Which governments get ripped off the most by the banks?

I already had the figures for the level of interest charges on government debt for the 27 European Union countries (€5.6 trillion since 1995), and for the USA ($8.5 trillion since 1988). But what about all the other countries in the world? Which countries have been paying the highest proportion of their tax revenues to the banks in the form of interest charges?

Well, I have just compiled a table based on data from the World Bank which has figures for the percentage of government revenue that goes on paying interest charges for about 100 countries. Figures are missing for most of the other countries.  I've created a table with the numbers since 1990 (no numbers are available before) and again there are quite a few data points missing. There is also only partial information for 2010.

Nevertheless, the figures are impressive. I've ranked all 100 countries using the data for 2009. And Here they are.

The winner for 2009 was Jamaica who managed to pay 64.49% of all its revenue from taxes and so forth to the banks in interest charges, closely followed by the Lebanon (48.70%) and Pakistan (41.68%). Well done you three. Brazil provided a very generous 20.72% of its entire revenue to the banks, followed closely by Iceland who managed 20.65%. I note that Brazil probably holds the all-time record for generosity, since they managed to hand over 118% of all their revenue in interest charges in 1990.

Greece, with its 14.27% of government revenue going in interest charges only comes in at 15th place.

The USA, which generously gave 11.13% of all its revenue to the banks comes in 22nd position, the same value as Italy.

Germany, France and the UK are actually quite a long way down the table - they only managed to hand over between 5.31% and 5.5% of their total government revenue. I'm sure they could do better if they tried.

At the bottom line, you can see a number that the World Bank gives for the entire World. It was 5.33% for 2009 - showing the Germany, France and the UK appear to be very much at the average level.

The truly amazing thing about these numbers is that THERE IS NO GOOD REASON WHY GOVERNMENTS PAY INTEREST TO BANKS AT ALL! Virtually all the money that was lent to governments by the banks is money that was created out of thin air by the fractional reserve banking system. And when the commercial banks get to create the money, they get to charge us all interest on those loans.

This is completely unnecessary because Governments should be able to produce their own money supplies debt free. This whole system is insane. Will some politician please start to do something to fix this?

Money creation : governments or banks?

Let's compare two systems.

In the first system, the one we currently have, commercial banks have an effective monopoly on money creation. They can effectively create as much money as they want to, they can charge as much interest as they want to (or at least as much as they can get away with), and they can decide where the money goes.

In the second system, the one that we should have, money creation is the job of governments. Under that system, money can only be created if there is a real need for it, those who create the money need not charge interest at all, and the money is only spent on projects that are clearly in the public interest.

Which of these two systems would be better?

Well, we know that the first system costs tax-payers a fortune. It has cost European tax-payers €5.6 trillion in interest charges since 1995, and it has cost US taxpayers $8.5 trillion since 1988. In both cases, these numbers account for more than half of all government debt. I don't yet have figures for how much interest payments have cost the governments of the rest of the world, but I would bet that we can imagine that it will be a similar eye watering number.

What did the banks do with all the money they get from the interest charges? Do they reinveste it in useful projects that are in the public interest? I would be interested to hear a representative from the banking sector explaining what they did with all our money. But I note in passing the recent study showing that between $21 and $32 trillion is currently stashed away in tax havens on the accounts of very wealthy individuals. Where did those people get all their money from? Do you think they really earned it by hard work or skill? Or are they the people who have siphoned the money out of the system? Is it a coincidence that the numbers are actually quite similar to the sum of the €5.6 trillion and the $8.5 trillion plus the interest charged on the other nations of the planet?

What about the way the newly created money is used. Do banks really do it better that governments? Given the recent reports showing that around half of newly created money goes to finance the property bubble (not even to finance the construction of new property), 30% goes to the financial sector (to allow them to speculate on the markets). Only a few percent gets used for actually developping the economy. Furthermore, there are virtually no figures on the amount of money that banks actually create temporarilly to play the markets. When Jerome Kerviel ran up a deficit of €50 billion for Société Générale, do you think he was using the money that savers had deposited with the bank? Very unlikely. He had almost certainly been given the green light to create the money directly. Just make sure that you make a profit with it. This ability to push the markets one way or another is seen everyday in the way that share prices go up and down. There is no need to use depositors money if the banks can just create some more out of thin air.

But whatever the banks do, they will be charging the rest of us interest on the money they create. Even when the central banks lend them money at 0.25%, they will lend it on to the public at whatever rate they can get away with. Is there any limit to the level of greed? Apparently not. I think that Quid 24.com wins the prize for the biggest ripoff - they charge an APR of 14,348%.

Now compare that with a system in which the government creates the same volume of money supply per year as the commercial banks currently do, but injects it directly into the economy in the form of public spending. In that case, the money could be used directly for things that are in the public interest. For example, rather than lending money to buy houses that already exist, money could be used to build lowcost public housing that could be rented out to people on modest income. The money could also be used to renew the transport infrastructure, build hospitals and schools, pay for teachers, firemen, police officers. In other words, all the things that we actually need.

With a money creation budget that is a fraction of what the commercial banks are currently pumping into the economy, it is likely that it would be possible for governments to fund all the expenditure programs that are currently paid out of taxes AND WITH NO INTEREST TO PAY. And what does that mean? It means that governments could probably abolish all the existing taxes.

Imagine that. No income Tax. No VAT. And no corporation taxes that the multinationals don't pay anyway. No tax avoidance schemes. No unfair advantages for those wealthy enough to hide their money in tax havens.

Why is noone talking about this? Even those at the Positive Money site don't seem to push the idea that public money creation could be a perfectly viable alternative to taxation.

I think that the answer is clear. Nearly all the media and many politicians are controlled by the financial lobbies who would lose their power if governments were no longer in debt to the banks. The fact that Stephen Zarlenga had to publish "The Lost Science of Money" himself (via the American Monetary Institute) suggests that these ideas are too hot for conventional publishers to handle. They, like many of the mainstream media, almost certainly owe money to the bankers. And those bankers can refuse to lend to anyone who doesn't play their game.

I believe that it's now up to ordinary citizens to make the move. Despite everything, we still do live in a democracy where most of us can elect our governments. And if there were politicians around who were supporting the idea of taking money creation away from the banks and using debt-free public money creation instead, I cannot believe that they would not be able to get the 99% voting for them.

Benjamin Butler had it right in 1869

One of the many remarkable things I learned  from reading Stephen Zarlegna's "The Lost Science of Money" was that back in 1869 Benjamin F. Butler made a speech to the House of Representatives that argued for the creation of government produced debt-free money - the key platform of the Greenback movement. The full text of his speech can be found here, but here are some of the high points, taken from Zarlegna's book :

"Let no man say that I desire to establish or perpetuate a depreciated currency. I think I have proposed a currency as valuable as gold and for all purposes of a circulating medium better than gold.... But what I desire is that the currency shall not be redeemable in gold and silver... In other words the value of the currency of this country, its volume, its stability, the values of all property in this county, shall no longer be at the mercy of the panics, the caprice, the speculations, or the needs of the bankers of Europe or the traders of Asia...

My proposition is to take from the national banks all power to issue notes to circulate as money, leaving them as they are now banks of deposit, loans and discounts, but not of issue.

The government shall issue an amount equal to its taxes, say $350 million of certificates of value of convenient denomination... which shall be lawful money and legal tender for all debts, public and private, which by the law creating them are not made payabale in coin andn shall be receivable for all taxes... of every kind whatsover, to be re-isued at pleasure... and which shall be receivable for all public loans made to the United States...

We have divested our government of every trait of the despotism, every attribute of the monarchies, and every vestige of the slaveries of the Old World, save one, and that is the all controlling and all absorbing power by which masses of the people of all nations of the earth have ever been enslaved - coined money.

Our patriot fathers, founding a government for themselves on this continent carefully eliminated from its framework every attribute of monach and aristocracy, the divine right of kings... all save one: they retained whether for good or evil, the precious metals... as the standard  by which to measure the property and industry of the new Republic...

We marvel that they saw so much but they saw not all things.

I stand here therefore for inconvertible paper money, the greenback that fought our battles and saved our country.. I stand here for a currency by which the business transactions of 40 million people are safely and successfully done... that money which saved the country at war and has given it prosperity and happiness in peace... I stand for that money therefore which is by far the better agent and instrument of exchange of an enlightened and free people than gold or silver, the money alike of barbarian and despot".

Stirring stuff. And perfectly appropriate today. What a tragedy that the bankers managed to sidetrack the American people by stoking up the silver versus gold debate. Their scheme worked well, and the idea that money creation should be the responsability of governments and not private banks has been lost for close to 150 years. Isn't it time that we thought about this important issue again?

Stephen Zarlenga : The Lost Science of Money

I have just turned the last page of Stephen Zarlenga's magnum opus called "The Lost Science of Money : The Mythology of Money - the Story of Power".  It was quite a challenge to read, since it runs to 755 pages, and quite expensive (over 80 euros). But it's worth every penny.

It's based on a decade of research by Zarlenga, who started working on the money problem in 1991 and eventually drew on some 800 monetary source books to develop his thesis. Intringuingly, the book was first published in German in 1999 (maybe he couldn't get a publisher to dare take him on?). But then the expanded English version was published in 2002 by the American Monetary Insitute that he had helped to set up in 1996.

I first heard about Zarlenga's book from reading Ellen Brown's superb "The Web of Debt" which mentioned it many times. Indeed, Zarlenga appears to have been one of the first in modern times to realize that the way the monetary system currently operates is essentially based on a series of misunderstandings about the true nature of money. These misunderstandings have been actively encouraged by the powerful leaders of the financial system who have managed to impose the current insane system in which private banks are able to create money out of thin air, lend it to governments, and charge us interest.

One of the most important misunderstandings is the believe that money should be considered as a commodity like gold - that there is somehow a fixed amount of it that just has to be shared out. Sure, you can effectively trade gold for most things, because it's valuable, but that is little more than a slightly more sophisticated form of bartering.

Real money is different. And, as Zarlenga notes,  Aristotle got it right in the 4th Century BC. The Greek word for money was "NOMISMA" which refers to the fact that money attains its authority by law (or binding custom). Aristotle said:

"All goods must therefore be measured by some one thing... now this unit is, in truth, demand, which holds all things together... but money has become by convention a sort of representative of demand: and this is what it has the name nomisma - because it exists not by nature, but law (nomos) and it is in our power to change it and make it useless"

Another common idea is the idea that all money is debt. Now it is true that when private banks have a virtual monopoly on creating the money supply, that money is associated with debt. But this is confusing credit and money - they don't have to be the same thing.

The critical point, and it is one that Zarlenga demonstrates beautifully, is that money can be created without debt by governments. He tracks the history of money with a lot of attention to the enormous success of the the Roman empire which was driven in considerable part by the decision to create large quantities of cheap copper and bronze coins that could be used to pay for government actions - paying soldiers, building roads, aqueducts and other buildings.There are also the cases of Colonial Script money used by the colonies, and perhaps the best example - Abraham Lincoln's creation of $450 million of Greenbacks completely debt free.

There are some real gems in the book. I particularly liked the speech given in 1942 by William Temple, the archbishop of Canterbury, who said:

"The banks should be limited in their lending power to the amount deposited by their clients, while the issue of newer credit should be the function of public authority".

Spot on, Archbishop! Pressure from the Church was one of the reasons why the Bank of England was nationalized in 1946. Unfortunately, the insane fractional reserve banking mechanisms used by private banks was left in place.

I could go on - and maybe I will in later posts. The final point I want to mention today is that although the book came out 10 years ago, there is actually a quite substantial appendix that was added in 2010 that describes the American Monetary Institutes proposals for legislation that would fix the system - it would (1) incorporate the Federal Reserve into the US Treasury, (2) abolish the right of commercial banks to create money through fractional reserve lending, and (3) use government spending directly into the economy.

I was very pleased to hear that the proposal was actually proposed to Congress by Denis Kucinic on September 21st 2011 as HR 2990 "National Emergency Employment Defense Act of 2011". The text can be found on the AMI website here.

Congratulations to Denis Kucinic! Could he be the first elected politician who has seen the light? Hopefully there will be many more.

Force the ECB to start buying government debt

The ECB started a scheme in May 2010 called the "Securities Market Programme" (SMP) in which it buys up governement bonds. As reported by Reuters, the system allows the ECB and the other Eurozone central banks to buy government bonds second hand on the secondary market from banks and other bond holders, a tactic that helps avoid claims that it is directly financing governments - something that is strongly opposed by the banking sector. Not surprising really, when you realize that having a monopoly on money creation has allowed commercial banks to "earn" 4.5 trillion euros in interest charges from the 17 eurozone countries in interest charges since 1995 - and 286 billion in 2011 alone. They obviously can't have the ECB stealing their guaranteed source of revenue. 

The SMP program has so far been used  to buy a total of €211.5 billion euros worth of bonds. The ECB does not give a country by country breakdown, but the Economic Times article says that "it has spent about 40 billion euros on Greek debt and concentrated on Italian and Spanish debt with the 140 billion euros spent since August."

I was intrigued by the statement in the article that "As usual it will take 211.5 billion euros worth of deposits from banks on Tuesday to counterbalance the buys and neutralize any threat of them fuelling inflation."

However, we have also learned that the ECB has failed to make any bond purchases for 19 successive weeks  - essentially since Mario Draghi pumped over €1 trillion into the banking system via the two rounds of funding in last december and february. 


So, what's the problem? Why is Mario Draghi refusing to use this mechanism? I think that we can assume that it is because he realises that the SMP mechanim is the thin edge of a wedge that, if pushed hard enough, could completely destroy the commercial banking system's monopoly on money creation. And, as the ex-European Director of Goldman Sachs, he is doing his job in protecting the interests of Goldman Sachs and the other big banks.

Since the ECB and the Central banks can generate as much money as they like, they could in fact buy all the government debt for all 17 countries - it would "cost" €8.2 trillion euros - only 8 times as much as Draghi has already printed for his banking friends. But since the money was just created out of thin air, there would be no real need to pay back the money in the near future - and no real reason to charge interest either. It would be tragic for the commercial banks who would have to start earning their money by provided services to the public, rather that printing money for themselves.


We would therefore have moved from the current insane system in which commercial banks create the money supply out of thin air, lend the "money" to governments and then charge interest, to one where the money supply can be created directly and potentially interest free by central banks.  There are more and more people who are realizing that there is no reason not to do this.

$21 trillion stashed away in tax havens

A new report from the Tax Justice Network (The Price of Offshore Revisited) has documented the staggering scale of money that is being hidden in tax-havens. According to James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, the total amount of wealth that is managed by the top 50 private banks has reached between $21 and $32 trillion. Remarkably, around half this amount is held by just 92,000 individuals.

The article in the Observer about the report has got an amazing 1925 comments from readers. Clearly, this is an issue that is generating more and more concern - and quite rightly.

I've said this before, but I will say it again. The first country that scraps conventional taxes (income tax, corporation tax, sales taxes) and replaces them with a variable-rate universal financial transaction tax would probably see a substantial proportion of all that money flood in. What are we waiting for?

The real reason why the City is blocking FTTs

David Cameron says that Financial Transaction Taxes are "a bad idea", but he didn't say for who. They would clearly be massively in the interest of UK taxpayers. A 0.05% FTT applied in the UK could replace all the other forms of taxation - income tax, corporation tax, VAT, national insurance and pension contributions. A further 0.02% would pay off the entire national debt within 5 years.

But at least the latest news explains clearly why both the City and the UK government are so adamant in refusing any talk about such a tax. The frontpage of the Guardian says "HSBC shame over cash for drug barons". Hats off to the investigators in the USA who have gone through 1.4 million documents to demonstrate how Britain's biggest bank has been involved in industrial scale money laundering for Mexican drug barons as well as aiding terrorists and rogue states.  Here's just a bit of the article:

"Executives with Europe's biggest bank, HSBC, were subjected to a humiliating onslaught from US senators on Tuesday over revelations that staff at its global subsidiaries laundered billions of dollars for drug cartels, terrorists and pariah states.

Lawmakers hammered the British-based bank over the scandal, demanding to know how and why its affiliates had exposed it to the proceeds of drug trafficking and terrorist financing in a "pervasively polluted" culture that persisted for years.

A report compiled for the committee detailed how HSBC's subsidiaries transported billions of dollars of cash in armoured vehicles, cleared suspicious travellers' cheques worth billions, and allowed Mexican drug lords buy to planes with money laundered through Cayman Islands accounts."

 The original 334 page report by the Permanent Subcommitte on Investigation, released yesterday, can be found here. The proverbial shit has hit the fan.

There can be little doubt that the sort of criminal activities carried out by HSBC are widespread within the City. The entire British-run network of tax-havens in places like the Channel Islands, the Caymans and the British Virgin Islands is in large part motivated by the City's desire to be able to hide its criminal activity. That is the real reason why they don't want a financial transaction tax. Not because it is unreasonable to pay the 0.1% demanded by the European Parliament, but because it would mean that they would have to start being honest. They must not be allowed to get away with it.

10 different solutions to the problem of government debt!

Hopefully, if you have been following the story so far, you will know that one of the biggest problems we currently face is that fact that all our governments are massively in debt to commercial banks. And those debts mean that we have been handing over literally trillions of euros and dollars in interest charges for decades. Indeed, the whole rigged system goes back centuries.

There are more and more people who have realised that we have been robbed blind by a system that has been rigged to favour an elite few. We now live in a plutocracy - a world in which essentially all power is in the hands of the wealthy. We think that we live in a democracy - that we vote our rulers  into power. But the real rulers are not elected. They control our governments and the media.  By forcing governments into debt, they have the power to impose their will. If governments don't do what the plutocrats want, the markets will make them pay. This situation must end. But how?

Looking back over my blogs over the last year, I realize that I have made no less that 10 different  proposals for getting us out of this mess. I thought it might be rather amusing just to make a list. This list also shows clearly how much my own ideas have evolved in the last year as I have assimilated a wealth of ideas from others by reading and discussing.

July 26th 2011 : Getting countries out of debt

This was the first time I argued that a Financial Transaction Tax would provide a good way of getting countries out of debt by tapping into the colossal amounts of money that is being moved around the economy every day.

August 10th 2011 : Solving the debt crisis in 5 years with an automatically varying FTT

Here I argued that a low level Financial Transaction Tax could easily be used to pay off all government debt in the space of a few years.  For example, in the USA, where government debt is currenly $15.7 trillion but where visible financial transactions are currently running at around $3000 trillion a year, a tax of 0.1% could pay off the entire national debt in just five years. In France, where visible transactions are running at around €300 trillion, a 0.1% FTT would also pay off the entire national debt in around five years. The interesting point is that François Hollande is clearly committed to introducing an FTT before the end of the year. So, this could be an easy solution that really could happen real soon now!

September 26th 2011 : A New Way to solve the Debt Problem! 

By september last year, I had become acutely aware of the fact that money was created out of thin air by commercial banks - thanks largely to the Positive Money website that I discovered in May 2011. After thinking about this, I came up with the proposal that maybe governments could say that they would only pay back loans if the banks that made the loans could prove that they actually had the money that they lent. After all, why should we pay back a loan made by someone who was not actually able to make the loan in the first place. I still think that since the vast majority of the public still imagine that the banks who lend governments money had the money to lend, it would be pretty clear that the public was being deceived into paying interest charges that cannot be justified.

November 11th 2011 : A solution to the Greek debt crisis

In this post, I raised that possibility that the European Central Bank could lend the Greek government the money needed to pay off its entire national debt. I used the debt figures for 2010 - namely €329 billion - although of course that has now gone even higher. My proposal is that the Greeks could repay the ECB using a variable rate FTT mechanism that guarantees that the amount of money needed to repay the loan can be produced.  Even if the ECB charged Greece the same interest rates it offers commercial banks (it was 1.25% at the time, but this has now dropped), I estimated that an FTT of 0.08% would be enough to repay the entire sum including the interest in 10 years. 

November 20th 2011 : (Yet another) solution to the debt problem

In this proposal, I suggested that governments could impose the same 2-3% levy on payments made on payments made in foreign currency using a credit card that the banks apply to the rest of us. I used the numbers provided by the BIS to work out what the total volume of foreign exchange was for each of the 23 countries in its annual report. Overall, the number reached €1,264 trillion, which, assuming the same 2% charge applied by the banks would generate €25.3 trillion - enough to pay off the entire EU government debt and the entire US government debt in a single year.  I was sufficiently lucid to realize that the banks might back off and decide that maybe they were being unreasonable in charging a 2% fee for multiplying two numbers together, so maybe this might not work. 

January 5th 2012 : EUREKA!

This was the day when I realized that, despite the best efforts of the bankers to rig the Lisbon treaty so that governments were obliged to borrow all their money from commercial banks with interest, paragraph 2 of article 123 of the treaty specifically allows central banks to lend to "publicly-owned credit institutions". This meant that it was perfectly legal for the ECB and the Bank of England (for example) to generate fresh money, lend it to bodies such as the "Caisse des Dépots" in France, or the Royal Bank of Scotland in the UK, who could then lend the money on to governments who could use the money to pay off the entire national debt. It's the idea that I explained in my Youtube video "Solving the Debt Crisis" which has proved to be my most popular presentation so far (882 views and 23 likes as of today). 

May 22nd 2012 : EUREKA! The ultimate debt killing weapon

I had yet another Eureka moment when I realized that even if Mario Draghi and the other Goldman Sachs associated bankers who control the central banks refused to play game, citizens could get round them by using the commercial banks own insane fractional reserve banking system to generate enough money to get their governments out of debt.  The idea, which I presented in another Youtube video on "Debt Annihilation", involves using a special bank that would take contributions from citizens, and use the fractional reserve banking trick to multiply the amount of money up to a level sufficient to pay off the national debt.  One particularly amusing aspect of this is my suggestion that the bank should loan the money to the government with a requirement to repay the loan "after 1000 years with interest of 0.0%".  As far as I am aware, there is nothing to stop a bank arranging whatever loan terms it wants. I posted a whole series of entries on my blog to show how this trick could be used to solve the problem of government debt in Greece,  France, the UK, Ireland, Italy, Spain, Portugal and the USA. At the time, I was using the Basel III proposal that limited money creation to about 11.5 times a bank's reserves. But I have since realized that if the initial money is injected into the bank in the form of capital, the multiplication factor can be as much as 33:1. I should stress that I think that fractional reserve banking should be banned - it is clearly insane, and is morally the same thing as producing counterfeit money. But, I'm okay to allow citizens to use the banks own insane system so that they can be hoist by their own petard. 

June 12th  2012 : Debt free money creation by governments - and controlling the money supply

It took me some time, but I finally cottoned on to the fact that governments don't need to borrow money at all - they can just print it debt-free and spend it into the economy for projects that are in the interest of the overwhelming majority of the public. It's an idea that is being pushed by an increasing number of people, including Ellen Brown, James Robertson, Bill Still, and the Positive Money group. My own personal contributions to the debate are the proposals that public money creation should only be allowed if supported by (say) at least 90% of the population, and that any excess money in the economy could be mopped up using an automatically varying Financial Transaction Tax - ideas that I have put in my most recent Youtube presentation on "Some Radical Proposals for Monetary Reform".  While public money creation could be used for anything that was in the public interest, one of the highest priorities should clearly be to pay off the entire national debt so that the banks would no longer be able to claim the interest charges. 

June 16th 2012 : How to eliminate all UK government debt in 5 easy stages

I really like this one. In this scheme, I again suggest that we use the insane fractional reserve banking mechanism to generate a ridiculous amount of money that can be lent to the government to pay off the entire national debt. I was particularly proud of the the idea that we could use taxhavens to keep the entire scam invisible until it is too late for the bankers to stop it. Very naughty, but potentially devastating. 

July 13th 2012 : Is Quantitative Easing the solution?

In my latest proposal, I note that when central banks such as the Bank of England indulges in Quantitative Easing, they buy up government gilts on which the treasury has to pay interest. The scheme is supposed to give banks extra cash for lending (which they don't do - it's pushing a piece of string). But it also removes the interest payment requirement. Just do £1200 billion of QE, and the UK government would be able to save £48 billion a year in interest. Likewise, Mario Draghi at the ECB has been merrily buying up government bonds. But he never buys too many - otherwise the governments would be off the debt hook. Just force the ECB to buy up all the Eurozone government debt bonds (currently €8.2 trillion), and the 17 eurozone governments would save €286 billion in interest payments every year.

Conclusion

So, there you have it. 10 different suggestions - all of which provide ways by which governments could get out of debt. We are spoilt for choice. And there may well be plenty of other ideas out there (let me know, and I'll happily provide links here). What is clear is that the time for change is now. Every day, every month and every year that goes by means that the amount of money that has been unfairly taken from the public by the banking system's incredible scam will increase. It is time that we said no more.

The gory truth about how banks have ripped us all off

I think that the message is starting to get through. Banks lend governments money that they don't have to lend - they just create it out of thin air. And then they charge us interest on on those loans. I've already used the European Central Banks own figures to show that this has cost taxpayers in the EU the unbelievable sum of €5.6 trillion since 1995 - that's more than half the entire government debt of the 27 EU countries - currently €10.42 trillion.

But the database on the ECB's website hides plenty of other jaw-dropping information. For example, you can download the amount of interest on government debt paid for nearly every year since 1995 as a percentage of each countries GDP. Here are the figures.

The amazing thing is that the current cost of interest payments (2.9% of total EU GDP and 3.0% for the 17 Eurozone countries) is actually quite low.  Look back a bit and you will see that the interest charages in 1995-1996 were between 5.4% and 5.5% of total GDP! And if you were lucky enough to be living in Belgium at the time, your government was paying up to 8.9% of all the country's wealth creation to the banks in interest charges. But it could be worse - you could have been living in Italy where the numbers reached 11.5%!! Even sensible Sweden was paying over 5.0%.

I suppose we could be grateful for the fact that the banks have actually become marginally less greedy in the past 18 years - although its a different story if you are living in Greece where the banks effectively stole 7.0% of the country's GDP in 2011.

But the unbelievable thing about all these numbers is that THERE IS NO GOOD REASON WHY GOVERNMENTS BORROW MONEY FROM BANKS AT ALL. They can perfectly well create their own money using central banks with no interest to pay at all. If they had done this back in 1995, Europe's tax payers would be €5.6 trillion better off. There would be no austerity. And we could tell the ratings agencies what they can do with their Triple As.

Citizens should be calling for a revolution now. Money creation by commercial banks should be banned. We should ban government borrowing from commercial banks. Instead, governments should directly generate the money needed for projects that get overwhelming support from citizens - as explained in my latest Youtube video on "Some Radical Proposals for Monetary Reform".

In the meantime, it would be nice to get the banks to tell us all what they did with the €5.6 trillion they stole.

Thomas Greco : The End of Money?

I've just read a fascinating book by a guy called Thomas H. Greco Jr. which is called "The End of Money and the future of Civilization" and came out in 2009.

The starting point is one that was already pretty familiar to me now - namely, the fact that the current system of allowing commercial banks to control the money supply is a total disaster. However, while I and others have been arguing that the system could be fixed by taking the right to create new money from banks and allowing the money creation process to be done by governments in the interest of the people, Greco is perhaps even more radical.

He claims that we might even be able to get away without the need for centralized money system at all. He has been involved in a variety of schemes including the use of what are known as credit clearing systems that can be run locally. Essentially, if people are trading at the local level, much exchange can be done without actually needed to pay for things directly. It's very much what happens in systems such as LETS (or SEL in French speaking countries).

He actually thinks that having central governments produce money should be avoided. I couldn't quite follow him that far. I'm all for having as many local exchange systems as you want running in parallel - and you might get a lot done that way. But I don't see the problem with having elected governments also having the option of generating credit that could be used to finance projects that are in the public interest directly.

Indeed, at one point he actually raises the option that major players such as electricity companies could issue their own vouchers that could become a sort of parallel system. So, if electricity companies can do it, what's the problem with having governments producing their own "vouchers" too?

In other words, while I found the arguments very cogent, I think I would rather have my cake and eat it!

Is Quantitative Easing the solution?

There's a very interesting piece by Simon Jenkins in today's Guardian called "Mervin King has turned our leaders into zombie puppets". He says

"It must be the biggest confidence trick of all time. It is a cheat, a scam, a fiddle, a bankers' ramp, a revenge of big money against an ungrateful world. It is called quantitative easing, and nobody has a clue what it means. According to the Bank of England, the past four years have seen £325bn pumped into the British economy to kickstart growth, with another £50bn now on the way. This enormous sum does not exist and never has. It is not "printed" money or funny money. It is no money. The one silver bullet on which the coalition relies to pull Britain out of recession is a fiction."

It's clear that QE as it is currently used is having no beneficial effect. But I wonder whether actually, Quantitative Easing could really provide a solution.

The mechanism is a bit opaque, but my understanding is that the Bank of England effectively buys back gilts from the commercial banks, replacing those assets on the banks books by freely usable "cash". This is supposed to get the banks lending, which of course it doesn't.

But maybe there is a way to use Quantitative Easing that gets us out of the current mess.

In some previous presentations (for example "Solving the Debt Crisis"), I have argued that Central Banks could lend money to governments via "publicly owned credit institutions" - a possibility that is left open by paragraph 2 of article 123 of the Lisbon treaty.

However, it's likely that such moves will be blocked by the vested interests who control politicians such as Cameron and Osborne.

QE could however provide a way round this. Currently the Bank of England has already generated £375 billion in QE, and they have just announced a further £50. But suppose that they went just a bit further and generated enough money to cover the entire £1200 billion currently owed by the UK government. They could buy up all the gilts, on which the government currently has to pay interest (£48 billion in 2011) and replace the whole lot with freshly minted Bank of England "money". The critical feature is that the banks cannot ask for interest payments on this - thus getting the government off the hook.

The really neat feature of this is that now it be abundently clear that the we don't need commercial banks to generate the money supply. It can be done directly by the Central bank, with no interest attached. Once this has been done, it could be relatively simple to say to the banks that we don't need them to create money at all. Fractional Reserve Banking by commercial banks could be completely outlawed and the government could start generating the money supply directly via the Bank of England.

Could it work? Well, I can't see why not. So, while I have previously argued against Quantitative Easing, it would now seem that it may provide the ultimate way to cancel off government debt entirely. And since the Bank of England paid the money, the government doesn't even owe the bank anything. Brilliant!

Basically, by inventing the Quantitative Easy mechanism, originally intended to help provide piles of cheap money for commercial banks, it may be that the Banking sector has just committed collective suicide. This could end up being very entertaining!

Where does the money that banks create go?

Hopefully, you are all aware of the fact that commercial banks have a virtual monopoly on the creation of new money. I've tried to work out precisely how much money gets pumped into the economy by banks - it's not simple. Intriguingly, Labour MP Michael Meacher has recently blogged the "the Big 5 lend £7 trillions a year heavily geared towards high-risk speculation hedged by the safe profitability of property mortgages".  I've contacted him to ask where the 7 trillion number comes from, but not heard back from him yet.

It would be great to have the details about where all that money goes. One very interesting report, mentioned by Aditya Chakrabortty in the Guardian, is one called "The Madness of Barclays" that was produced by the Centre for Research on Socio-Cultural Change at the University of Manchester. There's a powerpoint presentation that you can download here.

There are some very revealing numbers in that report. In particular, the study shows that of the £230 billion that Barclays lent to UK customers in 2011, only 2.7% went to Manufacturing. Nearly half was lending for home loans.  Between 2007 and 2011, lending to Finance increased 31.2%, lending on property increased 59.1%, Home loans increased 56.4%. Other areas (manufacturing, construction, energy and water, wholesale and retail and other business) dropped by 26.5%.

What a brilliant demonstration that banks simply cannot be relied on to do anything useful for the economy with their money creation monopoly. Imagine how much better things would be if the money creation was not used to buy property that already exists, but for building new social housing so that people can live in decent conditions.

But there is more. We learn that Barclays has a total level of exposure of nearly £1.8 trillion - that's more than the entire UK GDP (£1.5 trillion). Just imagine what would happen if default rates suddenly soared for some reason. That is an enormous amount of risk, risk that is currently almost entirely taken on by the taxpayer, who would no doubt have to bail out Barclays if things went wrong.

Finally, there are details of where Barclay's income comes from.  36.9% is interest charges.  You don't have to be a rocket scientist to make profits if you have the right to create money out of thin air and charge interest on loans. I doubt that you really need any particular skill to "make" money that way. A further 26.1% of earnings comes from fees and commissions - like charging 2-3% on credit card payments in a foreign currency. That's pretty demanding stuff too.  There's another 23.2% from "trading" - doing things like racheting up and down the foreign exchange markets to milk money from the system. Only 7.0% comes from "Investment". Frankly, that's pretty pathetic.

In other words, nearly all of Barclays earnings come from extracting value from the economy. Hardly anything reveals any real contribution to the system.

As I say - money creation is too important to be left to commercial banks. Money creation should be done under public control and in the interests of citizens. 

Lobbying by the City : £92.8 million in 2011

I suppose it could be worse. Compared to the financial lobbyists in the USA, the total of £92.8 million spent by the financial sector last year on lobbying for their interests may seem like chicken feed. But today's report by the Bureau of Investigative Journalism which got a good writeup in the Guardian finally puts some numbers on the fire power of the City.

My congratulations to Nick Mathiason, Melanie Newman and Maeve McClenaghan who have spent the last four months compiling the data, and detailing the 129 organisations that are currently involved in some form of lobbying for the financial sector. You can now download a spreadsheet document with the list of contributions that they identified.

As I say, it could be worse. The amount of money that the City could potentially allocate to buying politicians could be way higher. And while the budgets of groups like Positive Money are so small, it is clear that this is going to be a tough fight to get the alternative positions an equal hearing.

The encouraging thing is that the financial lobbyists really don't have a leg to stand on. I would just love to hear one of these lobbying groups explain to the rest of us why it makes sense to give the banking sector the right to create money out of thin air, lend it to governments, and then charge interest on the loans. Go on, I defy you. Explain it!

And while you are explaining that one, come up with another argument why a financial transaction tax is "a bad idea" (to quote David Cameron), and yet banks charge credit card users 2-3% on every transaction made in a foreign currency for multiplying two numbers together.

Charles Ferguson : Inside Job - the Book

You must read Charles Ferguson's superb new book "Inside Job" that came out on the 21st of May. I've just finished reading it, and it should be on everyone's reading list.

I've already raved about Charles Ferguson's superb 2010 documentary "Inside Job" on the causes of the 2008 crash. It won the Oscar for the best documentary in 2011, and when he received the Oscar he said:

"Three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail. And that's wrong".

By the beginning of 2012, it was still the case that there has not been a single criminal prosecution of a senior financial executive related to the finanacial crisis. That's why Charles Ferguson wrote an entire book of 370 pages that details the crimes the were committed, and tries to understand why nothing has been done. It tries to understand why many of the people in Obama's administration are people who were directly implicated in the crisis.

The book makes for very sobering reading. There is clearly something very wrong with the world in which we live.

In the last chapter, Charles Ferguson asks "What should be done?". His list includes

• Bring the financial sector under control
• Control the impact of money on politics
• Reform the tax system
• Greatly strengthen antitrust policy and the regulation of corporate governance

and he adds one of his pet themes - the need to create a truly universally accessible, high-speed broadband internet infrastructure.

He specifically mentions the need to impose a financial transaction tax (hooray!) but he doesn't mention the need to take the power to create the money supply away from commercial banks and to give it to elected governments who should create money only for projects that are in the interests of citizens. Oh well, perhaps he might find the 14 minutes needed to check out my video on "Some Radical Proposals for Monetary Reform"!

For some strange reason, the book is not being sold by Amazon in the USA. But you can buy a copy via independent sellers, or via Amazon.co.uk where there is also a Kindle version. Could it be that the corporations that control the economy have been able to block Amazon marketing it? Stranger things can happen.

US Congress investigation into Fractional Reserve Banking

My thanks to Jake for sending me the news that Congressman Ron Paul (ex. Republican candidate) and Chairman of the Domestic Montary Policy and Technology Subcommittee will be holding a hearing on the 28th June to examine fractional reserve banking.

It could be interesting to hear.

I would just love to hear a banker explaining why it's better to get commercial banks to create money to lend the the US government, who then ends up paying $8.5 trillion in interest charges since 1988 (i.e more than half the entire US government debt), rather than just allowing the treasury to print its own money debt free like Abraham Lincoln and the Colonists.

NOTE ADDED Sunday 1st July

There's a Youtube version that you can find here.
I've not watched it yet (it's 75 minutes in length), but it's been seen by over 5000 people so far, with 323 likes. And as one commentator points out, with a leverage ratio of 10:1 that would make 3230....

Monetary Reform Propositions - in French

For those of you who find it more amusing to hear me talking in French, I've just posted a French version of my Youtube presentation on monetary reform. It's called "Des Propositions pour une Réforme Radicale du Système Monétaire".

I'm increasingly convinced that this sort of proposition should be the ultimate aim of reform. Yes, we can try and fix the immediate problem by (a) forcing central banks to lend governments the money they need to get out of debt and/or (b) setting up citizens banks that exploit the insane fractional reserve lending mechanism to get out of debt.

But these solutions are just short term. There can be no doubt in my mind that money creation by commercial banks is impossible to justify. Sure, the bankers will be fighting like crazy to keep their gravy train on the rails, but I defy anyone reading this to explain why it is more "reasonable" to allow commercial banks to create the money needed to allow the economy to function, rather than giving that function to governments.

I think that my proposal to use an automatically varying Financial Transaction Tax to remove the excess money from the system completely demolishes the standard argument used by people like Angela Merkel that claims that if governments were able to create the money supply there would be runaway inflation.

In any case, that argument is clearly completely phoney. To work, you would have to believe that somehow if you let commercial banks do the money creation for profit, they will somehow be able to magically find just the right level for the money supply. As if they have any motivation to find the "optimal value". Even the most religious believer in the invisible hand of the markets would have a very tough time trying to get anyone to buy such obvious twaddle. Banks create money if they think that it will allow them to make a profit. End of discussion.

No. The bankers will have to admit it. The only reason why the system has been rigged in the way it has been is that it allows them to rake in trillions in interest charges for lending us money THAT THEY DON'T EVEN HAVE TO LEND. It's completely indefensible, and only exists because the whole mechanism has been hidden from public view.

But the people are beginning to wake up. And when the 99% realize that it doesn't have to be that way, there should be no way to stop reform.

Oh, by the way, here's the French version.

Feedback on "Some Radical Proposals for Monetary Reform"

I've been having some interesting exchanges by email following the publication of my latest Youtube offering last weekend - "Some Radical Proposals for Monetary Reform"

Since the correspondance was private, I won't say who the people involved were. I'll just say that they are people whose opinions count a great deal for me.

Rather than keep them secret, I thought it would be interesting to put the exchanges here on my blog. Obviously, I would encourage any of you to chip in with your own ideas.

So, here goes with a couple of exchanges that I found particularly stimulating. The comments are in blue italics - my reactions in normal font.

First Exchange

I guess the main difference I have is that I don't think all money should come into the system from the top down through politicians.  I'd have most money still come through banks as loans, and be extinguished when they got paid off. The loans should even be at interest.  But the banks should be publicly owned, and the interest should be returned to the people.

[To] be fair to the commercial bank system, I would say that if we take away their monopoly on money creation, I would personally be happy to give them a monopoly on lending for interest.

Otherwise things get complicated. For me, it is enough to allow public money creation to finance projects (and jobs) that everyone wants - providing schools, hospitals, public transport, low-cost social housing etc etc. I wouldn't want any of that money going to fund individuals to buy their own houses etc. If you did, they it would be an invitation to corruption. The first thing that would happen is that you would have corrupt officials using the centrally generated funds to lend to their friends and clients.

The only other reason I can imagine for wanting to create money for lending with  interest  would be if that you think that we might not be able to create enough money by spending directly into the economy to keep the money supply optimal. For example, if the algorithm said that the FTT level should be 0%, then I suppose there might be an argument for having a source of additional money creation (I certainly wouldn't want to argue for a negative FTT!).

But, at least for a European like me, I simply can't believe that you could run out of things to spend public money on usefully. For example, if the money supply still wasn't large enough, you could just provide free public transport for everyone - even in rural communities. That would require a lot of money creation - and yet it would definitely pay off by allowing the economy to keep expanding - and not just in the cities.

So, do you really think that we need any additional sources of money creation?

Second Exchange

If you give interest-free loans to people, what incentive do they have to pay them back, or not take out outrageously large loans and just keep rolling them over? 

That's precisely my reason for not using public created money to make loans. For me, all that new money should be spent into the economy by paying people/companies to do things that people .

It doesn't have to be public sector work. For example, you want to build a new hospital - the government calls for offers. The company with the best proposition gets the deal.

Same as happens now, actually. Except that the government doesn't borrow  the money from the banks. It just creates it, debt free, and doesn't have to pay the money back.

A computerized FFT algorithm sounds a bit scary to me. We have those now, and they're not working out so well.

Well, in the end, the actually implementation of the tax is going to be a computer program - it's the software that the banks use for doing the transfer of funds from one place to another.

But the automatic changes in the FTT rate doesn't actually have to be done by a program if you don't want. But, it shouldn't be dangerous. We would be talking about tiny variations - going from 0.3% to 0.31% (for example)

Are you talking about 0% price inflation or money supply inflation?

I would like to see 0% PRICE inflation. We're told that we need inflation, but that is so that the system can pay off the interest charges to the bank.

On the other hand, I would love to see a really big increase in the money supply to get people back to work.

Third Exchange

A financial transactions tax could certainly be used to reduce aggregate demand. 

I'm glad you agree! I seriously think that it would be difficult to come up with a simpler more painless way to remove the excess. 

However, as with all transactions taxes, they work to reduce the number and size of transactions, particularly as they get larger. 

Is that a problem? Given that visible transactions in the US are runningat around $3000 trillion a year there's probably a great deal of that which is totally pointless and could be removed with no detrimental effect whatsoever.

Even if all the $2.3 trillion in US tax revenues was abolished and replaced by government created money (debt free), the increase in the money supply would be at most  $2.3 trillion.  But, unless there was inflation there would be no need to remove that money with the FTT. And, even in the worst case scenario (in which all the money creation was too much) you would still only need an FTT of 0.08% of $3000 trillion to balance things.

The fact is though that given the amount of unemployment, and the number of factories that are way under full capacity, it seems highly probable that you could pump a lot of debt free public money into the system without producing inflation at all.

And in this case, I have no idea where those 'curves cross' to limit real govt. spending, though it would surely be a moving target?

Well, this is my point. The point where real government speading exceeds the optimal value for money supply could be a very long way away. Governments borrow trillions to pay for wars in Iran/Afghanistan. That's new money going into the system. Here, the amount of money would be
similar or less... and yet it would go to things that the citizens want/need, rather that the arms industry (for example).

My bet is that the US could probably create 10 times more money than the current US budget and still not produce any serious inflation - because supply (production of goods and services) would go up at the same time as demand (government contracts for public works - schools, hospitals, low-cost social housing, transport etc etc).

Who could oppose debt-free money creation by governments?

In my latest video called "Some Radical Proposals for Monetary Reform", I argued that it would be perfectly possible to replace money creation (with interest) by commercial banks by debt-free money creation by governments for projects that receive overwhelming support from the public.

Who could object?

You might think that this is such an outrageously left-wing proposition, that of course, all right-wing voters would have to be opposed. But is that really the case?

Remember that what I am proposing includes the following:

• Abolition of income tax
• Abolition of business taxes (eg. corporation tax)
• Abolition of sales taxes (eg. VAT)
• Abolition of employment charges (national insurance, pensions contributions, health care charges)

These taxes would not be necessary because the government would pay for all the usual activities normally covered by tax income with direct money creation. Only the variable rate Financial Transaction Tax would be needed to remove excess money in the system.  I note that a few additional taxes could be retained because they are good for people - taxes on alchohol, tobacco, petrol etc.

Surely, this is as close to an extremely right-wing platform. Even the Tea-Party fanatics should love it.

But there's another point. If you are a business leader, and you want to make maximum profit, then you want your salary costs and other costs at a minimum.  Note that the elimination of income tax and employment charges already means that you can pay people less. But in addition, if the public money creation mechanism can be used to provide many of the vital services that your employees need, then this would again reduce the amount that you would have to pay. For example, imagine how useful it would be if

• your employees could get to work using efficient, cost-effective, and potentially free public transport
• the shift to public transport means that your employees can get to work without getting stuck in traffic jams
• your employees could get reasonably priced or even free child care for children from 6 months old
• a shift to publicly provided childcare services means that there is little risk of employees failing to come in because of problems with nannies and so on. 

Surely, every company director should find such a move extremely beneficial. It's services that they do not have to provide, and that would make the country that implemented such a system far more competitive. Sure, there are some companies that provide bus transport for their workers, and on-site child care facilities. But it must surely be more intelligent to have those facilities provided directly for all the public - thus liberating companies to do what they are supposed to do, namely, making a profit and providing good jobs for people.

So, if all the general public approve, and it's massively in the interests of business, who could possibly  object?

The answer is simple. It's the financial system that currently is milking the entire economy for all it is worth. It's the "blood sucking vampire squids" than control everything, including politicians who are paid to protect their interests, and the media.

These ideas have to be discussed openly. I cannot believe that the bankers can give good reasons for keeping the system as it is.

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. 

Some Radical Proposals for Monetary Reform : Revised version

I've just posted a new version of the presentation that I put on Youtube yesterday. The original version was doing pretty well - 111 views and 11 likes in 24 hours.

However, I had sent the link to Bill Still who very kindly came back with a mail to say that while he liked what I was proposing, he couldn't recommend it as it was because it contained a fair number of factual errors and inconsistencies. In fact, he sent me a detailed list of 15 different points!

So, I've done a new version that takes into account Bill's points and which I think works even better. A big thankyou to Bill for helping me improve the presentation. The original version has been removed - together with the 8 comments that has been added... sorry about that.

I'm really quite excited about this.  I think that I may just have hit on a way to combine debt free money creation by goverments with my fetish subject - namely, variable rate Financial Transaction Tax that makes real sense.

Unless I've missed something, the resulting system would have a number of really interesting features.

- The government would be able to fund all projects that receive overwhelming support from the population - I propose a minimum threshold of 90% to be sure that only the most clear cases get funded

- Any possibility of the money creation leading to inflation would be eradicated by having an automatically varying Financial Transaction Tax that would remove any excess money in the system. The optimal level of money supply could be determined by a fully independent commission, but that commission would not have the power to block public expenditure. It would only be able to change the FTT rate up or down to eliminate inflation or deflation.

- Under the current arrangement, governments are effectively required to balance tax income and expenditure. If they don't, they either have to borrow from commercial banks, and end up paying massive interest charges, or they borrow from citizens with savings schemes. But if they chose the latter option, this removes money from the economy and leads a slump - precisely what has happened in Japan where the government is massively in debt to its own citizens.

- With my new proposition, there is no need for governments to borrow. Indeed they don't even need to have taxes - they just create the money to finance the activities that their citizens want. Taxes are only needed to remove excess money from the system in order to prevent inflation. And, interestingly, the money taken out of the system by the FTT doesn't even go to the government! It is just taken out to the system. The system is thus total stable - even if there is a lot of public spending.

- Perhaps the most amazing thing is that public money can be injected to take up the slack in the economy. Thus, if there are large numbers of unemployed, or if there are factories that are not being fully used, the public can vote to provide jobs and orders with government money to get out of a recession.  No more boom and bust. The so-called business cycle that we are supposed to believe is an inevitable feature of all economies would no longer exist.

I hesitate to say it, but this could just be a recipe for a Utopian society.

I look forward to hearing your comments. And don't forget to click on "Like" and send it to your friends if you approve!

A Radical Proposal for Monetary Reform : My latest Youtube presentation

Here's my latest opus.

It actually brings together two of my favorite ideas. First the need to use debt-free central bank lending to create the money supply instead of allowing commercial banks to create money and charge us interest. That's an idea that is shared by an increasing number of authors, including Ellen Brown, Bill Still, James Robertson, and the Positive Money Network. It's also been pushed by many others across history - including Thomas Jefferson, Andrew Jackson, Abraham Lincoln, Thomas Edison, JRR Tolkein etc...

One new idea is that I propose that central bank money creation should be spent into the economy for ANY project that recieves the support of overwhelming majority. I honestly think that the criterion for deciding whether to enact money creation could require at least 90% of the population to allow it to take place. Only the 1% would oppose most of the projects that involve public finance.

The other  really new bit is my suggestion of combining money creation for public works with an automatically regulated Financial Transaction Tax. Seen from this persepective, the FTT is not like an ordinary tax since in fact, the money doesn't even go to the government. It is simple withdrawn from the system to keep the money supply stable. It's by far the easiest and simplest way to remove excess money out of the system - painless, cheap to implement, extremely rapid, completely fair, and very difficult to avoid.

I find the idea very appealing. By having a balanced system in which the government creates as much money as is needed to allow the economy to grow naturally, and mopping up any excess by using the FTT mechanism to remove the excess, it seems that we could potentially reach a sort of utopian situation that would be radically different from the world we live in today.

In this new world, there would be money that could be used to pay ALL people to do something useful. Living off state subsidies would be a thing of the past.

But perhaps the most important point is that the automatic FTT mechanism shoots a hole in the standard argument which says that allowing governments to create money without interest would lead to rampant inflation. My mechanism makes this physically impossible.

If there is anyone who can explain why we should be paying trillions of euros and dollars in interest payments to banks for creating our money, then do let us know what the arguments are. I'm definitely prepared to take you on.

Here's the video. I hope you like it. If you do, don't hesitate to click on "Like" and send it to your friends.

Note added on Sunday 17th June : I've removed the original video and added a new revised version. Please see this link.

How to eliminate all UK government debt in 5 easy stages

A couple of weeks ago I made the rather cheeky suggestion that we could eliminate all government debt in 10 easy stages by turning the commercial banks insane fractional reserve banking system back on itself. It would be hoisting the banks by their own petard.

I had a few people pointing out that I was maybe confusing deposits with capital. I had argued that if you deposited 1000 euros in an account, the bank can create out of thin air 11.5 times that amount and use it to make loans. I argued that this ratio should fit the Basel III requirements of keeping the assets to loan ratio at 8%.

I must admit that I was skating on thin ice - I don't really know how the system works. But, things have now been made much clearer thanks to the UK government's decision to water down the propositions made by the Vickers report from the Independent Commission on Banking. Sir John Vickers had proposed that the leverage ratio of lending to Tier I capital should be 4%. But the City's lobbyists managed to get the government to reduce this to 3% - see the government's whitepaper published last thursday. Wonderful! Imagine that! - the City managed to get the government to implement the strict minimum capital requirements imposed by Basel III. Who would have believed it possible?

Anyway, the governments decision to cave in to pressure from the City means that UK banks will be allowed to use leverage ratios of up to 33:1. Note this only works for true capital. The 8% number in Basel III includes other risk-weighted assets such as loans (which is what I had used for my previous proposition).

So all that has given me the opportunity to devise an even simpler scheme for getting the UK government completely out of debt in just 5 easy stages. Instead of just depositing money in the bank, all the sums are used to increase the banks capital. Enjoy!

Ingredients

1 cooperative bank
10 cooperative individuals (volunteers please)
£30,000 capital investment to start (I'm happy to put up the money)
A network of taxhavens so that the flow of money cannot be controlled (conveniently, they are already in place)

The sequence of events is shown in the following table.

Step 1. 
Player A (me) invests £30,000 in the bank's capital (column A)
The Bank uses the fractional reserve banking mechanism to create 33 times that sum which it lends to Player B (Column B).
The bank's total capital of £30,000 (Column C) is 3% of the £1,000,000 of Total Loans (Column D)  - thus fulfulling the UK government's leverage requirements of 33:1 (Column E).
Step 2.
Player B gives the £1,000,000 to player C who invests the money in the bank (thus increasing the banks total capital to £1,030,000).
The Bank generates £33,333,333 and lends it to player D.
Step 3.
Player D gives the £33,333,333 to player E who invests the money in the bank (thus increasing the banks total capital to £34,363,333)
The Bank generates £1,111,111,111 and lends it to player F.
Step 4.
Player F  gives the £1,111,111,111 to player G who who invests the money in the bank (thus increasing the banks total capital to £1,145,444,444)
The Bank generates £37,037,037,037 and lends it to player H.
Step 5.
Player H gives the £37,037,037,037 to player I who who invests the money in the bank (thus increasing the banks total capital to £38,182,511,481).

The bank generates  €1,234,567,901,235 and lends it to the UK government which agrees to repay the entire amount after 1000 years with 0.0% interest.

The government uses the money to pay off the entire national debt of roughly £1,180 billion.
It also reimburses player B (£1,000,000) player D (£33,333,333), Player F (£1,111,111,111) and player I (£37,037,037,037).

There's still £15,615,419,753 to spend on something useful - you know, public services or whatever.

Actually, if I could scrape together another €1000 to make my initial capital investment €31,000, the fractional reserve banking trick could generate an extra £41.1 billion (which is what you get when you multiply £1000 by 33 and a third five times in a row. Now that would be a very useful sum. Isn't Fractional Reserve Banking wonderful??

Yours truly will stay a shareholder in the bank, together with players C, E, G and I. No need to give us all knighthoods - we were just doing our duty.

Can anyone see why this would not work?
Admittedly, it's completely ridiculous. But there again, fractional reserve banking by commercial banks is completely ridiculous.

And do you really think that the banks don't do this sort of thing all the time anyway? Why do you think the UK has its web of taxhavens in the Channel Islands and the Caymans? And why do you think that any suggestion that we might actually monitor the transactions that go on by implementing a Financial Transaction Tax gets the immediate response from David Cameron that "It would be a very bad idea". He's right - it would be a very bad idea - for his chums that use the Fractional Reserve Banking Scam to "make" piles of money.

The only difference beween what the banks normally do, and what I am suggesting is that, in this case, the bank simply decides to use the money they can generate to do something useful. It would make a nice change.

US Interest Payments since 1988 : $8.5 trillion

Now here's an interesting bit of information for those of you who think that, just possibly, it might be more sensible for governments to create their own money debt free, instead of borrowing from commercial banks who charge interest.

I had already added up the numbers for the 27 EU countries and found that Europe's taxpayers paid €5.6 trillion in interest charges to the banks since 1995.

I've found the equivalent figures for the US on the Treasury's website. Here they are (updated November 2012 with the complete numbers for fiscal year 2012):

If you take the numbers since 1995 (so that you can compare directly with the EU) you can find that the total interest payments were $6.6 trillion - it looks like Americans have been ripped off just like the Europeans have been.

But the figures go back to 1988, which means that we get the grand total of $8.58 trillion dollars. Impressive.  That's a very substantial proportion of the entire US government debt ($15.77 trillion at the latest count).

That's why the US government is so badly in debt.

Perhaps US citizens should just ask for their money back? But in the meantime, can anyone provide a reason for keeping the current insane system going?

Thomas Edison said it very well in the New York Times on December 6th 1921

"If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people."