Andrew Jackson and Ben Dyson : Modernising Money

Andrew Jackson and Ben Dyson, two of the main people behind the excellent Positive Money group in the UK, have just published their new book called "Modernising Money : Why our monetary system is broken and how it can be fixed."

I've just ordered a copy from their website - Amazon is already out of stock. But you can download an overview of the book from here. 

It looks very promising, and I can't wait to get my copy because the arguments listed in the overview are all ones that I believe are totally convincing. I really hope that this book will force an open public debate.

On the 25th of October 2010, Mervyn King, governer of the Bank of England from 2003-2013 said "Of all the many ways of organising banking, the worst is the one we have today".

And Adair Turner, head of the UK's Financial Services Authority, said in 2012 "The financial crisis of 2007/08 occurered because we failed to constrain the private financil system's creation of private credit and money".

When two of the key figures in the system openly admit that the  current system is a unmitigated disaster, isn't it time that the public realized that we don't have to keep doing things this way?

The Trillion Dollar Coin

Ellen Brown has (yet) another nice piece about the idea that the US Treasury could pay off government debt by minting some special platinum coins with a face value of $1 trillion ("The Democratization of Money: The Trillion Dollar Coin, Joke or Game-changer?"). The coins would be deposited with the Federal Reserve and would mean that US tax payers would no longer have to borrow money from the Fed and pay interest on the national debt.

The idea seems to be legal, since the US law on Denomination, Specifications and Design of Coins specifically states that :

"The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time."

And the idea's had support from a number of big names, including Nobel Prizewinning Economist Paul Krugman, who has posted "Be ready to mint the coin".

Unfortunately, it appears that the plan has been vetoed by the Fed. According to one report "a senior administration official told ABC News there was one key factor in making that course of action impossible: The Federal Reserve said it would not view the coin as viable.
“Since they wouldn’t view the coin as viable, the issue isn’t not wanting to do the coin. We just can’t,” the White House official said."

Now, why would the people who run the Fed (which is a consortium of private banks) view the coin as unviable? Could it possibly be that if the US government could actually create their own money free of interest charges, it would risk killing off the goose that has been laying golden eggs for private bankers for the last few centuries?

I just wonder whether governments in the Eurozone couldn't use a similar trick to pay off the debts that they have to the banks. Each country in the Eurozone can mint its own coins, under the control of the European Central Bank. Currently, the coins are limited to 2 euros. But why not mint a few hundred billion euro coins? I propose that the ECB should authorize each country to mint a number of coins that corresponded to the size of its population. That way, there would be no question of favouring particular countries. And Germany, with a population that is roughly 25% of the Eurozone, would get the largest number of coins.

Importantly, the coins could be used for one thing only - namely, to pay off public debt to the banks. However,  since the banks didn't have the money that they lent in the first place (they used the fractional reserve banking trick to create it out of thin air), I think it would be only fair to that the ECB stipulates that the banks shouldn't be allowed to actually spend the coins. But they would look very nice framed on the wall of the bank's head office.

That way, the Eurozone taxpayers could avoid paying the 286 billion euros in interest charges on government debt that was paid in 2011. Simple really.....

The IMF's chief economist admits that they got it all wrong - Austerity is a very bad idea

Happy New Year!

Yes, I've been slow getting off the mark. My first economics blog item for 2013 on January 18th! Well, I was giving you all time to read through the 380+ pages of my complete works for 2010-2012 which I published at the end of last year..... (only kidding).

Actually, I have been very busy, and haven't had time to do much. But I was spurred into action by a piece on the front page of this weeks "Canard Enchainé" about how the head Economist at the IMF - French economist and potential Nobel Prize winner Olivier Blanchard - has admitted that economists got the whole thing wrong. For years, they have been impliciting assuming a "fiscal multiplier" of around 0.5, meaning that for every billion taken out of the economy by government austerity measures, the effect on economy is only half. It turns out that the real number, based on the most up to date numbers is much higher - they estimate something between 0.9 and 1.7. That means that government austerity measures are a complete disaster. I think that many people in Greece, Spain, Portugal, Ireland and the UK would probably agree.

Note that if the fiscal multiplier is over 1.0, it means not only that cutting back on public expenditure will do more harm than good, but also that increasing public expenditure would pay off handsomely. This a point that many people have been making, but has been studiously avoided by those in the Troika (EU, ECB and IMF) who have been forcing massive austerity on the Eurozone governments.

I thought I'd chase up the story which started back in October when the International Monetary Fund's "World Economic Outlook" came out. You can download the document here.
The really interesting bit is Box 1.1. on page 41 called "Are We Underestimating Short-Term Fiscal Multipliers?", which was written by Olivier Blanchard and his colleague David Leigh. Here's what they say:

"The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7."

Here are the actual charts they produce. First, a graph showing the difference between the predicted GDP growth rates for the 28 countries made in april 2010 and the actual numbers.

If the economists had got it right, this plot should be flat, but it clearly isn't. And in particularly, it is way off for Greece.

Next, there is a graph showing where the forecast errors lay.

You can see that 1% of "fiscal consolidation" (read austerity) is associated with far larger drops in investment, GDP and Private Consumption than the economists had predicted. They did however get the drop in Net Exports (NX) about right. Well done! Not too difficult that one, given that the amount of exports that a country can manage will not change much when the government slashes public spending.  On the other hand, the increase in unemployment is a lot higher than the economists had predicted.

The third graph provides information about which particular group of economic modellers got it wrong the most.

And the winner is - the IMF! Yes, the IMF has demonstrated that it was nearly 1.2% off. The EU economists were slightly less terrible at 0.8%, followed by the EIU and the OECD. But basically, this is a straight admission that none of them knew what they were talking about.

I find it particularly amazing to learn that the economist doing the modelling often don't make explicit what particular value for the fiscal multiplier they are using. I quote:

"These results suggest that actual fiscal multipliers were larger than forecasters assumed. But what did forecasters assume about fiscal multipliers? Answering this question is complicated by the fact that not all forecasters make these assumptions explicit. Nevertheless, a number of policy documents, including IMF staff reports, suggest that fiscal multipliers used in the forecasting process are about 0.5."

That's truly incredible. The IMF, the ECB and the EU have been forcing governments
to impose massive austerity and increase taxation based on a number for the fiscal multiplier that the economic modellers don't even make explicit!

Not surprisingly, Blanchard and Leigh got a lot of criticism from their colleagues for making this admission. So, a few days ago, they came back with a detailed article called "Growth Forecast Errors and Fiscal Multipliers" - that was published as an IMF working paper that you can download here.
In it, they effectively back up all their  claims with a detailed analysis. 

Effectively, they demonstrate beautifully that the idea that "fiscal consolidation" is an intelligent response to government debt is based on a complete myth. At least now the economists have had the courage to admit that they really didn't know what they were talking about.

Amusingly, the working paper has a note saying "This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy." Mind you, given that Olivier Blanchard is the chief economist at the IMF, one wonders who would be better placed to give the IMF's position.

US Financial Transactions in 2011 : $5.5 Quadrillion

A quick message for Barack Obama with just hours to go before the US goes over the fiscal cliff.  Don't forget that a Financial Transaction Tax like the one being introduced in 11 countries in the European Union could fix the problem for good.

I'd already totted up the numbers from the DTCC and BIS to come up with a total of $4.44 quadrillion for financial transactions in the US for 2011. And I was happy to see that that figure got a mention in Ellen Brown's recent article on the Fiscal Cliff.

But as I mentioned in my recent commentary, even that number clearly ignores some very major players such as the CME Group (Chicago Mercantile Exchange). I've just discovered that you can download their Financial Report for 2011 here. On page 34, they conveniently provide the following table which summarizes the key figures for the period 2007-2011.

As you can see, the total notional value of transactions in 2011 was an eye watering $1,068 trillion. That's up 7.4% on 2010, but still substantially lower than the record turnover of $1,227 trillion in 2008. I note that the report mentions that these figures "exclude our TRAKRS, HuRLO, Swapstream, credit default swaps, interest rate swaps and CME Clearing Europe contracts". Any guesses how much more those would add?

By adding those numbers in the DTCC and BIS figures, I get the following revised numbers for US financial transactions in 2011.

That's a total of over $5.5 quadrillion dollars - $5,511,178,000,000,000 for those of you who have trouble trying to imagine what a quadrillion looks like. And of course, I have no way of knowing that there are not other untapped sources of revenue that I haven't managed to include. Please let me know if you can think of any other suitable places to look.

A 0.1% flat rate financial transaction tax on that lot would raise far more than all the other US government taxes combined. It would allow income taxes, taxes on company profits and sales taxes to be abolished completely.

I can honestly think of no good reason for keeping the current tax arrangements which, apart from anything else, are extremely complex to implement - especially in the USA, where even ordinary citizens have to use tax advisors to fill in their tax returns.  The flat rate FTT could be implemented for the cost of adding one line of code to the software used to handle all these transactions.

So, here's wishing a happy and tax-free 2013 for everyone except the computers that handle the $5.5 quadrillion in transactions. Will the computers mind having to pay? I don't think so.

Simon Thorpe's Science Blog

I've been writing this blog on the economy since October 2010 and I recently compiled the entire contents of the blog into pdf book form which I called "Saving the World (by fixing the economy)". If you are keen, you can download the whole thing by clicking here. But I warn you - it runs to a staggering 384 pages!

But I'm not just interested (obsessed?) by the economy. I'm actually a full time research scientist working for the CNRS in Toulouse in France. And there are all sorts of scientific questions that I would like to blog about too - hence my decision to start a new blog where I can talk about some of the other questions that interest me. Yes, I'm not just interested in trying to fix the economy!

The new blog is called "Simon Thorpe's Science Blog" and you can find it here.

As always, I am very keen to know what you think. So please feel free to comment on anything I say.

Adair Turner on the causes of the financial crisis

The people at Positive Money have every reason to feel vindicated. As Mira Teklova reports on their website, "Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee,  set out the fundamental cause of the financial crisis in his speech to the South African Reserve Bank on Friday 2nd Nov 2012:

 “The financial crisis of 2007/08 occurred because we failed to constrain the private financial system’s creation of private credit and money.”

The speech (which can be downloaded here) is quite remarkable, and could well be the clearest admission that one of the major causes of the financial crisis stems from the fractional reserve banking system that gives commercial banks the right to create money out of thin air, to make loans, and then charge interest on those loans. For example, Turner states that :

“The impact of fractional reserve banks is thus to make the financial system and the overall economy inherently more vulnerable to instability, creating risks which have to be balanced against the economic advantages which can arise from the risk pooling and maturity transformation which banks perform.”

“Banks which can create credit and money to finance asset price booms are thus inherently dangerous institutions.“

"... it is clear that the financial sector – to a far greater extent than other sectors of the economy – has the potential and the incentives to create forms and volumes of activity which are optimal for the private agents involved, but sub-optimal at the social level."

He gives a remarkable clear statement of how the fractional reserve banking system works.

"The banking system can thus create credit and create spending power  – a reality not well captured by many apparently common sense descriptions of the functions which banks perform.  Banks it is often said take deposits from savers (for instance households) and lend it to borrowers (for instance businesses).  But in fact they don’t just allocate pre-existing savings; collectively they create both credit and the deposit money which appears to finance that credit.

Thus banks can create credit and private money."  

Turner also discusses the "Chicago Plan", orinally proposed in the the 1930s and which argued for a switch to full reserve banking.

"The answer the early Chicago’s theorists gave us was ‘very radical’– so radical indeed as effectively to abolish leveraged maturity transforming, fractional reserve banks.
Thus in the Chicago Plan and other variants of 100% money banks no private money is created since no private credit is extended, but instead all money in circulation derives from public debt or money issuance.
Essentially this would mean that banks which provided money services would face a 100% liquid assets requirement: while any institutions which made loans would face a 100% capital requirement, and could hold no deposits a set of prudential requirements which certainly makes Basel 3 look a pretty weak package."

He also comments on the recent report by two IMF economists ("The Chicago Plan Revisted") 

"But extreme though it is, there are modern economists who believe that the Chicago Plan is a feasible model for real world policy. Indeed in an IMF working paper published in august this year, entitled ‘The Chicago Plan Revisited’ Jaromir Benes and Michael Kumhof have argued that a transition to a 100% money banking system is both desirable and possible, and that it could and should be accompanied by a dramatic write-down of existing household debts, removing in one fell swoop the vulnerability to financial and macroeconomic instability created by high levels of household leverage."

Turner doesn't go as far as to recommend implementing the Chicago Plan. Indeed, he specifically argues that it would be best to leave the fractional reserve mechanism in place. But it is very refreshing to hear someone so close to the heart of the financial system actually raising the question of whether the system has to work in the way it does. 

Ellen Brown on the Fiscal Cliff

Another nice piece from Ellen Brown - this one's called "Fiscal Cliff : Time to Call their Bluff". She proposes a number of ways of dealing with the problem.

I was particularly happy that one of the options that Ellen considered is the idea of using a Financial Transaction Tax. She even uses my numbers to back her case (thanks Ellen!)

"Simon Thorpe, a financial blogger in France, cites figures from the Bank for International Settlements, showing total U.S. financial transactions of nearly $3 QUADRILLION in  2011.  Including other sources, he derives a figure of $4.44 QUADRILLION.  Even using the more "conservative" $3 quadrillion figure, a tax of a mere 0.05% (1/20^th of 1%) would be sufficient to raise $1.5 trillion yearly, enough to replace personal income taxes with money to spare." 

Actually, since producing those numbers, I've found yet another big player that doesn't appear to get a mention in the BIS figures. It's the CME Group, which in a recent presentation of its "Financial Milestones for 2011",  boasted that it

"Traded 3.4 billion contracts worth more than $1 quadrillion in notional value, which included record average daily volume of 13.4 million contracts".

How many other organisations like CME Group are operating? Does anyone even know? It seems to me obvious that all financial transactions should be monitored so that the true figures can be determined.And it seems insane that I have been forced to try and add up all the numbers from home because nobody in authority seems to think that these numbers should be public.

I suppose that it is possible that some of these transactions go through several different agencies and that this might lead to an overestimation of the the total volumes of real transactions. But actually, I don't mind. If the tax was implemented according to my rule book, the 0.05% tax (or whatever) would apply at every stage of the transaction. That would simply encourage the dealers to simplify their transactions - a good thing for everyone.

Ellen also mentions another interesting (and highly amusing) option. It's called the "Trillion Dollar Coin Trick".  The idea is that the US Government could use its constitutional right to "coin" money, and mint a few trillion dollar coins. Ellen proposed the idea in her Web of Debt book back in 2007 at which point is was just a "wacky idea". But she notes that :

"In a December 7^th article in the Washington Post titled "Could Two Platinum Coins Solve the Debt-ceiling Crisis?," Brad Plumer wrote that if Congress doesn't raise the debt ceiling as part of the fiscal cliff negotiations, "then some of these wacky ideas may get more attention."
Ed Harrison summarized the proposal at Credit Writedowns like this:

• The Treasury mints a $1 trillion coin, or whatever amount is desired.
• The Treasury deposits the coin into the Treasury's account at the Fed.
• The Treasury buys back bonds.
• The retirement of bonds is an asset swap, no different from QE2.
• The increase in reserve balances is not inflationary, as Credit Easing 1.0, QE 1.0, and QE 2.0 already have shown.
• These operations by the Treasury create no new net financial assets for the non-government sector.
• The debt ceiling crisis is averted. "

Plumer cites Yale Law School Professor Jack Balkin, confirming the ploy is legal.  He also cites Joseph Gagnon of the Peterson Institute for International Economics, stating, "I like it.  There's nothing that's obviously economically problematic about it." 
To the objection that it is a legal trick that makes a mockery of the law, Paul Krugman responded, " These things sound ridiculous -- but so is the behavior of Congressional Republicans.  So why not fight back using legal tricks?"

Wonderful!  It's precisely the sort of "wacky idea" that I really like. And, like the idea of paying off the entire UK national debt in 5 easy stages by using the insane fractional reserve banking trick to hoist the banking system by its own petard, it might actually work!

Cyclos : The future for currency systems?

One of the many things I learned from reading "People Money" is that there are already groups that are working on the technology needed to implement alternative currencies.

An organisation called The Social Trade Organisation (STRO) has developed open source and free software that can be used for running alternative currencies. It's called Cyclos.

It looks really good. I've downloaded the iPhone App that allows users to make payments to other users using the system. You can have multiple accounts using different exchange systems - as illustrated in this screen shots.

You can also make payments using Text messages using any mobile phone, and they are working on systems that would allow the use of POS (point of sale) terminals and payment cards. The software is very configurable, and can be used for a wide range of different sytems - local currencies, eCommerce, Complementary currencies, LETS, Time Banks, Commerce and consumer circuits (C3), and barter schemes.

Brilliant. The only problem is that the list of systems that are using Cyclos only includes one group in France - and that link doesn't work.

So, if anyone knows of any systems that make use of Cyclos, that I can use, do let me know.

In the meantime, I am very happy to have learned that much of the infrastructure needed to get a system like the N-Euro off the ground has already been done.

Kennedy, Lietaer & Rodgers : People Money - the promise of regional currencies

I've been increasingly convinced that the creation of alternative parallel currencies will be a vital part of the move to reform the economic system. My own proposal that governments in the Eurozone could create a parallel debt-free currency that might be called the "N-Euro" is a example.

But there are a vast range of different systems that are possible. And for me, the book by Margrit Kennedy, Bernard Lietaer and John Rodgers called "People Money : The promise of regional currencies" is perhaps the best overview of the state of the art.

It's actually a book that was originally published in 2004 in German under the title "Regionalwährungen - Neue Wege zu Nachhaltigem Wohlstand"), where it was a big success. There have also been versions in French ("Monnaies Régionales: De nouvelles voies vers une propérité durable") in 2008 (with a preface from Michel Rocard), and Spanish ("Monedas Regionales: Nuevos Instrumentos para una Prosperidad Sustenable") in 2010.

The new English language edition came out in July, and provides dozens of examples of different systems that are being tried out in various places across the globe.


They start by discussing two positive examples of regional currencies.

• Banco Palmas, Brazil
• WIR Bank, Switerland  

The WIR bank is a particularly impressive example. It's a debt-free trading system that has been in operation since 1934 and currently has some 60,000 businesses signed up.

Later on in the book there is a whole chapter that provides portraits of a wide range of different systems, based on interviews with some of the key players.

Currencies that support local economy - Business Exchange Systems

• The Business Exchange - Scotland
• The Community Connect Trade Association - USA
• RES - Belgium
• puntoTRANSacciones, El Salvador

Currencies that support local economy - other local economic models

• Brixton pound - UK
• Talente Tauschkreis Vorarlberg, Austria
• Equal Dollars - USA
• BerkShares - USA
• Chiemgauer - Germany
• SOL Violette - France
• Ithaca HOURS - USA
• Argentine stories

Currencies that grow communities

• Blaengarw Time Center, Wales
• Community Exchange System, South Africa
• Dane County Time Bank, USA

It's difficult to read this book and not come away convinced that there must be a way to use this wide diversity of approaches to help fix the current system. My own feeling is that it is a very good thing to encourage a wide range of different approaches at the same time, and to let them evolve naturally.

But, at the same time, I am also convinced that we might be able to move faster by pressing governments to get involved, at the regional level, but also at the national and even international levels. The power of these alternative currencies comes when they start to be accepted as a real means for exchange. And the most efficient way to do that would be to get governments to introduce alternative currencies that can be used for paying for things that everyone needs.

Saving the World (by fixing the economic system)

I've been a bit quiet for the last couple of weeks, but I've not been inactive.

I've been busy compiling the entire content of this blog into an electronic book form that can be downloaded onto your PC, iPad or whatever.

I decided to call the whole thing "Saving the World (by fixing the economic system)" - so much less pretentious than "Simon Thorpe's Ideas" ;-)

I've added a preface, suggestions to readers, a list of links and suggested books and an afterword. In all, the whole thing comes to an amazing 381 pages. Gulp.

You can download the file (about 14 Megabytes) by clicking here.

Will anyone actually read it? Well, I don't know. But the fact is that since the whole thing is in the form of a searchable pdf file, if someone wants to find what I have to say on a particular subject, then it is now pretty simple.

My thanks in particular to the people behind the "BlogBooker" website who have developed a way that allows anyone with a blog to generate a pdf book of their blog very easily.

Note added 31st December 2012 : I've just updated the book so that it includes all the entries from 2010 to the end of December.

Margrit Kennedy : Occupy Money

I have just read Margit Kennedy's short but sweet book "Occupy Money". Her basic point is that the current economic system, based on creating the money supply as interest bearing debt is truly unworkable. There is a tsunami of unrepayable debt that has been building up that will swamp us all. But she has a number of suggestions for ways to escape the impending doom. We are effectively all on the Titanic, heading straight for the iceburg. But we still have time to build lifeboats. Those lifeboats can be very varied in nature, but there is a good chance that when the Titanic sinks there will be enough lifeboats around, some of which may well be perfectly sea-worthy.

There were a number of ideas in the book that particularly caught my eye.

One is an idea for interest free lending that has been successfully used by Sweden's JAK Members Bank since 1965.

Normally, Banks require interest charges to cover various costs. Kennedy takes a typical case where an 8% interest charge might be broken down as follows:

1. Bank service charge (1.7%)
2. Risk premium (0.8%)
3. Liquidity premium (4.0%)
4. Inflation offset (1.5%)

Under the JAK scheme, only the running costs of 1.7% are needed because the scheme works as a sort of cooperative. Suppose you need €200,000 to purchase a house. If you join the scheme you first have to save about 10% of the sum to get enough "savings points" to obtain the loan. After that, you make regular payments every month that include three components :

• a component that pays back the loan
• a component that pays for the work of the bank
• a component that goes into the savings account

Margrit Kennedy compares what would happen for someone paying off the loan with 8% compound interest with a conventional bank loan, with the JAK mechanism using the table below.

Total monthly payments are fairly similar for the two systems, as are the total payments over the 25 years. But in the conventional bank scheme, the vast majority of the extra money has been eaten up by interest payments. Those interest payments may have gone to other savers, which may seem okay. But, since most of the money that banks lend is created out of nothing using the fractional reserve banking, in fact most of that money has probably gone to the bankers themselves.  By contrast, in the JAK system, it is true that 57,000 euros has been paid to the bank in running costs, the remaining 196,200 has gone back to the customer as savings.

The critical feature of the system is that it can operate without the need for compound interest, and so the system is insulated from the effects of the current system in which there is automatically a flow of money from those who need to borrow money to the wealthiest members of the population. This point is made very clearly in a study by Helmut Creutz who divided the German population into 10 slices depending on household income, and calculated how the burden of interest payments was distributed across the different groups. He also calculated the income from interest for the same groups. As you can see in the figure below, 80% of the population lose out. Only the top 20% of households benefit from the system at all, and the bulk of the benefit goes to the top 10% who "earn" nearly all the money that the interest based system produces.

And as Margrit Kennedy notes, the net result is that "in Germany alone in 2007, the sum redistributed as interest from the large majority to this minority was in excess of 600 million euros every day". That is not because the people with the money "earn" the extra income, but because the debt-based system is set up that way. And it doesn't have to be like that.

H.R. 3313: Wall Street Trading and Speculators Tax Act

I have discovered that there are attempts to introduce a form of Financial Transaction Tax in the US. On the 2nd of November 2011, Senators Peter DeFazio and Tom Harkin proposed the "Wall Street Traders and Speculators Tax Act". Here's the official summary:

"Amends the Internal Revenue Code to impose a .03% excise tax on the purchase of a security:

(1) if such purchase occurs on a trading facility located in the United States, or

(2) the purchaser or seller is a U.S. person.

Defines "security" to include:

(1) stocks, partnership interests, notes, bonds, debentures, or other evidences of indebtedness; and

(2) interests in a derivative financial instrument (i.e., any option, forward contract, futures contract, notional principal contract, or any similar financial instrument).

Exempts from such tax:

(1) initial issues of securities;

(2) any note, bond, debenture, or other evidence of indebtedness which has a fixed maturity of not more than 100 days; and

(3) securities traded pursuant to certain lending arrangements.

Not bad for starters. Unfortunately, it officially has a 2% chance of being adopted.

However, Senator Tom Harkin, has just been arguing that it could indeed provide a way of avoiding the impending "fiscal cliff" that is facing the US government. In an interview with the Wall Street Journal's Market Watch, Harkin was asked for his view on the effect of the tax on high frequency traders. Here's what he said:

"I really don’t see any evidence that these high-speed traders add anything to the economy, but they do also create some aberrations in the market that have led to some disturbances. On the one hand, my transaction tax doesn’t put them out of business but certainly they would have to pay 3 cents on every $100 in transactions they do. That’s really not very burdensome. But also we need revenue. We have to get out of this deficit hole we’re in and this transaction tax is estimated to raise about $352 billion over ten years. That’s pretty substantial. And I don’t think it will do anything at all to hurt trading, what I call “real trading.”

Quite. But it seems to me that the $352 billion over ten years is a massive underestimate of the potential of this sort of mechanism. As I recently argued, the DTCC  (Depository Trust and Clearing Corporation) alone handled $3.2 quadrillion in 2011. Add in the $403 trillion for CHIPS and the $664 trillion for Fedwire, and you have a very handy $4.3 quadrillion per year. Taxed at 0.03%, this could generate up to $1.3 trillion a year - more like $13 trillion over 10 years. Essentially, that would pay off virtually all the US national debt.

STOP PRESS: I've just discovered that veteran politician Ralph Nader has just published a piece in the Washington Post calling for a transaction tax to avoid the "fiscal cliff". As he says:

"Wall Street might object, but taxing its sales is hardly a radical idea. Americans in all but five states pay state sales taxes, ranging as high as 7 percent, every time they buy a car, an appliance, a pair of pants or piece of furniture, but a trader on Wall Street can buy and sell millions of dollars’ worth of financial products each day without paying a cent in sales taxes. A teacher or police officer who buys a $100 pair of shoes in the District or Maryland pays $6 in sales taxes. Meanwhile, if a financial speculation tax were applied to stock trades at a rate of 0.25 percent, a day trader would pay just 25 cents on every $100 worth of stock bought."

Updated Transactions in the US : $4.44 quadrillion in 2011

Yesterday, I gave a plug to the Universal Exchange Tax idea. The authors estimated that total transactions in the US were probably around $4 quadrillion a year - substantially more than the $3 quadrillion figure that I had previously obtained using the BIS dataset. One of their numbers was a figure of $1.66 quadrillion for the transactions handled by the Depository Trust and Clearing Corporation (DTCC) in 2010.

But I've just discovered that this number massively underestimates the total volume handled by the DTCC. The DTCC has a webpage which details transaction statistics for 2010 and 2011. By looking at that site you can find that the $1.660 quadrillion mentioned earlier actually went up to $1.669 quadrillion in 2011. But there is far more!

Here is a compilation of all the various transactions handled by the different arms of the DTCC.

As you can see, the total is a eye-popping $3.211 quadrillion for 2011 - up 1.3% on the previous year. Add to that the $403.3 trillion handled by CHIPS, the $663.8 trillion handled by Fedwire, and the other items mentioned in the BIS dataset, and you get a grand total of $4.443 quadrillion - as you can see in the table below.

Can there be any doubt that there is plenty of scope for an FTT in the USA to generate colossal amounts of revenue for the Government? After all, the total US government tax revenue is only $2.3 trillion - virtually 2000 times less. It follows that a 0.05% FTT could allow all the other US taxes to be scrapped. Is anyone out there listening?

Australia : An FTT of 0.24% could replace all existing taxes

When the latest set of BIS figures came out, I commented that the numbers for financial transactions for Australia were way off because of the absence of numbers for many of the key players in the Australian Financial Sector. If you download the 575 page report you will find that many of the figures that should be in table 18 (on page 18), table 21 (page 20) and table 26 (page 22) are "nav"  (not available). Very frustrating.

But I've just discovered that the AFMA (Australian Financial Markets Association) produces a very nice report that you can download as a pdf file. It includes the following summary of annual turnover in the Australian Financial Markets.

You can see that for 2011-12, financial transactions were just over 125 trillion Australian Dollars (AUD). Additional tables show that nearly all the bulk of this is due to two main areas: 80 trillion is due to what is referred to as "Debt Markets" and a further 40.8 trillion to "Currency Markets".

In the following table, I have taken the AFMA data, together with the BIS data on "Payment instruments and Terminals by non-banks" (page 8 of the report) to get a value for Total Transactions. I then compare that with the numbers provided by the Australian Bureau of Statistics for the Total Government Revenue from taxation. These include both Government taxes, state and territory taxes, and local goverenment taxes. I then calculate the level of FTT that would be needed to completely eliminate all the existing taxes.

As you can see, the resulting number for 2010 (the tax figures for 2011 are not yet available) is 0.24% - a number that is very similar to many other countries. It's certainly higher than the values obtained for countries like the UK and the USA where the scale of financial transactions has become quite ridiculous. But it shows that the general idea of using an automatic, painless and fair taxation method based on taxing all financial transactions is a perfectly viable option. Perhaps the Aussies could be the first to give the idea a go?

The Universal Exchange Tax

My thanks to Susy for pointing me to a webpage devoted to what the authors call a Universal Exchange Tax.

It's pretty much the same sort of idea that I have been pushing since publishing my first paper on the subject in October 2010, the idea that was (I believe) originally proposed by Prof Edgar Feige, and which is refered to on another webpage as the Automated Payment Tax. It's also related to Andrew VanHook's website called "The Tran$action Tax".

But all I can say is - the more websites there are the better! These ideas desperately need to be aired in public. And yet, as far as I am aware, the idea has never yet been discussed in the major media.

It's not obvious who is behind the Universal Exchange Tax site, and it seems to be "Under Construction". There are other bits to it that can be accessed from the web, such as a some links to facts and figures,  but it appears to be based in the US because it gives some interesting information about the scale of transactions in the USA. My own numbers are based on the figures provided by the Bank for International Settlements. If you take their numbers for 2011, you find that the total reaches very nearly $3 quadrillion.

But the Universal Exchange Tax site comes up with an even bigger number - $4 quadrillion. To reach that number, they note that that  

The Depository Trust and Clearing Corporation, the largest financial clearinghouse in the US, processed nearly $1.66 quadrillion in transactions for its clients in 2010.

CHIPS, The Clearing House, another processor of financial activity, settled over $365 trillion in 2010,

Fedwire, owned by the Federal Reserve Banks, in 2010 processed over $608 trillion in funds and over $320 trillion in securities.

That's roughly $3 quadrillion dollars in transactions cleared by only three processors. Factoring in all the other clearinghouses, banks, credit unions, credit card companies, etc, that handle the day to day business of America, it is apparent total financial activity in the US is easily in excess of four quadrillion dollars. 

Actually, if you go to the sources that they provide, you can get an update on the numbers. 

For example, the CHIPS link allows you to download a pdf file where you can  learn that they handled $403.3 trillion in 2011, and that so far in 2012, they have handled a fruther $306.4 trillion.  Very conveniently, they even provide the total value of transactions handled since the system was initiated in 1970 - it's $8,714,727,654,733,000 - let's call it $8.7 quadrillion  to keep things simple. Oh, and their best year was in 2008 when they managed to process $508.8 trillion. Not bad - but of course 2008 was an exceptional year for the financial sector.

Likewise, if you follow the Fedwire links, you discover that the total value of fund transfers in 2011 was $663.8 trillion - up an impressive 9.1% on 2011. But 2011 was apparently not a good year for securities with a mere $291.8 trillion - down 8.8% on 2010, and way below the bumper year in 2008 when they handled a record $419.3 trillion.

Nevertheless, it really does look like there is a simple way for the US government to get rid of the national debt, while at the same time scrapping the ridiculous US tax code, which now runs to over 77,000 pages : just introduce a simple, automatic, painless and totally fair transaction tax on all financial transactions. I don't mind whether it gets called a Financial Transaction Tax, an Automated Payment Tax or a Universal Exchange Tax. The important thing is to do it.... 

The solution to the EU budget crisis? A simple Europe-wide FTT of 0.0033%

The leaders of the 27 EU governments failed to reach a compromise over the future budget for the European Unio, and Herman Von Rompuy  the president of the European council, threw in the towel after an alliance of the EU's richest countries, led by Britain and Germany, declined to accept a €971bn (£786bn) budget for 2014-2020.

The solution should be obvious to anyone with an open mind.  We are talking about a total EU budget of around €140 billion a year. Compare that with the levels of transactions with the EU. As I calculated recently, transactions in the 17 Eurozone countries topped €2 Quadrillion in 2011. Those in the UK are around £1.76 Quadillion... or  €2.19 Quadrillion.  To these numbers, we can add the numbers for the other Non-Euro countries, namely Bulgaria, the Czech Republic, Denmark, Latvia, Lithuania, Hungary, Poland, Romania and Sweden. Only one of those countries is covered by the BIS reports, namely Sweden, where financial transactions totalled $21.3 trillion in 2011. But I note that the ECB's data shows that €96.6 trillion of the €240.3 trillion in Payment and Terminal transactions within the EU occured in Non-Euro countries - i.e. nearly 40%.

I think we can safely conclude that the total is going to be at least €4.2 quadrillion, a number that is 30,000 times larger than the entire EU budget. It follows that if the EU imposed a tax on transactions of just  0.0033%, the entire EU budget would be paid for.

Some may argue that 0.0033% is excessive, and would lead to the total collapse of the entire financial system. All the traders would move from the City of London to somewhere outside the European Union. Frankly, this is complete rubbish.

But, even if the 0.0033% tax resulted in a drop in the revenue, it would be absolutely trivial to make the rate vary automatically to guarantee that the entire EU budget is covered. If transactions drop by 50% (a good thing), you simply increase the rate to 0.0066%. Noone would even notice. The rate could be varied on a daily basis if necessary. It really would be that simple.

Of course, the UK will complain that they would end up paying nearly half the budget (since around 50% of all transactions go through the City). In my humble opinion, this argument holds no water at all. Yes, the City of London does a lot of the transactions for all the Eurozone, but you cannot argue that onlypeople in UK would deserve to reap the benefits. It's exactly the same problem when Starbucks, Amazon and Google claim that they don't earn any money in the UK because they declare everything in Luxembourg, Ireland, Bermada or wherever. This is clearly just an accounting trick that has no basis in justice.

No. It would be entirely normal if the proceeds from a Europe-wide transaction tax went to the European Commission directly. And that way, there would be no more arguments about rebates etc. The European Commission could simply distribute the money to the places where it is most neeeded.

And if people subsequently decide that it might be a good idea to triple the EU budget by increasing the tax to 0.01%, then so be it.

Finally, note that once each country has introduced this tiny FTT to pay for the the EU budget, it would be extremely simple for them to add an extra component to pay for national funding requirements. Thus the UK, with over €2 quadrillion in transactions,  would be able to use a 0.0033% tax to pay for a hefty share of the EU budget (making the UK very popular with the rest of Europe). But then, by increasing the rate to 0.05%, it would generate enough revenue to allow it to scrap all its exisiting taxes - income tax, corporation tax and VAT.

The Civic : a proposition for an alternative currency

In my last post, I mentioned that the book "Money and Sustainability :  The missing link" contains a whole pile of very intersting propositions. One of my favourites is the idea of the Civic, a sort of local tax that can be used to encourage socially useful actions within the community.

Here's how the authors describe the idea.

"The city starts by requiring its residents to make an annual 'Civics' contribution. A Civic is an electronic unit issued by the city that is earned by residents through activities that contribute to the city's publicly agree upon aim. The unit of account could be one hour of time, valued at the same rate for everyone".

"Every household would have this obligation, with appropriate exemptions for people with handicaps, people caring for young children or elderly parents or other reasons".

"The governmental entity would accept only Civics as a form of payment for this obligation and would not set a fixed exchange rate between the Civic and the national currency. Residents could exchange Civics for national currency on free-market principles. A local online market (like eBay) could be set up to facilitate such exchances and assure transparency and trust". 

I can see a number of serious advantages to such a system.

First, it is a way of getting things done in the the community without the need to borrow money and pay interest. The city would simply be taking advantage of its right to raise taxes to encourage particular types of action. But unlike normal taxes, even people with no financial resources would be able to contribute.

Second, the activities covered by the scheme would be entirely voluntary. People who did not want to be involved could stay clear. But when then time came to pay the Civic tax, they would be obliged to  buy excess Civics from people who had more than they need.

Third, this means that those who could not find normal jobs could earn extra Civics and then trade them in for "real" money. Interestingly, depending on how civic-minded the population is, the value of those Civics would vary. If not enough people were contributing, the cost of buying the civics could get quite high. In contrast, when the overwhelming majority were participating, the free-market value of excess Civics would drop. And indeed, if the system ended up working very well, all the necessary work would be done, everyone would be involved, and it would cost no money at all.  Wonderful! No money. No debt.

Of course, I suppose that there may be some who would object to being "forced" to do work for the community. Well, I would say to those people that they should not expect to be able to use the municipal facilities such as libraries, parks, theatres, public transport and so forth. But hopefully, such antisocial attitudes would be rare. 

So, I really do think that the Civics idea is neat. And it can easily be combined with any of the other approaches that I have been endorsing - such as the N-Euro or the creation of conventional money by central banks for projects that are in the public interest.

Bernard Lietaer & others : Money and Sustainability - The missing link

I've just finished reading "Money and Sustainability : The Missing Link", written by Bernard Lietaer, Christian Arnsperger, Sally Goerner and Stefan Brunnbuber. It's really excellent, and absolutely stuffed full of interesting ideas.

The authors push for the development of a range of alternative monetary systems that would allow the economy to develop in a sustainable and resiliant way. They argue that the current system, based on the creation of the money supply as interest-bearing debt by commercial banks, is unworkable because it requires exponential growth to pay off the accumulating compound interest. They mention the 100% reserve plan ("The Chicago Plan") proposed by an increasing number of groups (including Positive Money), but argue that a better way to get the system changed would be introduce a range of alternative systems, all of which are not debt-based, and which would allow the system to evolve naturally.

While I am personally a strong supporter of moves to completely abolish the creation of money as debt by private banks, I can see that the ability of the banking lobby to thwart any such moves should not be underestimated. And since, as the authors point out, the need for reform is so urgent, we simply cannot sit around waiting for the resistance of the banking sector to wear down. In particular, they argue that the massive infrastructure investments needed to deal with climate change simply cannot wait - financial crisis or no financial crisis.

They actually make 9 specific suggestions that can be introduced in parallel - 5 that can be done at the local level, while the four others would require the intervention of national governments. I'll no doubt have a look at some of them in later posts, because there are some really intersting ideas there.

But, just for now, let me mention a couple of other points that they make.

First, like me, they talk about the insane levels of foreign exchange activity revealed by the BIS Triennial report - $4 trillion a day. However, unlike me, they were able to come up with a number for the percentage of those transactions that are actually associated with the real economy. The answer? 2%. The other 98% is pure speculation.  They note that "one day's currency speculation represents more that the annual economic output of Germany or China changing hands". Here's the graph, which shows the daily volume of foreign exchange transactions reported by the Bank for International Settlements (in billions of dollars) for the month of april once every three years compared with foreign exchange transactions based on "real" economic exchanges. The authors note that the temporary dip in 2004 was due to replacing 12 European currencies by the euro.

Second, they also take up the very interesting case of France, which until 1973 the Government was able to get money as interest-free loans from the Banque de France. And they make use of the analysis made by Derudder & Holbecq (2008), showing that had that system continued, French national debt would now be just 8.6% of GDP rather than 78%. The graph (also used by Ellen Brown in her latest piece) is very compelling.

Interestingly, the curves in the graph only start in 1979, because before that, there are apparently no records that distinguish between the reimbursement of debt and the interest payments on the debt. That, in itself, is a pretty amazing fact that reveals just how much we have been hoodwinked. But the general point is that the real cause of the massive amounts of government debt are laid bare. It is not overspending by governments that is the real problem - it is the highly toxic effects of compound interest demanded by the commercial banks for creating the money supply.

Ellen Brown : It's the Interest, Stupid!

Ellen Brown, the author of "The Web of Debt" (which is probably N° 1 on my list of must read books!), has just posted another very good piece called "It's the Interest, Stupid! Why Bankers Rule the World".

She takes some figures from the 2012 edition of Margrit Kennedy's book "Occupy Money", which came out last week, and which show that "a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our GDP."

It's a stunning revelation. People naturally think that if they pay their credit card bills on time, and keep out of debt, that they are avoiding interest charges. But it's not true. The reason is that virtually everything you buy includes hidden costs for interest charges. That's because the farmer who produces the milk is nearly always in debt to the bank, and paying interest. And so is the transport company that takes the milk to the bottling plant. And so is the company doing the bottling. And the shop that sells the milk. At every step on the way, the banking system is taking a major slice of the pie. And that is because of the insane way in which the banking system has been given an effective monopoly on creating the money in the system.

Margrit Kennedy's numbers actually come from the work by Helmut Creutz, author of "The Money Syndrome" and she cites interest charges that range from 12% for garbage collection, to 38% for driking water and 77% for rent in public housing in Germany.

But it is clear that the situation is the same everywhere. And it is particularly obvious in the case of government debt - where the interest charges are costing taxpayers vast sums every year. For example, the interest payments on US Government debt since 1988 total $8.58 trillion - more than half the entire national debt. And in Europe, the interest payments on government debt for the 27 European Union countries since 1995 total €5.6 trillion - again more than half the total government debt. 

Just imagine what would happen if the money supply was created debt free, rather than being created by the commercial banks. Given the figures, it is clear that once the interest charges have been  worked out of the system, we can expect a 35-40% drop in the cost of everything. The economy would be liberated. People would get the just rewards for their work. And we would not have to accept the obscene situation where 1% of the population have been creaming off all the rewards.

It is now clear why this situation exists. It is because the entire financial system has been rigged. It is high time that citizens took the initiative to fix the system for good.

A message to President Obama

I must admit to being relieved that Obama got through. But given that both the main candidates have been massively financed by Wall Street and the Banks, one wonders how he can take on the financial system. Add to that the fact that the House of Representatives is controlled by Republicans who have vowed to block any increases in taxation, and you might think that there is no way forward.

But wait. Has anyone in the US talked seriously about using a financial transaction tax of the sort being implemented in Europe? With the BIS figures showing that financial transactions in 2011 were running at close on $3 quadrillion, it follows that a 0.1% FTT could generate something like $3 trillion a year. Enough to pay off the entire US national debt in five or six years. Or alternatively, to abolish all the other taxes.

Think about it.....

Eurex : A major player unknown to the ECB?

I thought I would follow up my posting yesterday on Eurex AG, the group that managed to generate roughly €340 trillion in trading that was visible in the BIS figures for 2011, but for some reason doesn't seem to get a mention in the ECB figures.

You can see a direct comparison of the two reports in the table below. While the BIS report for Germany lists €107.3 trillion in executed derivatives trades for 2011 and €238.2 trillion in contracts and transactions cleared, the ECB only lists a modet €3.25 trillion in securities transactions cleared. How come the ECB doesn't know about this?

It turns out that at least part of the Eurex's trading is extremely easy to find. The people at Eurex are very open about the level of their derivatives trading, and you can download the full details of all trading at the end of every day on their website. For example, the you can find the data for the 2nd of November as an excel file here, and at the bottom of the file it says that the total Euro value of trades so far in 2012 is €74,881,693,608,152 (nearly €75 trillion). Well, you can't get much more specific than that.

You can also download monthly summary sheets which provide hundreds of pages of information in the forms of graphs and tables. For example, the latest complete set for September 2012 provides total transaction levels not just month by month, but also for every year since 2008.

It's reassuring to see that the number for "Capital Volume in Mio EUR" for 2011 (107,434,671) nearly matches the €107. 3 trillion value given in the BIS dataset. Unfortunately, I've only found one set of numbers on the Eurex website - those corresponding to derivatives. I've not yet found specific details of the €235.2 trillion in contracts and transactions - but maybe I'm not looking in the right place.

But the important thing is that it is clear that companies like Eurex AG keep extremely clear records on the levels of transactions that they handle. And there really is no excuse whatsover for the ECB not providing the full details of this sort of activity too.

Given that this sort of information is really easy to find, it would be trivial to impose a modest FTT on this sort of activity. It would be money that would go directly help reduce the drain on the Eurozone's taxpayers.

Frankly, I see no reason whatsoever for not starting tomorrow....

ECB and BIS transaction figures for the eurozone : Over €2 quadrillion in 2011

I've recently been using the numbers provided by the European Central Bank and the Bank for International Settlements to try and get some hard numbers on the levels of transactions within the Eurozone in 2011.

Last week, I came up with a figure of just over €1.6 quadrillion based on the ECB's numbers. That's already pretty impressive. But I was intrigued when I noted that the BIS's figures for just five of the 17 eurozone countries (Germany, France, Belgium, Italy and the Netherlands) already topped €1.7 quadrillion.

So, what accounts for the differences?

Well, one reassuring point is that the numbers provided by the ECB for "Payment and terminal transactions using non-MFIs"(which includes "Credit Transfers", "Direct Debits", "Card payments", "E-money payments", "Cheques" and "Other payment instruments") exactly match the numbers provided by the BIS in their Table 8. And the 5 countries between them account for nearly 82% of the transactions in the entire eurozone.

Both the ECB and BIS provide numbers for TARGET payments, and for France, Italy and the Netherlands, the numbers match well. However, for both Germany and Belgium the ECB figures differ - the ECB figures for Belgium are 23% higher, whereas for Germany it is the BIS that comes up with a higher number (by about 20%). Oh well. But again, the five countries make up about 82% of the eurozone total.

The other sets of figures are harder to match up, and the decisions about where to put them seems to vary from country to country.  For example, for France, Italy, Germany and Belgium, the BIS figure in Table 26 and the ECB's numbers for "Securities Settlements" match up perfectly. But only Belgium's numbers in Table 18 of the BIS dataset match the ECB figures for "Securities Exchanges".

When everything is added up, France, Belgium and the Netherlands look fairly similar in the two databases. However,  as you can see in the table, the total figures for Germany are over twice as large in the BIS dataset. This huge difference is due to two major components that don't seem to have made it into the ECB data. First there is roughly €238 trillion handled by Eurex Clearing AG (see Table 21 of the BIS data). Then there is an additional sum of over €107 trillion of derivatives trades, also handled by Eurex which is mentioned in Table 18 of the BIS dataset. Perhaps someone could mention to the ECB that there are an additional €340 trillion in trading happening in front of their noses that they might like to include in their figures?

There is also a big hole in the ECB figures in the case of  Italy, where the BIS figures are 55% higher than those provided by the ECB. In this case the difference seems to be mainly due to numbers that appear in the BIS data set in Table 21 under LCH.Clearnet SA (which did €27.8 trillion in securities transactions) and something called CCG which did nearly €23 trillion of securities transactions and exchange-traded derivatives.

Of course, none of these differences can really be regarded as surprising. After all, both the ECB and BIS make it very clear that they are only reporting numbers for "selected" partners. In other words, there is no guarantee that there are not vast amounts of trading going on that somehow never get mentioned - like the hundreds of trillions of pounds worth of trading handled by LCH.Clearnet Ltd that never gets reported.

It looks like BIS does a better job than the ECB at getting the fullest information. And who knows, maybe the total for Spanish transactions provided by the ECB (€215 trillion) might also be a lot higher if more was included.  And the other eurozone country that would be very interesting to check on more closely is Luxembourg. According to the ECB, the country handled just over €90 trillion in 2011, but who knows, maybe the real number  could be a lot larger.

Nevertheless, it is clear that if we add the €1.7 quadrillion reported by BIS for just five countries, and the €355 trillion that the ECB reports for the other 12 eurozone countries, we already have a very healthy looking total of €2.07 quadrillion in transactions.

Now, let's see. 0.1% of €2.07 quadrillion is over €2 trillion. Why are Europe's politicians not salivating at the prospect of getting their hands on some of that lot? All it needs is a modest Financial Transaction Tax and life would be very very different....

The €1.6 quadrillion of Eurozone transactions - by country

Last week I compiled the numbers for financial transactions in the Eurozone in 2011 based on the latest figures from the ECB. The total was an impressive €1.6 quadrillion - up 8.4% on 2010 - proof if proof was needed that there is no lack of money in the Eurozone. And that was before Mario Draghi printed another €1 trillion for banks in the Eurozone to play with.

Today, I thought I would have a look at where the transactions were taking place. The table below gives the breakdown country by country.

As you can see, Belgium comes top with a very impressive €380 trillion in transactions, thanks largely to the €333 trillion handled by Euroclear Bank which is based in Belgium. Next comes Germany, with over €364 trillion - again due in large part to a single component - the fact that over a third of all TARGET transactions are handled in Germany.

The big news in the last week is that there are now at least ten EU countries that are in favour of imposing a Financial Transaction Tax. The ten countries are Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. And Estonia should be joining soon, as soon as the project has been ratified by the Estonian parliament. It's fantastic news. But there is one thing that I cannot understand. According to the best estimates, the tax will only raise a few tens of billions at most - despite involving most of the big players in the Eurozone. Essentially, only the Netherlands and Luxembourg will be seriously missed.

So how come, with €1.6 quadrillion in transactions, the FTT is only going to raise about €10 billion - equivalent to a tax of just 0.001%? It appears that the problem is that the tax is extremely selective - applied to just a small subset of transactions.

Why on earth are the Eurozone governments not planning to apply the tax universally?

The other big question concerns who would benefit from the introduction of such a tax. Clearly, if all the €1.6 quadrillion was subject to the tax, it would be absurd that Belgium should reap a huge benefit, simply because the Euroclear offices happen to be based in Belgium. So how should any revenue from such a tax be distributed?

I think there is a simple solution. And that is that all the revenue generated by the Eurozone FTT should be handed over to the ECB who would then distribute the money to each country as a function of population. Under such a scheme, a 0.1% universal FTT could generate something like €1 trillion in revenue. Of this,  roughly €250 billion would go to Germany (which has 24.6% of the population, €196 billion to France, €187 billion to Italy, €139 billion to Spain, €34 billion to Greece, €33 billion to Belgium, €32 to Portugal, €25 billion to Austria, €16 billion to Slovakia, €6 billion to Slovenia and €4 billion to Estonia. The Netherlands and Luxembourg would get nothing, unless, of course they decide to impose the FTT too.

Sounds like a pretty good deal to me.

Total Eurozone Transactions in 2011 : €1.6 quadrillion

I've been going through more of the data provided by the ECB on its website. Yesterday, I came up with a number of €1,192 trillion using the data in provided by the ECB's Statistical Pocket Book. But it looks like those numbers don't include everything by any means.

If you go to the webpage called "Payments and securities trading, clearing and settlement", you will find several different sections. There is a section called "Payment instruments and large-value and retail payments systems" that I used to compile the numbers that I provided yesterday on Card payments, credit transfers, direct debits, e-money purchases and cheques.

There is a whole set of data on monthly statistics of payments instructions procesed by TARGET, which is short for "Trans-European Real-Time Gross Settlement Express Transfer System". The data is provided by month, but I have compiled the data so that you can see the transactions levels for 2010 and 2010 for each eurozone country.

As you can see, the total of very nearly €600 trillion is somewhat smaller than the global number provided in the Statistical Pocket Book of €651 trillion, but the difference is that I specifically limited the total to the 17 eurozone countries. It's possible that the Pocket Book figure included the other non-Eurozone countries that also use the TARGET system.

But there is more. There is a page with information about "Securities trading, clearing and settlement", that provides three different sets of data.

First there are "Securities Trading Statistics" that you can get as a pdf file, or, if you are courageous, you can download the raw data. I did that and compiled the following table.

As you can see, there was a big jump to €27.9 trillion in 2011, up 27.4% on the previous year. Particularly intriguing is a massive 40% in trading on the Spanish exchanges. I have no idea what that means, although I'm pretty certain that it wasn't good news for the Spanish.

Second, there are "Securities Settlements Statistics" that you can again get as either a pdf file, or as the raw data. Again, I've done the hard work and compiled a table.

This table shows some really impressive numbers, totally nearly €817 trillion, with close on €333 trillion accounted for by Euroclear Bank in Belgium, with Euroclear France adding another €146 trillion. The numbers are up nearly 12% on 2010. Not much sign that Eurozone austerity has been hitting this sector of the economy.

Finally, there is a set of date called "Securities Clearing Statistics". The pdf is here and the raw data here. Again, I've compiled a table so that you can see where the big numbers are.

Again, we see a large 11.6% increase on 2011, with a total of €18.25 trillion.  Much of that involves  the European Multilateral Clearing Facility in the Netherlands, which, when you add up all the transactions it processed for the different Eurozone countries totals €6.14 trillion. The other really big player is LCH.Clearnet S.A. based in France. When you add all the transactions it handles for different countries you get a total of €5.95 trillion.

I'd just like to take the opportunity to, again, complain about the fact that LCH.Clearnet S.A.s big brother in London (LCH.Clearnet Ltd) has yet again failed to provide any numbers. The ECB obviously has the same problems as the Bank for International Settements, who have also been unable to compile numbers because of LCH.Clearnet Ltd's inability to hand over any figures for 2010 and 2010. Maybe they have something to hide?

By putting together all the numbers for the transactions that are provided by the ECB, I am in a position to provide what I believe is a fairly complete picture in the form of a summary table.

As you can see, total for 2011 has now reached an impressive €1,609 trillion. Let's call that a round €1.6 quadrillion. The number is pretty close to the value of €1.7 quadrillion I got using the B.I.S. figures last week. That's slightly odd, because the BIS figures were only based on 5 of the 17 eurozone countries - but they are the ones with the biggest economies, namely Germany, Belgium, France, Italy and the Netherlands.

Nevertheless, I think it is clear that the level of transactions only in the Eurozone are already extremely impressive - even without taking into account what goes on in the City of London.

So, here's a question for François Hollande, Angela Merkel, and the other EU government leaders who are pushing for the introduction of a financial transaction tax. Why is it that you never seem to talk about more a few tens of billions of revenue? If you take the ECB's own numbers, it is clear that with over €1.6 quadrillion in transactions within the Eurozone, the potential revenue that could be generated with a 0.1% Financial Transaction is huge. Just imagine what you could do with over €1 trillion. Hey, it would even pay for the €1 trillion that Mario Draghi has printed for the Banks since december last year.