22 May 2012

EUREKA! Creating the ultimate debt killing weapon

I've just woken up at 5am with an idea in my head that I think might be the ultimate weapon for killing the blood-sucking vampire squids.

It's based on an extension of the public bank idea that I was proposing yesterday for getting governments out of debt. Briefly, the idea was to create a special public bank whose sole purpose is to pay off public debt. It would use the same money creation trick used by commercial banks to create money out of thin air using fractional reserve banking. The bank would be set up with enough resources to cover 8% of the national debt. It would then generate enough money to cover the entire national debt, lend it to the government on a 1000 year loan at 0% interest, and the government would then pay off the entire national debt. No more billions of interest payments to pay every year. The banks can't complain because they get their "money" back. And we can forget the ratings agencies. Simple, and deadly effective.

So, today's idea is that the same mechanism can be used to get rid of excessive personal debt too! Think of the millions of people in the UK that are currently being obliged to take out payday loans at interest rates that can reach 14,348% (yes, the Quid24 site actually gives that number). These people are being robbed by a bunch of criminal loan sharks who probably don't even have the money that they lend.

Let's create a special debt-killer bank as a sort of charity. Get some philanthropist to start the ball rolling with an injection of the 20 million pounds, euros, or dollars needed to set up a bank (I need to check just precisely what the minimum sum is for starting a bank - it's probably something like that). Having the status of a bank gives you the licence to print money. And with the current 8% reserve requirement, that 20 million would immediately give the bank the right to print 230 million more money, which can then be used for good causes. The banks total assets would be 20+230 = 250 million, and so it would have the legally required 8% deposit amount.

Now, suppose that someone comes to the bank and can prove that they are unable to survive because they are crippled by excessive payday loan charges.  The bank's staff would look at the situation of the person and decide whether the case is valid. If it is, the bank lends the person enough money to pay off the entire debt, with a 1000 year loan at 0%. Magic. You've just saved that person's family from misery. And you have got the ultimate weapon against banker greed.

What's more, since the money created is only used to cancel debt, it cannot produce inflation.

Of course, the numbers don't have to be limited to millions. Do the same trick with billions or even trillions, and the entire pack of cards that has been used by the commercial banks to enslave us all will collapse.

I seriously think that this may be the ultimate weapon of mass destruction for bank debt. And the beauty of it is that it is using the same insane money creation mechanism that the commercial banks have been using for centuries. Of course, once the poison is out of the system, it will be time to abolish the fractional reserve banking mechanism completely and only allow money creation by central banks under the direct supervision of elected governments. But in the meantime, let's use the bankers own insane system to get our own back.  It's time to turn the tables.


  1. you are correct, but it doesn't even require a philanthropist. It's just a mind set. think of the Berlin Wall coming down. It was a self-organizing system. I suggested to Occupy that they create their own bank, and their own central banking system (the next step of course would be to issue Occupy currency...

    it's really that simple. just a peaceful revolution overthrowing government and finance. say three weeks. everyone goes about fighting, bringing in the CIA and soldiers and such. If you look at the current system, it's a house of cards built on sand but everyone thinks its real and thus remained enslaved.

  2. I've had an idea to reduce wealth accumulation and encourage distribution, that would require a centralized bank.  Essentially, you would make the value of currency logarithmic, so after a certain point, each additional unit is worth less than the previous one.

  3. I am all for debt-free money but I wonder about the following.

    Is it not a bit dangerous giving the banks their credit back so suddenly? You say that the ''entire pack of cards that has been used by the commercial banks to enslave us all will collapse'' yet the people who invest in those banks will now be the richer by trillions. Who knows what they may do with that kind of money to create the conditions they enjoyed before. Buy up most of a country's commercial sector? Create webs of political patronage for private gain? Flood the money supply and create inflation? Buy up the stock market and then sell in rapid stages to simulate a crash? Every action creates a reaction.

    How will the government be able to invest in a major domectic project without causing infation?

    My other question is this: if elected governments could create debt-free money then how will they justify taxes? When they want to win elections they will simply lower or eliminate taxes or else spend debt-free money directly into the economy, risking inflation.

    The idea of a debt-killer bank re-embursing people in debt leads to its own problems. You thus reward people who are profligate and flaky people who default on contracts. You encourage spending beyond a family's means, giving poor workers the ability to buy consumer goods and foreign holidays beyond their real means since there will be little risk attached to losing the money such a person borrowed. At the same time, rather than being a weapon against banker greed, surely you will encourage it: encouraging banks to lend to people whom they know will not be able to pay back, knowing that the state will indemnify the banks for any default on the loan and the interest. Since you are more likely to get the debt-killer bank to indeminify someone who does not work, then richer people will be able to take out a bank loan, pay a small commission to an unemployed person to take out a loan to pay off the richer man's loan and then poorer person can claim back his own loan from the debt-killer bank too. It will become a mechanism for flooding banks with money created out of nothing - surely the senario you wished to avoid? In addition the economy becomes distorted: favouring the sales of consumer items over investments.

  4. Hi Cacadores,

    Thanks for commenting. So, the idea is that when banks make loans with money that they don't have, the money that is created in the process of making the loan is destroyed when the money is paid off. It was created out of thin air, and it disappears in a puff of smoke. So, actually, you could pay off the trillions that governments owe to banks and would have no effect on the amount of real money in circulation.

    In contrast, if the government actually spends new money into the economy, there is a slight chance of inflation. But even that would not happen if the money is used for real production.

    But, in answer to your second question, for me the choice of what to do with the extra resources is a political question. Yes, you can reduce taxes (which increases the amount of disposable income in the economy), or spend directly. Either would be fine with me.


  5. Dear Simon,

    Thank you for your kind response.

    Your reply has got me thinking. Firstly about paying off the banks in debt-free money. You write that 'the money that is created in the process of making the loan is destroyed when the money is paid off'. That will deal with a lot of the debt because it could be the Government through the Bank of England is its own biggest debter. Now, on the back of loans, which I imagine include secured mortgages and high-value assets, the UK foreign debt is currently €7.3 trillion, mainly accounted for by the banking industry. I wonder how foreign creditors will view this money destruction in the UK and if they would force a run on British banks.

    Next, you wrote on YouTube that 'the banks will have to finance the loan with money that already exists - not magic some more out of thin air'. Of course, The average amount held in savings by UK families has risen slightly over the last year from £1,163 to £1,228. So the question arises out of what will banks be able to find money to provide people with loans? I think we should exclude business investment because businesses take on loans too and will provide its own equations. Meanwhile the typical
    British family owes £8000 in unsecured debt, the individual debtor: £4,231. If we include mortgages, the average amount of household debt in the UK for all families was £55,436 in March this year. That's a lot loans going out to finance people's lives. £1.424 trillion in all at the end of February 2013. One description is that some people are living beyond their means but in fact what most families do, is bet on their future earnings. With inheritance taxes so high, if banks are limited to the money that already exists then they are not going to be able to finance the loans people need to live their lives, are they? Am I missing something?
    Thirdly, I can see that it will be an interesting political question as to how a government introduces money into the economy. Personally, I would like to see governements buying a proportion of company shares and then distributing them to the electorate, in order that everyone gets a vote into how companies are run, not to mention dividends, giving them a direct investment in the economy.
    Lastly, the only part of your answer I was disappointed by, was the fact that you may have overlooked my pointing out that the idea of a new debt-killer bank indemnifying loan defaulters and contract-breakers does seem manifestly unfair. Some people think bankrupcy is unfair on creditors, but the idea that people who lose their money and default can get their debts paid off by the state is not only unfair in my opinion, but will only encourage the kind of unsupported borrowing, contract-breaking, waste and profligacy which undermine economies. I'd be interested what you think.
    Regards, C

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