The 0-0-0-0.x plan and my proposal for fixing the debt crisis

For those of you who have been following my propositions, you will hopefully have realized that I am pushing for two major ideas.

The first is summarized in my 0-0-0-0.x Plan, which proposes that we should be able to abolish the current tax system and replace the whole lot by a single flat rate Financial Transaction Tax that would be paid by everyone, every time they make a transaction. I have argued that in most countries, income tax, sales taxes (VAT in Europe) and Business taxes (such as corporation taxes) could all be completely eliminated and replaced by an FTT of around 0.3% - even lower in countries like the USA and the UK, where transactions are particularly rampant.

The second is my proposal to force Central Banks to lend directly to governments, instead of forcing governments to borrow from the banking sector. Given that the money lent by commercial banks is just conjured up out of thin air, there can be absolutely no justification for them charging interest on such loans. And since the sums involved are astronomical (€5.6 trillion euros for the 27 EU countries since 1995), the savings would be enough to remove the need for austerity.

You might think that these two ideas are quite separate, and it's true that in principle, they could be implemented separately. But I think that they go together beautifully.

One argument that I often hear when I talk about implementing the 0-0-0-0.x plan is that as soon as an FTT is introduced,  transactions would collapse, and there would be no revenue to pay for the things that governments need to pay for - public sector wages, state pensions, health, education, social services etc.

Well, if at the same time, we break the monopoly on money creation currently enjoyed by the commercial banks, we will have a situation where Central Banks can take on the duty of creating the money that the economy needs. As Ellen Brown shows beautifully in her book "The Web of Debt" (which I really cannot recommend enough), there is actually no problem in having a system where Central Banks create money for things that citizens agree are really important. If an elected government decides that it is important to build a new energy supply system based on renewable energy (for example),  it is perfectly possible for the government to create the money needed to build solar energy plants and pay companies and individiduals to do the work. And there is no need for the government to pay interest on this. This is infinitely better than printing large amounts of money, throwing it at the commerical banks and praying that they might use if for doing something useful - which is pretty much what happens at the moment.  At best, we are currently only offered an option in which the government goes to the banking system, and borrows the money to pay for the developements - with the obvious consequence that the level of debt goes even higher. This is simply not necessary.

The point is that, even if financial transactions do collapse, a government that had the option of ordering the central banks to print the money needed to do essential work, could get the work done without having to increase taxes.

But the synergy works the other way round too. Even if we did transfer money creation to Central Banks under the direct control of elected governments, there would still be massive amounts of money in the hands of the banking sector. For this,  I think that we definitely do need a financial transaction tax to mop up the trillions that have been handed over to the banking sector in interest payments for lending money that the banks didn't even have to lend.

But in the longer term, Ellen Brown has convinced me that the our final aim can be, and should be, to have a system with no tax and where democratically elected governments create the money needed to do the high priority jobs. The rest of the economy will be able to operate using the recycled money. Governments would thus create the money needed to pay for the things that everyone agrees are important (hospitals, education, police, libraries, energy supplies, transport, social services etc). The other parts of the economy (which involve the extras such as restaurants, movies, flat screen TVs, holidays, etc etc) would be able to function perfectly well with just the recycled money coming from the socially important stuff. 

It's really no different from the system we have now. Most of the activity in the economy will be secondary to the activity that is paid for directly by the state. That's no problem. To ordinary citizens it will feel just the same. They will be able to buy flat screen TVs if they want. And for businesses too, it will feel the same. The companies that provide the goods and services that people want at the best price will do well and prosper.

The difference is that people, businesses and governments will no longer be forced to take on debt to pay the interest charges that are incurred by the money creation process as it operates today.

What an incredible difference that would be relative to the current situation where money is created by commercial and private banks solely with the aim of getting people, businesses and governments into debt so that the banks can claim interest.

I have a dream.....