2 Mar 2014

Positive Money's Annual Conference

I had an excellent day yesterday at Positive Money's annual Supporters conference here in London. It was very well organised, with around 400 participants. There were about 40 people from outside the UK, with strong contingents from  Denmark, Sweden and  Portugal, but also representatives from France (there were 3 of us), Germany, Luxemburg, Switzerland, Croatia, Spain, Iceland, Greece and the USA.

Ben Dyson gave a very convincing presentation of Positive Money's proposal for Sovereign Money Creation. He compared the £375 billion of Quantitative Easing that the Bank of England has injected into the  financial markets with what could have happened if newly created money had been injected directly into the economy. The fact is that there has been almost no serious analysis of where the £375 billion went. But it would appear that one of the main effects has been to produce a 20% increase in the stock market. Has that done anything except make some rich people even richer? When money gets used to inflate bubbles, does this do anything to help the real economy?  He provided some figures suggesting that every £1 of quantitative easing leads to just 8 pence of extra spending in the economy - in other words almost nothing.

He then compared that pathetic effect with what would have happened if the Bank of England had simply allowed money to be spent directly into the economy. Independent figures (from the Confederation of British Industry I think) suggest that every £1 of spending into the real economy results in about £2.80 of extra spending. Those figures suggest that Sovereign Money Creation is 35 times more effective than quantitative easing - which is effectively equivalent to throwing money at bankers and praying.

The argument is devastating. Can Mervyn King please explain why he agreed to waste £375 billion - more that half the entire UK government spending for an entire year - in this futile way? And can the banks prove that a substantial proportion of that £375 billion wasn't used to pay the £60 billion in bonuses that the City has handed out since the financial crisis?

At the end of the meeting, I was even more convinced that the number priority should be to introduce debt-free money creation somewhere in the world. It almost doesn't matter where. I talked with a guy from Iceland which might be a good place to start, because the Icelandic people have already shown that they are prepared to stand up to the banks.

But it could almost be done at any level. Obviously, my current preference would be to convince the ECB to inject new debt free money directly into eurozone citizens' accounts. But it could also be done at the national level using a sort of N-Euro system. Or it could be done at the regional, or even local levels. 

Ben Dyson and Positive Money's position is sensible. While we all agree that the aim should be to remove the ability of commercial banks to create new money, there is a strategic question of how to achieve this. It may  well be better to first demonstrate that debt-free money creation and direct injection into the economy is doable. In this way, you can leave the banks with their money creation licence until it has been demonstrated that there is an alternative.

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