A proposition for François Hollande's Government: La Banque des Français

François Hollande's Socialist Party won a massive victory in the French elections yesterday, and he now has control of all the important components of French political life -  the Senate, the National Assembly and the Presidency, as well as nearly all the Regional Assemblies, and many of the major Cities.

We opened a bottle of champagne last night. But it wasn't because I think that François Hollande has the solutions. However, he does at least appear to have the will to do something. In the speech that opened his campagne for the presidency on the 21st January he said this:

"My real opponent has no name, no face, no party, will never stand for election,  will never be elected, and yet governs. That opponent is the world of finance".

Quite.

But how can Hollande's government take on "the blood sucking vampire squids" and win?

In my Youtube presentation yesterday ("Some Radical Proposals for Monetary Reform") I argued for a world in which money creation by commercial banks was banned, where all money creation had to be done by elected governments and only for projects that are directly approved by the vast majority of citizens, and where an automatically adjusted Financial Transaction Tax is used to mop up any excess money  in the money supply to make inflation a thing of the past. 

While I am convinced that this model can work, it's not something that you can get overnight. So what can Hollande do today? 

Here's a suggestion. It's based on my other proposals for "Solving the Debt Crisis" and creating a citizens' "Debt Annihilation" machine.  

The French government could create a new bank - let's call it "La Banque des Français". The bank would have the role of creating money debt free for financing all those projects that are supported by the vast majority of French citizens. 

How would that be possible? Well, as you hopefully know, commercial banks have a licence to create money. Take the latest proposals from the UK government. They will allow banks to have a leverage ratio of just 3% - consistent with the minimum requirements proposed by Basel III. That means that banks are allowed to generate loans that can exceed their Tier I capital by a ratio of up to 33:1.

So, suppose that the "Banque des Français" is created with initial capital of €30 billion. It would then be allowed to create out of thin air €1000 billion. That money could be lent to the French government for any public spending that received the full approbation of French citizens and could then be spent into the economy. 

Since the entire revenue of the French government  was only €817 billion in 2010, this money would be enough to abolish income tax, abolish corporation tax, abolish VAT, abolish national insurance and medical charges and yet still maintain all the current programs. And there would money left over to pay off a part of the national debt, and even invest in some new investment programs.  

The boost to the French economy that would be produced by eliminating all these taxes would be truly incredible. Employment would soar, because companies could employ people with much lower wages since their employees would not have to pay income tax and VAT, and the various charges will have disappeared. And the absence of corporation tax would mean that multinationals would be queuing up to move their headquaters to France so that they could legally repatriate trillions of profits currently stashed away in taxhavens.  Manufacturers would relocate production in France, because it would be cheaper to produce goods in France than elsewhere.

Of course, the French Government would have to agree to reimburse the Banque des Français. But suppose that the Banque des Français agrees to loan the money for a period of 1000 years with 0.0% interest? Is there any reason why the Banque des Français could not set its own terms? 

And finally, the government should set up a variable rate Financial Transaction Tax that would remove any excess money in the economy and prevent any possiblity of inflation (see my proposal yesterday). At the same time, the FTT would have the effect of making speculation far less interesting. As a result the other banks might well start using their very considerable financial resources to invest in productive industry instead of indulging in totally wasteful speculation.

If Hollande's government takes up these ideas, I will be opening not just one bottle of champagne, but several.