I specifically proposed that the ECB should be able to generate at least as much money as the commercial banks have been doing. M3 has been increasing by around €450 billion a year since 2005, although the rate of increase reached a staggering €968 billion in the single year leading up to November 2007 (those are the numbers from the Eurostat website).
Could the ECB generate that much money in a year? The answer is clearly yes. They've already done it, since Mario Draghi pumped over €1 trillion of cheap money into the banking system in two rounds of financing in the space of just 3 months. And I have it on the word of the ECB that there was actually no upper limit to the amount that could be generated.
So, for the sake of argument, lets just imagine what could be done with €1 trillion of nice fresh debt free money.
Well, the proposition that I made in my video was that the newly created money supply could be simply divided up according to the populations of the 17 eurozone countries. What could the countries do with the money?
One option would be simply to use the money to get the countries out of debt. The table shows the populations of each of the countries and the percentage. It also shows how much they would get of the €1 trillion created by the ECB, the size of the government debt, and the number of years that it would take to pay off the whole loan.
Germany would pay off all its debt in 8.5 years, France in 8.7 years and so on. Even Greece would pay off all its debts in little more than 10 years. Even the worst case, Ireland, would be out of debt by 2025.
Can anyone explain to me why this is not a perfectly good way of solving the Eurozone debt crisis?
And this is based on the very modest suggestion that the ECB creates only the same amount that it just did for the banks, and the same amount that the banks themselves produced in 2007. Increase the amounts further and you could solve the entire problem in three years or less.
The reason why we don't do this is simple. It would mean that the commercial banks would be deprived of the €286 billion in interest that they extracted from Eurozone taxpayers in 2011 alone. And if anyone else tries to tell you that there is no alternative to austerity to solve the Eurozone debt crisis, it might just be worth checking that they are not directly receiving some of the money that gets creamed off. Objectively, it is impossible to justify the current system - unless you are a member of the 1% who are on the gravy train.
Oh, and by the way, fixing the Eurozone crisis this way could not possibly result in inflation. Since the governments would be paying off debts that correspond to money that the banks have created out of thin air, when those debts get paid, the money disappears in a puff of smoke. The banks cannot relend the money - especially if their licence to use fractional reserve banking to create more will have been removed. But at the same time, it would reduce the exposure of the banks enormously - something which normally they should like, except of course for the fact that we would have killed their golden goose.
So, given that the ECB could pump €1 trillion a year into paying off the Eurozone government debt without producing any inflation at all, there is no reason not to add a few hundred billion more every year for doing some even more useful things.
Finally, the idea that the money is dispatched purely on the basis of population size means that those countries whose govenments have been prudent in the past will start getting money they can use for these other projects much more rapidly. Estonia would be able to pay off its debt in just a few months, and start doing useful stuff. Even Spain would be out of the red in only 5 years - way before the Germans, who, contrary to the myth, are actually the worst culprits of all for the size of their government debt.
In other words, there is real justice here. But justice is not something that seems to have a very high priority among our leaders.
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