9 Aug 2012

What could the Eurozone Governments do with $600 billion a year?

Yesterday, I was arguing that the Eurozone would be a great place to try a new way of creating the money supply. I am one of an increasingly large number of people who believe that the current system, in which commercial banks have a virtual monopoly on money creation makes no sense. Commercial banks should only be able to lend money that they actually have. Instead, creating the money supply should be the job of elected governments.

To help think about what this would imply, I have extracted the figures on Net Domestic Credit for the 17 Eurozone countries from the WorldBank database, and calculated the change in level for every year from 2000 onwards. Here are the figures.

As you can see, the figures are impressive. Since 2000, the banks have pumped €6.6 trillion of credit (i.e. debt) into the Eurozone, an average of €600 billion a year.  The peak was in 2007, when the total reached €1.28 trillion.

Now, suppose that all this money was not created by commercial banks, who lend the "money" to individuals, companies, and governments and then charge as much interest as they can. Suppose that, instead, the same amount of money was created by the European Central Bank and provided to the 17 Eurozone countries to spend into their economies.  The first point is that if the ECB created the money, there would be no need to pay interest on the loans. In fact, there is no need for the money to be provided as a loan at all. It could literally be created and spent into the economy directly - with no debt. I am convinced that this would be a much more sensible way of creating the money supply.

The second question to ask is whether the governments could use the money more intelligently that the commercial banks who currently create the money supply. Well, to see a bit what the banks have been doing with their monopoly on money creation, lets have a look at which countries got most of the money (debt). Here are the figures since 2005.

As you can see, the average for those years was €768 billion, of which over €213 billion went to Spain. And what did that money get used for? You are probably well aware that the money went directly to finance the total ridiculous housing bubble in Spain, that has resulted in building literally millions of holiday homes along the Spanish coast, many of which have not even been finished. A housing bubble that has literally destroyed the Spanish economy and left 25% of the population unemployed.

What a criminal waste of resources. What a perfect demonstration that leaving the creation of the money supply in the hands of irresponsible bankers is about as stupid as you could get. Something tells me that if the 17 governments were forced to sit round a table and decide where the newly created money should go, they would definitely not agree that 28% should go to finance the construction of new property in Spain.

I cannot believe that anyone could argue that the politicians in the Eurozone could not come up with a more intelligent way of using the same amount of money. And, as I argued yesterday, by doing the money creation via the ECB, and requiring the 17 countries to agree on where the money goes, I believe that there is every guarantee you could want that the money would be used sensibly.

And finally, because the countries are all using the same currency, the power of the markets to destroy individual countries that dared to challenge the plutocrats by working the Foreign Exchange Markets will have been neutralized.

Yep. The Euro is a great invention. Let's use it sensibly. 


  1. Thank you for your research.  Now we need to communicate this with the world.  

  2. excellent research, nice article.  now let´s share it with the world.  Then we need to convince politics to do something about it and not be so afraid of the banks

  3.  Thanks Peter

    Yes, I couldn't agree more. It would be great to find some politicians who were prepared to bring this debate into the open. Has anyone got any suggestions?