4.0 trillion and so forth. I was surprised to see that even countries like Canada and Australia have private sector debt levels of €3.5 trillion and $2.8 trillion respectively. That's huge, given their relatively small populations.

Total Eurozone Private Sector Debt stands at €16.6 trillion (over $20.7 trillion dollars).

Altogether, the total (Eurozone debt, plus the other countries) exceeds $102 trillion. And that's just 39 countries. Incidentally, I think these numbers are really correct - they certainly fit with the figures provided in a recent report by the McKinsey institute which reported figures for global Household and Corporate Debt of $40 trillion and $56 trillion respectively.

Let's assume that the Banks that created all that debt are charging interest at around 5% interest per annum - a round number which is probably not that far off the mark. After all, remember that Credit Card companies will happily charge  you 15-20%. That would mean that around $5 trillion in interest charges are being sucked out of people's pockets every year. Not far off $1000 for every person on the planet. Given that many of them don't earn anything like that much, you can begin to see the scale of the racket.

And that's without counting the 5.5% of all the taxes that we in Europe pay that goes to feeding the parasitic banking sector because our governments have agreed to borrow trillions from them as well. To be precise - over €12 trillion in the European Union, over £1.6 trillion in the UK, over €18 trillion in the US.  McKinsey puts the Global figure for Government debt at $58 trillion.

Would anyone care to explain to me why this system, in which Commercial Banks have been given the right to create debt by lending money they don't have and then charging everyone - citizens, businesses and governments interest, is a good idea?

It is certainly a good idea for the 1% at the top of the system who rake all this money in. It is an unmitigated disaster for the other 99% of us.

Our governments should be creating our money supply debt free and allow us to get the parasites off our backs, because the current system is clearly a total disaster.

14 Jul 2015

5.5% of all European Government Revenue goes to pay interest charges

Jim Crawford asked me for a Table with Interest Payments as a percentage of tax revenues for European Union countries. Here are the numbers, using figures from the Eurostat Database :

As you can see, the €356 billion paid out last year in interest payments on Public sector debt amounts to 5.5% of total government revenue. But the slice of taxpayers money going to pay those interest payments varies enormously between different countries. The Irish are top of the list with 11.6% of their tax revenue going to pay interest charges, followed by Portugal, Italy, Spain, Hungary and Greece. Even the UK manages to hand over 7.1% of its revenue in interest payments.

France and Germany are actually quite a long way down the list, but it is the Scandinavian countries who get off the most lightly, with Denmark, Finland, Sweden, Norway and Estonia all near the bottom. The notable exception is Luxembourg, who only uses 0.8% of its revenue to pay interest charges.

Overall, this distribution can explain why some countries seem perfectly happy to see countries like Greece forced by creditors to impose draconian austerity.

13 Jul 2015

Euros, N-Euros and Complementary Currencies

The Eurozone is in crisis. The feuding between the 19 members has now come out into the open, and the longterm prospects are looking grim, despite the apparent agreement signed overnight by the Eurozone ministers.

Personally, I'm actually a big fan of Euros, so I would be sad to see them disappear. I love being able to go to any of 19 countries in Europe, and make payments with a universally recognized currency. I pay €100 for a restaurant bill in Germany, Italy or Spain, and my bank account is debited by €100 - not €100 minus the exchange rate and the 2.5% "international charge" imposed by nearly all credit cards.  I see the Euro as something not unlike the International Bancor currency proposed by John Maynard Keynes during the second world war.

But even if I like the idea of a transnational currency like the Euro, does this mean that Euros should be the only official currency for the 19 countries? My answer to that is a clear No.

I see no reason why we should not have Euros for international trading, but some other Euro-pegged currency at the national level. And that is precisely where I think that the N-Euro proposal makes so much sense. Governments should be able to produce their own National N-Euros electronically, and debt-free. Those N-Euros can be used to pay public sector workers and pensions locally, and also  used to pay local taxes. However, they would have no validity for making international payments. This is important, because it means that Germans should not be able to object if the Greek government produces N-Euros locally. There is no way that Greek N-Euros could possibly devalue the value of the International Euro, or the ones used in Germany (if the German government decides not to have its own N-Euro system).

The fact is that these government-backed N-Euros would lie somewhere between the International Euro and the huge number of complementary currencies that have sprung up in the past couple of decades. I was interested to see that the list of complementary currencies has now expanded to 280. The Complementary Currency website keeps a track of them.

However, when I looked at the nature of these different Complementary Currencies, I was unable to find any where they had the official backing needed to give the currency true value.  Here is a table of the different types of currency (some are not included), but there is no sign of that critical government backing, anywhere.
There's probably a very good reason why no government has yet been able to back one of these complementary currencies. As soon as they did, it would immediately become clear that the use of the "official" currencies like the Dollar, the Euro and the Pound Sterling, all produced by Commercial Banks as interest-bearing debt, was a complete scam. There is simply  no reason why governments should be forced to borrow "money" from commercial banks, money that those banks create out of thin air, forcing taxpayers to pay literally trillions in interest charges. Remember that 86% of all European Government borrowing over the past 20 years has been used to pay interest charges on public sector debt. Keeping that gravy train on the rails will motivate the Bankers and complicit politicians, journalists and economists to do everything in their power to keep the status quo, even it is obviously a total disaster for 99% of the population.

The introduction of an N-Euro system, or an equivalent, would put an end to this insanity. I don't expect this to be easy. But there is a chance that, following the decisive vote in last week's Greek referendum, and the humiliation of the Greek people by the Bankers friends among the Eurozone finance ministers, there may be enough anger to get the system changed. I'm keeping my fingers crossed.

12 Jul 2015

N-Euro.info is Go!

Having set up a Cyclos 4 based alternative currency called the N-Euro a couple of days ago (which you can find at http://www.n-euro.com, I have now set up another site called N-Euro.info which is aimed at providing a place for finding out more about the idea. This is what it looks like right now, although I expect that it will evolve a lot in the coming weeks.

I encourage you all to sign up on the site if you are interested (just go the register menu item on the left). And I've also set up a Forum so that everyone can discuss the pros and cons of the system. 

Enjoy!

N-Euros versus Credit and Debit Cards

One of the reasons why I'm really pushing the N-Euro idea is that I think that it could easily become the prefered method of payment for both citizens and businesses.

Why? Because currently we are all paying very substantial amounts to the Commercial Banking system to be able to use Credit and Debit Cards. The N-Euro solution would eliminate those costs.

According to the ECB's press release in September 2014 :
The number of cards with a payment function in the EU increased in 2013 by 3.0% to 760 million. With a total EU population of approximately 508 million, this represented around 1.5 payment cards per EU inhabitant. The number of card payments rose by 9.6% to 43.6 billion, with a total value of €2.2 trillion. This corresponds to an average value of around €49 per card transaction.
And according to a report in the Financial Times in December 2014 :
Retailers across Europe pay banks about €13bn a year to handle transactions, and 70 per cent of this charge is accounted for by interchange fees between banks handling the process.
I suppose that €13 billion in fees on transactions worth €2 trillion implies that the "Financial Transaction Tax" is only about 0.7%.  However, any restaurant owner or shopkeeper knows that they have to pay VISA and Mastercard something like 3-4% of the value of each transaction. I bet that means that big players like Amazon pay way less than ordinary businesses. Yet another illustration of how the whole system is rigged in favour of the big players.

Add to that the fact that the Credit Card companies typically slap on an additional 2.5% or more as an "International Fee" for multiplying the value of the payment in one currency by the current exchange rate. It's obscene when you know that the banks themselves do over  $5 trillion in foreign exchange EVERY DAY, effectively for free.

Methinks it's high time this racket was stopped.

Now, suppose that my dream of government backed N-Euro currency system came true. Every citizen and every business in the Eurozone would have a free account in a huge database that could be run using the Cyclos 4 Pro system.  Cyclos proposes a PRO version with a price list. Here it is:


They are clearly geared up to handle millions of users if necessary. It might be interesting to hear what price they would charge for a system that included the entire Greek population. And as they say:
Non-profit organisations and companies with a social mission (e.g. philanthropy projects, environmental innovations) can apply for the social license. ou are a charitable organisation.
Personally, I think that the N-Euro project is pretty philanthropic in objectives.
So, in addition to the software costs, there would be cost of setting up the servers to run the system. Currently, hosting companies like OVH will offer very low latency servers capable of handling up to 3 Gbps (Billions of bits per second) for a few hundred pounds.  I can't believe that the costs of providing enough hardware to handle the payments of a population can be that much - assuming that we don't have to cater for High-Frequency Traders in the City.

Do you really think that the total cost of this would justify charging businesses 3-4% for providing this "service"? I don't think so. Most intelligent people would happily switch to paying via a free, government backed payment system, and cut out the banks completely.

Last night I emailed Yanis Varoufakis to see whether he might be able to get an N-Euro system set up in Greece. Given last night's refusal by the Finnish and German ministers to allow them to have support from the ECB, it may be just the right moment to change the whole system.

11 Jul 2015

N-Euros or Bitcoins?

In response to the crisis in Greece, I have made a number of suggestions for ways to break the stranglehold.  In particular, a few weeks ago I suggested that the Greek government could introduce a government-backed "Bitcoin" pegged to the Euro. It turns out that the ex-Greek Finance Minister Yanis Varoufakis talked about the possibility of using a Bitcoin-like system in the Eurozone in February 2014 on his blog in a piece called "BITCOIN : a flawed currency blueprint with a potentially useful application for the Eurozone" as well as an earlier piece called "Bitcoin and the dangerous fantasy of "apolitical" money".

But, in the last few days, I have have been pushing an alternative idea - namely, I've been arguing that Governments should introduce a parallel debt-free Euro that I have called the "N-Euro" - see my post "Greece : Bring in the N-Euro now!" And as of yesterday, there is now a Cyclos 4 based alternative that actually exists  at www.n-euro.org. I'm just waiting for the first official partner to contact me, and we can start the ball rolling!

Please note, that these proposals are not linked to N-Euro - the Estonian Rock Band who were active from 1999 till 2008 (!!). My apologies for any confusion. And my apologies to any fans who try clicking on the links on the bands wikipedia page - they will get a shock. (I guess that the band neglected to keep the www.n-euro.com domain name active).

Before going any further, I just wanted to explain my change of heart. Why not use a Bitcoin style Crytocurrency? After all, they do provide a real alternative to the conventional Banking system which relies of the use of monetary tokens created for profit by commercial banks.

The problem with Crytocurrencies like Bitcoin is that, even if they are backed by a government (such as the Greek Government), ownership can be transferred to literally anyone with no controls. Thus, if the Greek Government were to create 1 billion Bitcoin equivalents, that were given a value of exactly €1 because they were accepted for paying Greek taxes, there would be nothing to stop some unfriendly players in the financial markets buying up the vast majority of the stock (by proposing to buy them for €1.10, for example), and thus render the system unworkable. Yes, the Greeks who sold their Greek government bitcoins for €1.10 would have got some "real" euros in return. But, as we have seen, having "real" euros on your bank account doesn't actually help when the International Banking Mafia have the power to Blackmail your government by forcing Banks to close and refusing to allow people to draw out their Euros in cash.

Would the Banking system try to disrupt an official Greek government Bitcoin system? You bet they would.

So, one of the really great features of having a Government backed N-Euro system, such as the one I have just set up using Cyclos, is that the Government gets to control exactly who is allowed to use the currency. Essentially, if you don't have an official account on the system, you don't get to play. And if anyone is caught out trying to manipulate the system by buying up the N-Euros on individual citizen's accounts by offering them €1.10 (which they certainly could), all they would get is a bigger number in their N-Euro account. But, as everyone knows, all money in bank acounts is just numbers - a series of 0s and 1s on some hard disk somewhere. And the Government would be perfectly entitled to say, sorry, we have just decided to remove all the N-Euros from your account. It's our banking system, and we set the rules. (Boy, would that be fun!).

So, that's why I'm now 100% convinced that this is the way to go. As soon as any authority with the power to raise taxes, anywhere in the Eurozone, decides to try out the N-Euro system, then the revolution will be underway. Within months, the scam that is at the heart of the entire financial system, namely the right of Commercial Banks to create our money out of thin air  as interest bearing debt will be in broad daylight.  And Europe's taxpayers, who have been paying trillions of Euros to rent our currency from the International Bankers will be able to say, quite rightly, we want our €6.7 trillion back

9 Jul 2015

N-Euros are Go!!

I've been pushing the idea of a parallel debt-free Euro, called the N-Euro (New Euro, or National Euro) for a couple of years now. I had the original Eureka moment at 4am on the 17th September 2012. I followed that up with another post when I generated a 13 minute Youtube presentation.

Very recently, I have been suggesting that N-Euros might be a solution for the Greeks.

The idea is that governments could decide to pay some proportion (say 50%) of all public sector salaries, pensions and other benefits using this alternative currency - thus avoiding the need to borrow more classic euros from the Commercial Banking system, or being forced to accept intolerable conditions for getting help from the European Central Bank. They would guarantee that the new currency had value by accepting them for paying taxes or other charges.

So, to help get the ball rolling, I've done quite a bit of the work for them by setting up a basic N-Euro framework using Cyclos 4 - a free banking system developed by the STRO (Social Trading Organisation).

You can actually try the system out by going to http://www.n-euro.com where you will be greeted by the following welcome page. I hope you like it.

For the time being, there's not much you can do with it. Feel free to register, but you will find yourself with an N-Euro account credited with precisely 0 N-Euros. And you can't send anything to anybody.

To get the system off the ground, I'm looking for any administration somewhere in the Eurozone who would like to try it out. Essentially, it would be some sort of organisation (a local council, a municipality, a regional government, or who knows, maybe Alexis Tsipras!) that currently
a) pays citizens salaries, pensions or benefits in Euros
b) collects some form of tax or charges

Suppose you are the head of a local government that charges businesses and resisdents taxes. If you agree that you will accept N-Euros in payment for those taxes instead of conventional Euros, then you are ready to go!

From that point, you could decide to pay some proportion of salaries or benefits using N-Euros, which would immediately save you money, because you wouldn't need to have that money available.

Clearly, you will also need to be able to set up accounts for as many citizens and businesses as possible in your locality. This should be easy for people that are currently on your payroll or receiving benefits, but it would be even more useful if you could get other people to join in too.

Suppose that you managed to get everyone in your city to sign up - citizens and businesses. N-Euros would enter the system via the N-Euro accounts of people working for the local authority. But they could then be used to make payments to other local businesses, who would very probably be happy to take them instead of conventional Euros because they know that they are worth 1 euro each, and can be used to pay taxes.

That really is all you need to establish parity between N-Euros and Euros! Simple!

There are plenty of advantages of using this Cyclos-based N-Euro system.
  1. It's totally free to run! People will be able to pay the bill in a restaurant with no cost at all. If you are the restaurant owner, would you prefer N-Euros (which have no transaction costs) or conventional Euros paid for with a credit card, and where VISA will charge you 3-4% for handling the transaction. The people at Cyclos already have versions that run on iPhones, iPads and Android devices. You can make payments by SMS, and they are introducing PoS (Point of Sale) systems too.
  2. There is no possibility of cheating. If someone does not have enough N-Euros on their account to make the payment, it simply won't go through (because I've set the system up so that negative values are not permitted).
  3. For the local authority, N-Euros can be produced for free! Obviously, there have to be controls over what can be paid for using the N-Euros. I think that you  would need to have some sort of elected body to check that all the N-Euros generated by the Authority were justified. This would be the case if they were used to pay part of the salary of people working for the Authority. Any payment that would not be approved the committee could be made illegal.
  4. Since the authority can control both the creation of N-Euros (via payments made to citizens) and their withdrawal (by paying taxes), it would easy for them to control the total quantity of N-Euros in circulation. If at any point it was felt that there were too many N-Euros in the system, it would be very easy to add a financial transaction tax that would remove a small percentage every time a payment was made.
  5. There is abolutely no need for paper N-Euros or coins. Everything is entirely handled by the software. Indeed the only place they can exist is in the database of the computer. They cannot be moved to offshore taxhavens, or hidden under mattresses.  
  6. They cannot be used for illegal activity. Since there would be a public record of every N-Euro payment, you would be very foolish to try and organise anything criminal using N-Euros. Obviously, only people with administrator status would normally be in a position to find out about specific transactions, which should provide sufficient confidentiality for most people. If anyone really needed to guarantee confidentiality, they should use some other payment mechanism (like paying cash in conventional Euros).
Could the system be built up from small local implementations? I believe the answer is yes.

Let's suppose that one or two different local authorities decided to use the N-Euro system. In the initial stages, we could set them up internally with two different currencies that were kept separate. There might be one N€ for Toulouse (my local city) which might be called the N€Toul, and a separate one for Bordeaux (a city about 150 km away) which might be called the N€Bord. Initially, people in Bordeaux and Toulouse would not normally be able to make payments to people in the other city. However, once the systems were functioning well, the two cities could decide to merge the two currencies together.

Do this process of creation and merger enough times, and you might end up with an N-Euro that worked everywhere within the Eurozone!

Could it work? Well, I suspect that there's only one way to find out. We need to start trying it out - and the sooner the better.

If there are people who are interested in getting involved, feel free to contact me. I'll probably set up a BaseCamp project for discussing the proposal.

6 Jul 2015

Greece : Another way to solve the Greek debt problem

OK. So the Greeks owe their creditors €317 billion (the figure at the end of 2014).

How on earth could they pay off that debt?

Well, those of you who know my blog will maybe remember that back in May 2012, I proposed a way to cancel all goverenment debt in just 10 easy stages

All you need is the following list of ingrediants
  • 1 cooperative bank
  • 20 cooperative individuals (volunteers please)
  • €1000 to start (I'm happy to put up the money)
  • A network of taxhavens so that the flow of money cannot be controlled (conveniently, they are already in place)  
Essentially, the Bank uses the wonderful fractional reserve banking system to lend out roughly 10 times more money than it has capital. The person borrowing the money (lets call him A) then hands the money to another person (B) who then reinvests the sum in the Bank. The bank can then lend out 10 times more money to person C, who then gives the money to person D who reinvests in the Bank. Keep doing this a few more times, and you can generate arbitrarilly large amounts of money.

When there is enough "money" in the bank, it can loan the Greek Government the "money" which can then be used to pay off the entire €317 billion. The Greek government signs a document saying that it promises to pay the entire sum back with interest of 0% after, say, 1000 years. It's as simple as that.

Actually, the Basel Banking Rules state that the Risk Weighting of Greek Sovereign Debt is 150% since it is classed as CCC- (S&P) Caa3 (Moody's) and CCC (Fitch) which means that our friendly Bank would have to keep a bit more money as capital reserves. Instead of having to maintain capital of around €31 billion, it might need say €45 billion. But that's not really a problem.

Does this sound ridiculous? You bet. But it is this insane system that got us all into this mess in the first place. Where do you think the Banks found the €12 trillion that has been lent to European Union governments? Where do you think the Banks found the £18 trillion that has been lent to the US government? Who are we borrowing all this "money" from? The Martians? 

Not convinced? Take a look at the numbers at the National Debt Clocks website. At the time of writing, the total stood at $61.142 trillion. By the time you read this it may well have increased a lot.

No, all this "money" that our Goverments have been borrowing is stuff that has been created out of thin air by Commercial Banks. The Greeks now have the possibility of pulling the plug on this insanity. Go for it, Greece.  I'll chip in the first €1000 to get the bank off the ground. And no, I won't want the money back with interest.

Greece : Bring in the N-Euro now!!

In my last post, I gave the Greek people a big thankyou for voting a very solid "NO" to the blackmailers at the ECB and within the Eurozone. I suggested three different approaches that they could take in the coming weeks.

But I neglected to mention what I think is probably the simplest and most radical solution to any attempt by the ECB and the Eurozone to break the Greek peoples resolve.

It's my proposal, dating from September 2012, to replace the Euro with the N-Euro - a purely electronic currency, that could be totally independent of the conventional banking system. I also produced a Youtube presentation on the subject - "The N-Euro Solution". Here's my talk in case you are interested - only 13 minutes!

I also mentioned the N-Euro idea in my recent talk to the Toulouse School of Economics in February this year. That's also available in a Youtube presentation - called "Fixing the Economic System" although it's quite a bit longer - about an hour. The bit about using the N-Euro starts around  49:37.

Since 2012 things have moved on.  I've discovered that there is a wonderful system for developing alternative banking systems called Cyclos 4. Developed by the STRO (Social Trade Organisation) they have done a fantastic job putting together a truly solid and professional package that can be configured to run a wide range of alternative currency projects. I note that the STRO has made its own proposal for the Greek Crisis - called "DigiPay4Greece" - there's a pdf about it that you can download.

I used Cyclos to develop my own Owe'm system that allows Citizens to create their own credit by sending the equivalent of IOUs to each other without the need for any money at all. (In passing, I note that Owe'm could also be used by people in Greece - please feel free to try it out!).

Cyclos 4 really is very good.  It's built around industry standard secure software, and they are ready to handle systems with tens of millions of users. It runs on Macs and PCs and there are versions that run beautifully on iPhones and Android devices. The latest version (Cyclos 4.4) includes SMS payments and Point of Sale (PoS) systems. Everything you could really want.

So, Alexis Tsipras. Why not set up a Cyclos based system now? Open accounts for every Greek Citizen, and start paying your pensioners and public sector workers with N-Euros instead of Debt-based Euros on loan from commercial banks. Since the Greek government can produce as many N-Euros as it wants, debt free, they would be showing the entire world that we don't need to rent our money from Commercial Banks.

Peg the value of the N-Euro to the Euro by allowing Greeks to pay their taxes in either conventional debt-based Euros, or the new debt-free N-Euros, and the system will be ready to fly.

Greece would still be able to stay in the Eurozone. After all, Greece would certainly still need to find some "real" Euros to buy imported goods such as petrol and gas, and of course pay the interest on its public sector debt (at least until the time when we all get a debt jubilee).  In addition, Greeks will want to travel abroad and buy things with a Euro credit card - after all, who wants to be ripped off by the Banks who charge 2.5% on top of merchant fees just for converting one currency into another. That' one reason why I am personally a big fan of the Euro.  But every year, millions of people go to Greece on holiday with lots of Euros (and dollars) to spend. I for one intend to go next year to support a brave and valiant people who deserve our support.

Go for it Greece. Tell the International Banking Mafia where they can get off....

5 Jul 2015

A personal thankyou to the Greek people

The financial system has declared war on the Greek people. They have been forced to close their banks by the European Central Bank, led by ex-Goldman Sachs banker, Mario Draghi, despite the fact that the ECB's primary function is to make sure that the banks stay open.

But the Greek people have stood up to the Bankers and their defenders at the head of the ECB and the European Union.  Even the IMF has admitted that debt forgiveness should be part of the deal. But that was never on the table.

The Greek people have a fight on with the Financial System. And they have just said "NO!" to blackmail with a majority that should be at least 60% of the vote. 

But the fact is that Greece's fight is everyone's fight.

As I have been saying loud and clear, Europe's taxpayers now own the Banking system over €12 trillion. We have borrowed no less than €7.8 trillion in the last 20 years, of which at least 86% (€6.7 trillion) was handed over in interest charges on public sector debt. In the UK at least, nearly 98% of those interest payments go directly to the financial sector.

In the last three months, my own government in France has borrowed another €51.6 billion.  Remember this is the same François Hollande who,  in January 2012 said : "je vais vous dire qui est mon adversaire, mon véritable adversaire. Il n’a pas de nom, pas de visage, pas de parti, il ne présentera jamais sa candidature, il ne sera donc pas élu, et pourtant il gouverne. Cet adversaire, c’est le monde de la finance".

Here's a translation : "I will tell you who is my adversary, my real adversary. He has no name, no face, no party, he will never be a candidate, will never be elected, and yet he governs. This adversary, is the world of finance".

Spot on François! But what have you done since being elected president to take on "your real adversary"?

Fortunately, the Greek people have had the courage to say no. And they deserve enormous respect.
The Bankers and their minions will fight like crazy to keep their racket going. A racket that means that Commercial Bankers have complete control over lending to our governments, and which has allowed them to suck trillions of taxpayers' money out of the system. Thanks to the brilliant Maastrict and Lisbon treaties, our central banks are prevented from lending directly to governments.

But it doesn't have to be that way.

First, the Greeks could create an alternative cryptocurrency (similar to Bitcoin), pegged to the Euro, and given solidity by being acceptable for paying taxes. This could be set up within a week or so, and used to pay pensions and public sector salaries. It would totally bypass the conventional banking system, and demonstrate once and for all that we don't need the Bankers debt-based money system.

Second, the Greeks could say that they will be happy to pay back (with interest) any creditor who could prove that they lent money that actually existed before the loan was made. Since the Commercial Banks that bought up Greek bonds use the standard opaque accounting system that hides the fact that most loans are made with money created out of thin air, they might have an exceedingly tough time demonstrating that they actually lent "real" money. I for one would just love to see them squirm trying to prove that we actually owe them anything! Can we have our €6.7 trillion back please?!

Finally, they could push for a solution that would not just work for the Greek economy, but for all the heavilly endetted nations in the Eurozone. It would involve diverting the €60 billion that Mario Draghi is currently printing every month for his friends in the financial sector, to paying off Eurozone public sector debt directly. By making payments that depended simply on the populations of each Eurozone country, it turns out that Germany would get out of debt only a few months before the Greeks. And the Greeks would be out of debt before the likes of France, Austria, Italy, Belgium and Ireland.

So, let me say it once more. Thank you Greece. This victory might just turn out to be a turning point in the history of humanity. I certainly hope so.

4 Jul 2015

Eureka - How the Bank of England could fix the system for good

I think this may be it. The solution....

Here's what needs to happen.

1) The Bank of England should introduce a modest financial transaction tax on all sterling-denominated electronic transactions

2) The money raised by the tax should be used in two ways
  • To progressively buy back the entire stock of gilts that are not already held by the Bank of England (£1214 billion)
  • To provide the UK government with enough funds to cover the public sector borrowing requirement
That's it. Simple.

Let's see how this might work. Suppose that the Bank of England were to set the rate of the financial transaction tax at 0.05%. To calculate how much revenue would be generated, we would need to know the volume of sterling-denominated transactions. This is actually not trivial. I have estimated UK transactions at over £2 quadrillion a year in 2014. However, a substantial proportion of those transactions are certainly in other currencies, especially the dollar and euro. I'll assume that the volume denominated in sterling is about 25% of the total - i.e. £500 trillion a year. With the tax set at 0.05% this would generate around £250 billion a year.

The Government is currently expecting to have to find roughly £100 billion to cover the public sector borrowing requirement, but this is supposed to drop over the next few years. So lets assume that there will be at least £40 billion per quarter for the buy-back program. At that rate, it would be possible for the Bank of England to buy back the entire stock of gilts by about 2022.  The following graph (modified from the one I published earlier this week), shows how this could happen.
In the graph I have simply assumed that the Bank of England buys up the stock of gilts uniformly, until in 2022, there are no gilts left in the hands of the financial markets.  From that point on, the 4.4% of GDP that UK taxpayers have been forking out every year to pay interest on government debt since 1694 would be history. But of course, the precise sequence of buy-backs could be done in another order if needed. It might be a good idea for the Bank of England to buy back gilts preferentially from particular players. For example, if we conside the £1214 billion currently in circulation outside the Bank of England, £24.9 billion (2.1%) are currently in the form of gilts held by households. Allowing these "households" to cash in their gilts first might be particularly useful, because those households are more likely to  spend their cash in the economy that other players. The same argument applies in the case of Public Corporations, Local Government and Private Non-Financial Companies which together hold about £3.5 billion in gilts. But this is a mere 0.3% of the total.

Most of the gilts are currently in the hands of Insurance Companies and Pension Funds (£468.3 billon), Foreign Investors (£333.4 billion), Other Financial Institutions (£159.7 billion), Monetary Financial Insitutions (i.e. Banks, £157.9 billion), and Foreign Central Banks (£66.3). Frankly, for me, I don't think that any of them deserves special treatment.

There are a number of points about this potential solution that merit attention.

First, the Financial Sector, which holds 97.7% of all the £1214 billion currently owed by UK taxpayers, should be happy. Over the next few years, they will receive exactly the same amount that they contribted in the first place, so surely they will be in no position to complain. I note that this freshly minted Bank of England cash can be spent on anything - including bankers bonusses if they want.

Second, the standard complaint that Central Bank Money creation leads to inflation falls flat on this occasion. Since the money used by the central bank to buy the gilts has been removed from circulation by the Financial Transaction Tax, there is strictly no way that this procedure could produce inflation.

Thirdly, this procedure will produce a massive reduction in the the amount of money that needs to be paid out in interest payments. In the last 20 years, UK taxpayers have handed over £653.6 billion in interest payments on public sector debt. That's over £10,000 for every man, woman and child in the country.  This money will be saved in future, and could be spent on more useful things, including health, education, housing, renewable energy, transport and so forth.

Finally, it should be noted that the mechanism doesn't require anything too radical (apart from the introduction of a Financial Transaction Tax). The fact is that we are already used to the idea that Central Banks buy back government bonds on the secondary markets. It's precisely what the Federal Reserve, the ECB and the Bank of England have been doing for some years now. The only real difference is that here I am proposing that they don't just buy back some modest proportion of the bonds. Instead, they simply have to bite the bullet and buy up the whole lot. 

But there are a number of other somewhat more indirect benefits of such a scheme.

Firstly, by showing that the sky doesn't actually fall in when you introduce a financial transaction tax, the path will be cleared for a radical reform of the tax system. You may well be aware that for over four years I have been arguing that it should be possible to replace the vast majority of taxes by a universal flat rate transaction tax. Once it is clear that the UK government can indeed use an FTT to raise money, there would be nothing to stop it going on to scrap other taxes. As I have argued, Income Tax, which raised £163.2 billion last year, could be replaced by an FTT of well under 0.1%.  Likewise, VAT, which raised £111 billion, could also be replaced by an FTT well under 0.1%, as could Corporation Tax, which raised a relatively modest £42.3 billion. Getting rid of these antiquated taxes would be a really good move.

Second, if the scheme works, it should also become clear to everyone that, in fact, Central Banks can perfectly well inject money into the economy directly. In the current scheme, I was careful to avoid the standard complaint that Central Bank money creation could lead to hyper-inflation by ensuring that the exact same quantity of money would be removed at the same time. But it will rapidly become clear that there is actually nothing to stop the Central Bank buying up a larger quantity of gilts than can be purchased directly with the revenue generated by the FTT.

Third, once the gilts have all been reabsorbed, and the interest payments brought to an end, the FTT would still be in place, and the Bank of England would still be able to raise revenue. At this point, this money could be given directly to the UK government to finance public sector spending, including spending on pensions, health, education and so forth. 

Finally, don't tell anyone in the Banking sector, but the fact is that this scheme would actually break the entire basis on which the entire current financial system is built. Instead of being perpetually in debt to a Commercial Banking system that lends the government money that it creates  out of thin air, and then sits back an collects the interest, the UK's democratically elected government would finally be able to break free of the stranglehold of the banks. The Government of  the 1%, by the 1% and for the 1% would cease.

2 Jul 2015

Another solution for the Eurozone Crisis

With the Eurozone looking as if it is likely to implode, it is clear that we need some radical solutions.

Here's one that I proposed back in August 2012 ("Solving the Eurozone debt problem in a decade - or less"), but which I think is even more appropriate today. I guess there may be a few people (including Mario Draghi), who may have missed it the first time round!

The idea is simply to use the €60 billion a month that the ECB is currently pumping into the financial markets to buy up all the Eurozone Countries Public Sector Debt. But to be fair, the payments would be on a strictly per capita basis. The amount available would be divided up according to the populations of each country. Germany would get the most, because it's the biggest country.

In the table below, I give the population of each of the 18 Eurozone countries, together with total Public Sector debt at the end of 2014. I also give the per capita debt. Assuming €60 billion a month of ECB money creation, you can easily calculate the number of months necessary to completely eliminate debt.

As you can see, Estonia, which has hardly any debt, would be debt free in just 9 months.  Countries like Portugal, Cyprus, Finland and Spain would all be debt free in about 10 years.

But even Greece would be completely out of debt in about 13-14 years, only a little bit longer than countries like Germnay and the Netherlands.

My suggestion is that, as soon as the debt is paid off, the money should be given to the citizens of the debt free countries in the form of a Unconditional Basic Income. 

So, Mario. What do you think?

Who gets the interest on UK public sector debt? Answer : the Financial Sector

The nice man at the UK Debt management Office kindly pointed me to the historical data concerning the ownership of UK gilts. The dataset is really very interesting, and provides a breakdown of where ownership lies that goes back to 1987, and provides detailed numbers every quarter.

I've regrouped the more recent part of the dataset in the following table, which provides the detailed numbers for the period from the end of 2008 through to the end of 2014.  I chose that period because at the end of 2008,  the Bank of England had no Gilt holdings at all.

You can see that at the end of 2014, the UK government had emitted over £1617 billion in Gilts. £403.0 billion of this (24.9%) of this is held by the Bank of England and corresponds to Quantitative Easing.  In a sense, I think that this doesn't count, because the UK government effectively owes itself this money. The remaining £1214 billion can be split up as follows:
  • Insurance Companies and Pension Funds : 38.6% (£468.4 billion)
  • Other Foreign (not including Foreign Central Banks) : 27.5% (£333.4 billion)
  • Other Financial Institutions : 13.2% ( £159.7 billion)
  • Monetary Financial Institutions : 13.0% (£157.9 billion) 
  • Foreign Central Banks : 5.5% (£66.2 billion)
  • Households : 2.1% (£24.9 billion)
  • Private Non-Financial Companies : 0.16%  (£1.9 billion)
  • Local Government : 0.09%  £1.1 billion)
  • Public Corporations : 0.04% (£0.5 billion) 
A first point is that the amount held by households, non-financial companies, local government and public corporations is trivial - around 2%. Gilts are clearly not being used significantly by anyone outside the financial sector - unless the "Other Foreign" label includes a substantial proportion of individuals, but I doubt it.

Clearly, the 18 Banks that have the status of GEMM (Gilt-edged Market Makers) sell the vast majority of the UK Debt that they buy every month towards other people in the financial sector - not to individuals.

I have also generated a graph showing how gilt ownership has changed over the entire 1987-2014 period covered by the dataset. Here's what it looks like.

This graph is particularly illuminating. You see that the massive purchasing of gilts on the secondary markets by the Bank of England that started at the beginning of 2009 has had almost no effect whatever on the overall structure. Every single actor has increased the amount of gilts held during this period. The worst case appears to be the Monetary Financial Institutions themselves (i.e. Banks). They actually increased the amount of gilts they were holding from £25.7 billion at the end of 2008, to £157.9 billion at the end of 2014. So much for the idea that Quantitative Easing was going to increase the amount of money in circulation in the economy. The Financial Sector has hung on to its pile of gilts, encouraged by a chancellor (George Osborne) who has turned the gilt printing process into overdrive, especially in the last couple of years.

It is difficult to make sense of this. But it looks like the UK government has been paying for its austerity program by running the printing presses. And, as I showed in yesterday's post that asked "Where did the UK government borrow £625 billion in just five years", ALL those gilts are initially purchased by a cartel of 18 banks - the so-called GEMMs - who are in a position to rig the market for their own benefit.

I also wonder to what extent this massive increase in the quantity of gilts that have been produced is not masking a massive increase in the money supply - directed clearly at the financial sector. I suspect that everyone can see that the Bank of England's decision to purchase over £400 billion in gilts can be seen as an attempt to pump newly created money into the financial system - although many people (including myself and 19 prominent economists) have argued that the same money would be far more useful if injected directly into peoples' pockets - QE for the people.

But, until I have been convinced that the 18 Banks that have the exclusive right to purchase gilts have not been buying those gilts with money that they create out of thin air, I will continue to believe that the whole system is very likely to be a big scam. A scam that allows Banks to create money buying bonds, and either sitting back and letting UK taxpayers pay them interest, or flogging those bonds on to other parasites in the financial sector. It's a scam that appears to be in operation since the creation of the Bank of England in 1694, and has cost UK taxpayers an average of 4.4% of GDP every year since then.

You might say that selling £468.3 billion in gilts to the Pension Funds and Insurance Companies, and allowing them to cash in on 36.8% of the roughly £49 billion that UK taxpayers pay in interest charges every year is a way to help out poor deserving pensioners in their twilight years. But if UK taxpayers wanted their money to go to pay pensions, they could simply increase the state pension - that way everyone would benefit.

Instead, the billions held by Pension funds are wasted. That money should be used for investment in business, energy, transport, housing - not as a risk free ticket for milking taxpayers.

1 Jul 2015

Where did the UK government borrow £625 billion in just five years?

I've been trying to understand how the UK government managed to increase Public Sector Debt from around £975 billion at the end of 2009 to over £1600 billion at the end of 2014. That's an increase of over £625 billion in just five years - around £10,000 for every man, woman and child in the country.

Last Friday, I wrote to the UK Debt Management Office, the authority responsible for borrowing money on behalf of the UK government, asking for details of how the money was raised, and specifically where the money comes from.

I was very pleased to get a detailed reply from the DMO's press officer on Monday morning. Full marks for a prompt reply. Here's what I learned in response to my four main questions.

UK Government borrowing

From the Eurostat database, I understand that between the end of 2009 and the end of 2014, UK public sector debt increased from roughly £ 975 billion to over £1600 billion

Question 1 : Can you confirm that the £625 billion of government borrowing over the last 5 years was all handled by the UK’s Debt Management Office?


1.       The primary source of data on government borrowing and the public finances is published by the Office for National Statistics (ONS) in the monthly “Public Sector Finances” A link to the most recent edition is below. Annex PSA4 provides a time-series of UK public sector net debt (£1,500.2 billion in May 2015).

http://ons.gov.uk/ons/rel/psa/public-sector-finances/may-2015/stb-psf-may-2015.html

2.       The UK DMO is an Executive Agency of HM Treasury responsible for government debt and cash management. It borrows from the financial markets via of sales of marketable sterling securities primarily gilts, (UK Government bonds with maturities out to beyond 50-years) and Treasury bills (short term money market instruments with initial maturities of one-, three and six months). Other parts of government, in particular National Savings and Investments (NS&I), borrow via sales of non-marketable securities, primarily from the public


3.       The table below shows gross gilt sales in cash terms by the DMO for the previous five financial years and those currently planned for 2015-16



4.       The table below shows end financial year stocks and the net contribution to financing from sales of Treasury bills for the previous five financial years and those currently planned for 2015-16



On your website you give a list of 28 primary participants that are involved in purchasing UK government gilts and bonds.

Question 2 : Can you confirm that these 28 players are the only ones that currently are involved in purchasing treasury bonds?

5.       The 28 financial institutions you list are Treasury bill primary partcipants - financial institutions that have agreed, subject to their own due diligence, to bid at Treasury bill tenders on behalf of investors. These firms also provide secondary market dealing levels for Treasury bills. These are the only institutions who can currently bid directly at the DMO’s weekly Treasury bill tenders.

6.       A separate page on our website, lists those 21 financial institutions (18 wholesale and 3 retail) who are recognised by the DMO as Gilt-edged Market Makers (GEMMs). These are the only institutions who can currently bid directly at the DMO’s gilt auctions.  The DMO also sells gilts via syndication. Only wholesale GEMMs can apply to become Lead Managers on gilt syndications. We appoint four Lead Managers on each transaction and bids from investors and the other wholesale GEMMs (who act as Co-lead Managers on such transactions) must be submitted via the Lead Managers.

7.       In both of the above cases, once a primary participant or a GEMM has bought securities from the DMO they can sell them to third parties of their choice in the secondary markets. We do not have access to information on such transactions.


I have not been able to find any information on your site concerning which of the 28 primary dealers are the most active. In France, the Agence France Tresor (effectively the equivalent of the DMO) doesn’t provide full details, but they do give a ranked list of the most active players at the end of each year. For example, this is list for AFT primary dealers in 2014
  • 1 BNP Paribas
  • 2 Société Générale
  • 3 Crédit Agricole
  • 4 Barclays
  • 5 HSBC
  • 6 Natixis
  • 7 Nomura
  • 8 Morgan Stanley
  • 9 Royal Bank of Scotland
  • 10 Crédit Suisse
Question 3 : Can you provide the equivalent information for the primary players working with the DMO?
8.       The DMO does not publish information on the individual performance of GEMMs.

My understanding is that although the 28 primary dealers working with the DMO are the ones that buy the bonds, they will typically sell the bonds on to other actors, including pension funds and insurance companies. Again, the AFT doesn’t provide very detailed information about who is currently holding French Government debt. However,  they do provide a breakdown  here that shows
  • 64.3% are held by "Non-resident investors"
  • 19.7% by French Insurance Companies
  • 9.8% by French Credit Institutions
  • 1.8% by French UCITS 'Undertakings for Collective Investments"
  • 4.4% by "Other” French

Question 4: Can the DMO provide equivalent information about the holders of UK government debt?
9.       Data on the sectoral breakdown of gilt holdings is collected and published (with a three month lag) by the ONS. We publish their data on our website. Please see the link below
http://www.dmo.gov.uk/documentview.aspx?docname=publications/quarterly/gilt-holdings-data-historical.xls&page=publications/quarterly


I have a number of comments on these replies.

First, it looks like the short term treasury bills can be safely ignored, because they provide very little net funding. It's clearly the bonds (i.e. Gilts  in the UK) that are the real way for borrowing money.

Second, I now have a complete list of the 18 GEMMs that are the only agencies permitted to purchase UK goverments gilts. Note that they are all Commercial Banks

  • Barclays Bank plc
  • BNP Paribas (London Branch)
  • Citigroup Global Markets Limited
  • Credit Suisse Securities
  • Deutsche Bank AG (London Branch)
  • Goldman Sachs International Bank
  • HSBC Bank PLC
  • JP Morgan Securities PLC
  • Lloyds Bank plc
  • Merrill Lynch International
  • Morgan Stanley & Co. International plc
  • Nomura International plc
  • Royal Bank of Canada Europe Limited
  • Royal Bank of Scotland
  • Santander Global Banking & Markets UK
  • Scotiabank Europe plc
  • Societe Generale Corporate & Investment Banking
  • UBS Limited
Importantly, noone else can by gilts. If you want to buy gilts you would have to go via these 18 banks, or buy them on the secondary markets.

Third, it looks as if there is no way to find out which of these Banks actually provided the £625 billion because "The DMO does not publish information on the individual performance of GEMMs."

Fourth, the European Primary Dealers Handbook provides some further details about how the gilt sales take place. Specifically it states that in the case of the UK DMO "the maximum permitted allocation for any single bidding institution is currently set at 25% of the nominal amount on offer".  This presumably means that it would theoretically be possible for just 4 banks to buy up the total amount on offer at a particular auction.

Finally, I wonder whether the UK DMO can distinguish between purchases made directly on behalf of a third party (such as pension funds and insurance companies), and purchases made by a Bank that are only transferred at a later date? I think that this distinction is very important because when a Bank that has GEMM status buys gilts using money provided by a third party such as a pension fund or insurance company, there is no question of money creation. In contrast, if a Bank that has GEMM status purchases gilts for its own use, it could potentially involve money creation, because (as the Bank of England reported last year) Banks effectively create money when they make loans. It is therefore conceivable that gilt purchases by GEMMs could involve an effective expansion of the money supply by commercial banks.

I also suspect this entire system would be easy to rig by the 18 banks.  The European Primary Dealers Handbook says "GEMMs are the only institutions eligible to submit a competitive bid directly to the DMO. This means that all other market participants wishing to bid at a gilt auction must route their order through a GEMM which, while not permitted to charge for this service, may use the information content of that bid to its own benefit".

I may be naive, but this suggests that the 18 banks could inform each other of all the prices being proposed, and decide to make bids themselves that are just better. That way they can potentially pick up the entire stock themselves. But of course, since the UK DMO provides no information about who actually buys the gilts, such rigging would be invisible.

I've asked the nice man at the UK DMO some additional questions concerning these issues, and will let my readers know what he replies. Stay tuned......

30 Jun 2015

Greece - one of only two European countries to decrease public sector debt between 2011 and 2014. Give them a break!

I've just had another look at the levels of Public Sector Debt in the European Union - figures that I reported in full back in April.

This time, I've compiled a table of the change over the four year period from the end of 2011 to the end of 2014. Here are the results (measured in billions of Euros).

Greece decreased its debt by nearly 11%. The only other country to decrease debt was Norway with -7%. Every other country increased the amount of debt. The UK incresed debt by nearly 30%. France by 16.2%. I note that France just reveled that they had borrowed another €51.6 billion in Q1 2015.

The hypocrisy is breathtaking. Any politician involved in ganging up on the Greek people should be ashamed of themselves. The Greeks should be getting a medal for sound government, not treated like shit.

28 Jun 2015

Where do Banks get the money they lend to our governments?

In my last post, I noted that European Governments have borrowed around €7.8 trillion over the last 20 years, and that in three of those years they have borrowed €1 trillion or more in a single year.

So, here's the €64 billion question. Where did that money come from?

All the European governments have some sort of Debt Management Office (DMO) whose job is to borrow  money. They do this by working with a set of "Primary Dealers" - essentially Commerical Banks. You can find the list of these primary dealers on the European Union's Economy and Finance Committee website.

There is also an organisation called the AFME (Association for Financial Markets in Europe) which produces a 307 page document called the "European Primary Dealers Handbook", that gives details of how this borrowing process is handled in 16 of the main European Countries. They also compile  a table with the list of current Primary Dealers for these countries.

I've rearranged the table so you can see which are the most important Primary Dealers

As you can see, there are some Primary Dealers that are particularly omnipresent. Barclays is used by all 16 countries. Deutsche Bank and HSBC are used by 15 whereas Société Générale is used by 14 countries. BNP Paribas, Citigroup and the Royal Bank of Scotland are each used by 13 countries, whereas Crédit Agricole, Goldman Sachs, J.P Morgan and Noomura are used by 12. And so on.
The table also shows that the number of Primary Dealers varies quite a lot from country to country, from a minimum of 8 in the case of Sweden, to a maximum of 37 in the case of Germany (although Germany says that it doesn't have a true Primary Dealers list.
The rules used by each country are not fixed, but it a number of cases, it is explicitly stated that only Primary Dealers (i.e. Commecial Banks) are permitted to buy government bonds. For example, Austria says "Only Primary Dealers have the right to participate in the Auction Procedure." The German documents stipulate that " Only members of the “Bund Issues Auction Group” may par ticipate in the auctions directly". The Irish documents say  " In order  to par ticipate in Irish Government bond issues, institutions  must be recognised by the NTMA as Primary Dealers." For Slovakia, "Only PDs who have  a valid primary dealer Contract with the ARDAL are authorized to submit  bids  in auctions."
I suspect that even in countries where such rules are not explicitly written, it is nevertheless the case that only Primary Dealers that have the opportunity to purchase government bonds. I have started to ask that specific question to each country's Debt Management Office to check on this.
OK So now we know that Governments will sell their bonds to a selected group of Banks, the next question concerns where the Banks get the money that they use to purchase the bonds.
Of course, we are supposed to believe that these Banks are simply acting as intermediaries for their clients, who could be pension funds and insurance companies for example. We are supposed to believe that those investors give the banks their money, and then those banks use their status as primary dealers to buy up government bonds.
But, as the Bank of England stated clearly last year, when Commercial Banks make loans, they typically don't use money that has been already been deposited with them by savers - they actually create the money.
So, here's my fundamental question.
What percentage of the €7.8 trillion used by primary dealers such as Barclays, Deutche Bank, HSBC, Société Générale etc to buy government bonds was money that existed before the bonds were purchased? And what percentage was simply created out of thin air?
I suspect that it may be very difficult to know the truth, because the entire system is cloaked in mystery. The Debt Management Offices in different countries do not provide precise details about which Primary Dealers actually made the purchases. At best, they may provide a ranked list of the most active Primary Dealers, such as this one provided by the Agence France Trésor.
1 BNP Paribas
2 Société Générale 
3 Crédit Agricole 
4 Barclays 
5 HSBC
6 Natixis 
7 Nomura
8 Morgan Stanley 
9 Royal Bank of Scotland 
10 Crédit Suisse 
The Austrian Tresury also publishes such lists - here's the latest one for 2014, together with the rankings for 2013
1. Société Générale (4.)
2. Barclays (2.) 
3. HSBC France (1.) 
4. Nomura (8.) 
5. Goldman Sachs (6.)
6. Deutsche Bank (5.)
7. UniCredit Bank (9.)
8. Commerzbank (3.)
9. Natixis (11.)  
10. Citigroup (10.) 
I also found rankings for Primary Dealers for the Netherlands here:
1. Commerzbank 
2. ING Bank 
3. HSBC France 
4. Société Générale 
5. Citigroup 
But don't you think that we absolutely need to know the truth for all our governments? And not just rankings, but actual detailed listings of the purchases made by every one of these banks? And we need to know if those Banks used prexisting money, or money they created themselves.
It seems to me perfectly possible that the vast majority of the €7.8 trillion used to buy European Government Bonds in the last 20 years, was simply created out of thin air by commercial Banks. I'm happy to be proved wrong, but until I am, I think that we have to consider this possiblity seriously.
And if that is the case, then I think that every one of us should be denouncing what is effectively a total scam. We have collectively paid over €6.66 trillion in interest charges for borrowing money from Bankers who quite probably didn't have the money that they lent our governments.  It also means that by creating money this way, the Money Supply will have increased by up to €7.8 trillion by the operation of Commercial Banks - an incredibly dangerous and irresponsible scenario. Surely, no responsible Central Bank could allow that to happen?
As I suggested to Alexis Tsipras on my blog,  I think that the Greek government could say that they would be happy to repay any loans (plus the interest) to anyone who could prove that they used preexisting money to buy Greek Government Bonds.  Here is the list of Greece's Primary Dealers (they are all Banks):
  • Alpha Bank (Athens)
  • Banca IMI (Milan)
  • Bank of America  Merrill Lynch (London)
  • Barclays (London)
  • BNP Paribas (London)
  • Citigroup (Athens)
  • Crédit  Suisse (London)
  • Deutsche Bank (Frankfurt)
  • EFG Eurobank-Ergasias (Athens)
  • Goldman Sachs (London)
  • HSBC (Athens)
  • ING (Amsterdam)
  • J.P. Morgan (London)
  • Morgan  Stanley (London)
  • National Bank of Greece (Athens)
  • Nomura  (London)
  • Piraeus Bank (Athens)
  • Royal Bank of Scotland (London)
  • Société Générale (Paris)
  • UBS (London)
  • Unicredit (Milan)
We just have to ask them what was the origin of the money they used to purchase Greek Bonds. If it turns out that they made their bond purchases using money that they created out of thin air, it would dramatically change the nature of the claim on the Greek people.
Finally, let me just note that if you think about the £625 billion that Osborne and Cameron have borrowed over the last 5 years, exactly the same question needs to be asked. Where did that money come from?

European Public Sector Borrowing : €7.8 trillion over 20 years - 86% was used to pay interest charges

A couple of months ago I compiled the full figures for European Public Sector Debt using the latest Eurostat figures. The total at the end of 2014 came to over €12 trillion.

Here's another way of presenting the same figures that makes another vital point. I have simply added up the amount of public sector debt for all the countries in the Eurostat database year by year since for the last 20 years.

In this way it is easy to see how much the debt increased every year, both in millions of Euros, but also as a percentage. As you can see, the amounts borrowed each year are impressive, averaging around €400 billion, but with three years starding out because debt increased by €1 trillion a year  or more in 2009, 2010 and 2011.

The total amount of additional debt taken on over that 20 year period adds up to a very impressive €7.8 trillion

In my next post, I will be asking where did this €7.8 trillion come from. But for the time being, let me point out another interesting fact that you can see in the table. In the right hand column, I have added up the interest payments for all the countries in the database. I have already noted that total interest payments total €6.66 trillion over that 20 year period. That means that 86% of the money borrowed by European Governments over the last 20 years was used to pay interest charges.

The other striking fact is that the amount of interest paid every year is incredibly constant. The average is €333 billion, but the range is remarkably small - with a minimum of €294 billion in 2004, and a maximum of €388 billion in 2012.

Now isn't that intriguing? Even when total debt soars by 167%, the markets magically adjust things so that taxpayers pay a roughly constast amount every year.  I'm reminded of the fact that a good parasite will always try to get just the right amount of nutrients from its host - as much as possible without the ill effects being too noticeable.

22 Jun 2015

Crunch time for Greece - can the Bankers keep their gravy train on the rails?

Today will no doubt be critical for Greece, but also for everyone in Europe.

At risk is the entire system based on the idea that Governments are forced by article 123 of the Lisbon Treaty to borrow money from Commercial Banks.

That system has led to a situation where Europe's governments now owe over €12 trillion, a sum that meant that last year, European Taxpayers paid out €354 billion in interest payments in 2014 alone - over €6.66 trillion since 1995. The country with the largest amout of debt - Germany, with over €2107 billion of public sector debt.

Who lent our governments the €12 trillion? Was it an army of grannies via their pension funds?

No. In France at least, we know that the only players that get to purchase French government bonds (OATs or  "Obligations Assimilables du Trésor") are Banks. Here is the list of the 19 "primary dealers" who work with the Agence France Tresor, which handles France's public sector debt. They are all Banks.

  • BARCLAYS BANK PLC
  • BNP PARIBAS
  • CREDIT AGRICOLE-CIB
  • CITIGROUP
  • COMMERZBANK
  • CREDIT SUISSE
  • DEUTSCHE BANK
  • GOLDMAN SACHS
  • HSBC
  • JP MORGAN CHASE BANK
  • BANK OF AMERICA - MERRILL LYNCH
  • MORGAN STANLEY
  • NATIXIS
  • NOMURA
  • ROYAL BANK OF SCOTLAND
  • SCOTIABANK EUROPE
  • SOCIÉTÉ GÉNÉRALE
  • UBS
Agence France Tresor publishes a list of the most active dealers. Here's the latest one for 2014. Again, only Banks make the list.
1 BNP Paribas
2 Société Générale
3 Crédit Agricole
4 Barclays
5 HSBC
6 Natixis
7 Nomura
8 Morgan Stanley
9 JP Morgan
10 Royal Bank of Scotland
Do the banks that buy the bonds keep them? No. Because they can sell them on to other players including Pension Funds and Insurance Companies. The latest figures for France show that
  • 64.3% are held by "Non-resident investors"
  • 19.7% by French Insurance Companies
  • 9.8% by French Credit Institutions 
  • 1.8% by French UCITS 'Undertakings for Collective Investments"
  • 4.4% by "Other" French
I don't know precisely who buys and who holds the debt of other European Countries, but there is every reason to think to that a similar mechanism operates everywhere - Commercial Banks buy up Government Bonds and then sell them on to other players.

What did the Banks use to buy the €12 trillion Government Debt? Well, it seems clear that they simply create the "money" out of thin air, as stated very clearly last year by the Bank of England. But amazingly, the Basel Banking Regulations state that lending to Soveriegn Governments that have a rating of AAA to AA- has a risk weighing of 0%, meaning that no capital is required. Here is the list:



It is clear from this that, at least in the case of AAA to AA- rated governments, Commercial Banks can literally generate infinite amounts of government debt. All they need to do is find Politicians that are sufficiently ignorant that they don't know where the Banks get their "money" from to buy the bonds.  Either ignorant, or quite possibly complicit.

This is what is at stake today. Can the Bankers, led my Mario Draghi - president of the European Central Bank, but previously managing director for Goldman Sachs International from 2002 to 2005 - keep the gravy train on the rails.  Doing that will require massive distortion of the truth by the media. So far, at least, that strategy seems to be working.