TEDx Toulouse : Toward a world (almost) free of tax

Yesterday, I gave one of the 15 talks at a TEDx event organised by a group of enthusiatic young people in Toulouse - TEDx Rue Remusat. My thanks to them, and particular to Sophie Guerandel and Théophile Pajot, for putting together a great program. It covered a huge range (as TED conferences should) from the history of Argentinian Tango and the future history of Music, to Gastronomy and Third World Aid. There were four talks on the economy. One was by a Banker, Adrien Anderson, and I take my hat off to him for getting up in public and defending the banking profession. 

There were two presentations on new ideas for the economy by my friends Carole Fabre and Mathieu Bize. Carole talked about the revolution that is underway with the spread of opensource and public domain software, and made a strong case for the idea that money should be treated in the same way. It should be a public utility - not the property of private corporations.  Mathieu talked about the need for an unconditional  citizens income, but also the need to change our democratic systems  - by going back to the original ideas underlying democracy that were developed by the ancient Greeks.

I gave a talk called "Vers un monde (pratiquement) sans taxe' - i.e. Toward a world (almost) free of tax. It was essentially an updated and streamlined presentation of my original idea dating from 2010, in which essentially all the existing taxes are completely replaced by a single universal tax on all electronic financial transactions.

I've been convinced that this idea is truly "an idea worth spreading" - as TED would say - for nearly 4 years now. But yesterday was actually the first time ever when I have got up in public and made my case. It's true that two years ago I had invited myself to give a presentation at the prestigious Toulouse School of Economics. But since only 4 people turned up to listen, it can hardly be counted as a truly public presenation.

I've put versions of that talk on my Youtube site, and some people have watched those. As of today, a total of 550 people have watched the 13 minute version in English that I put online in March 2012, and 267 watched the version in  French that dates from the same time. There are even a few courageous souls who have managed to watch all 5 parts of the full version in English - 25 got as far as watching part 4 for example. A similar small number (25) appear to have watched all four parts of the full length French version.

But yesterday, I had a captive audience of around 100 real people who were apparently riveted by what I had to say. The round of applause that I got was clearly the most enthusiastic of all the 15 talks - not quite a standing ovation, but very gratifying nevertheless.  I really got the impression that people understood what I was proposing and that they could see that there was something truly new here. At the buffet that followed,  I had a long string of people coming to tell me how surprised they had been by what I had to say - that it all seemed so simple, that they couldn't see any reason why it couldn't be done.

I must confess that I was really happy with the result. When we got home, we opened a bottle of English "Champagne" - perhaps to celebrate the beginning of the end for this absurd system where George Osborne, the UK Chancellor, and the UK govenment could even imagine taking 11 Eurozone countries to court for daring to introduce a minuscule tax on financial transactions. As I said in my talk, this cannot be justified on the grounds that a 0.01% tax could be deemed unfair on Osborne's chums in the City who do trillions of trading in Euros every single day.

In my talk, I specifically mentioned the fact that the Bank for International Settlements, which supposedly provides a reasonably complete picture of transactions across the 23 countries in its annual report, clearly is not doing its job. Specifically, I pointed out that UK financial transactions, which the BIS figures put at £1,151,594,000,000,000 in 2008, had dropped more than five-fold by 2012 to a mere £216,845,000,000,000. Was this the result of the financial crisis?

No, the answer is obvious when you look at the figures that I presented in my talk.



The drop is simply because the numbers for one of the biggest players, namely LCH.Clearnet Ltd have been "nav" (i.e. "not available") every year since 2010 - a point that I have repeatedly bemoaned -see here and here for example.  If the BIS had been interested in providing the true numbers, they could have found them.

In my talk, I provided the following table that I downloaded from LCH.Clearnet's website on the 1st of May showing that in a single day, their SwapClear system had processed no less that $2,316 billion dollars worth of interest rates swaps. But the real killer, and the number that I think really made my audience sit up, was the figure showing the percentage of those transactions that were denominated in euros - an unbelievable €1,036,985,938,428 - i.e. over a trillion euros. And all that in a single day - the 30th of April 2014.

It was unfortunate that I was unable to update my Powerpoint presentation before the talk, because yesterday morning, I had had a look at the SwapClear numbers for last Friday - the 2nd of May 2014 - and discovered that the numbers were even more eye watering. - namely  €1,283,894,396,522 in Euro transactions alone.  Here's the table.



I also found another totally incredible graph on the SwapClear site that plots "Monthly Notional Voumes" for interest rate swaps over the past two years. Here is is.


Values have been increasing dramatically over the past few months reach a record volumn of $9,450 trillion for the month of March 2014 alone. It's almost unbelievable.

In my presentation I also threw in some numbers that I had got from the NYSE Euronext site showing that, on the same day (the 30th of April 2014), the London office had processed a remarkable €1,617,889,889,455 in a single day.


I used these numbers to back up my claim that, if the European Central Bank were to introduce a small financial transaction tax on all Euro denominated financial transactions, it would be possible to completely replace many if not all of the taxes that we currently have to deal with.

I argued that it would be perfectly reasonable if the European Central Bank was able to impose a tax on Euro denominated transactions - wherever they occur in the world. And since, as I demonstrated clearly in my talk, well over 40% of all foreign exhange transactions in the UK are denominated in euros, this would provide a simple mechanism for generating large amounts of revenue.

I won't repeat all of the arguments here, but even my tall lists 11 different reasons why it would make great sense to scrap the existing system and replace it with something more sensible. Apparently, many of the people present agreed.... hence the enthusiastic response.

You will have to wait for a couple of weeks or so before the TEDx video of my presentation will be on-line. But I'm really quite hopeful that this could mark a significant moment in my campaign to force a change in the current system.

Right now I would be very happy to hear from any other TEDx or TED groups who would like a speaker capable of presenting a truly original "idea worth spreading". Yesterday's TEDx event was all in French, and that is clearly going to limit it's impact in non French-speaking communities - although I have already arranged to have English subtitles adding to my 14 minute presentataion. But clearly, I would be very keen to have another go - this time in English!

Bernard Maris reveals the truth about how banks create money out of thin air

If you want to hear the truth about how Banks work, I strongly recommend listening to what Bernard Maris has to say. Maris is a very well-known French economist, who appears regularly on France Inter (a sort of equivalent of Radio 4). He is also a member of the Governing Board of the Banque de France - so he is well place to know what he is talking about.

In a documentary called "La Dette", produced by Nicolas Ubelman and Sophie Mitrani, he was asked
  “Where do banks get the money that they lend out?”. His reply was mind blowing. Here's a translation.

"They create it themselves with the permission of the central bank. For example .... you're buying a property worth say... € 500,000. Well, the bank will create € 500,000 out of thin air. You say it does not actually manufacture € 500,000 in bank notes. But in fact - it really does create €500,000 - that it can give you. Except that it is done in writing, because you won’t try to buy the property using €500,000 in bank notes - you’ll pay by check. But it's the same thing. If you wanted to pay with banknotes, it will give you £ 500,000 in banknotes that they can get from the Central Bank, by saying - Look, I’ve got a claim on this person worth €500,000 - what will you give me in return? And the central bank says “I'll give you €500,000 in banknotes". Except that, as those banknotes are never required, the money transits in digital form. But you have to understand that. When you have understood that, you have understood everything about money. Banks create money out of nothing. It’s the bankers trade. The bank creates money out of thin air. It is something that is very difficult to understand."

Here's a clip from the film (in French, but with English captions)

 
Enjoy!!

What I find really odd is that Bernard Maris has never (to my knowledge) said this on the air. Why wait for a relatively low budget documentary to reveal the true nature of money creation?

Bernard - if you read this, can you please say the same thing again on France Inter? You would make my day!

Strip private banks of their power to create money

No, it's not me who said it. It's not even Positive Money (although they can quite rightly claim this as a real victory).

It's Martin Wolf, the chief economics commentator of the Financial Times, who published a commentary last friday with the title "Strip private banks of their power to create money".

He starts by saying this:

"Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated."

He goes on to discuss how this could be done by implementing Irving Fisher's "Chicago Plan" from the 1930s, an idea that was shown to be perfectly sensible by the IMF in 2012.

And then he talks specifically about Positive Money's proposals (which are also the proposals being pushed by my own movement in France - Monnaie Honnête).

1) The state, not banks, would create all transactions money- just as it creates cash today.
2) Banks could offer investment accounts, which would provide loans - but could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air.
3) The central bank would create new money as needed to promote non-inflationary growth.
4) The new money would be injected into the economy in four possible ways : to finance government spending, in place of taxes or borrowing; to make direct payments to citizens; to redeem outstanding debts, public or private; or to make new loans through banks or other intermediaries.

 He then points out some of the massive advantages of such a system

• It would be possible to increase the money supply without encouraging people to borrow to the hilt
• It would end "too big to fail" in banking
• It would transfer seignorage - the benefits of creating money - to the public.

And he makes the following suggestion - a new one for me. If the central bank decided to allow M1 (transactions money) to increase by 5% a year, the government could run a fiscal deficit of 4% of GDP per year without either borrowing or taxing.... that's because M1 is currently about 80% of GDP.

Finally, he squashes the critics who argue that the economy would die for lack of credit. He admits that he used to be sympathetic to that view, but since only about 10% of UK bank lending has financed business investment in sectors other than commercial property, he argues that it would not be difficult to find other ways to finance this.

I really think that the tide may be starting to turn. When will there be a public debate on this question? I can't but think that those who will want to keep the current system in place will have a very tough job convincing the rest of us.

European Government Debt and Interest Payments for 2013

A couple of hours ago, Eurostat released the figures for European Public Sector Debt and Interest Payments for 2013. You can find them all at their website here. Once you get there, all you have to do to download the information is to follow these instructions

• Select "Economy and Finance" then "Government Statistics" then "Government Deficit and Debt (gov_dd)"
• Click on the little Excel file next to gov_dd_edpt1
• Then you can chose what you want for the SECTOR via the little (+) sign (eg. General government (S13))
• Next, you use the little (+) next to INDIC_NA to choose (eg. "Government Consolidated Gross Debt (GD), and/or "Interest" (D41))
• Then use the (+) next to UNIT to choose (eg. Millions of Euros, Millions of Currency Units or %GDP)
•  Click "UPDATE"
• You can then download the data via an icon at the top.

Fear not - I've done it all for you, and compiled the data into this table. I provide figures for Government Gross Debt, Interest Payments in 2013, and cumulated interest payments for the period from 1995 through 2013. There are a few countries where the numbers for those cumulated interest payments are incomplete - they are the ones shown in red.

The headline news is that Eurozone Debt has now topped €9 trillion, while the Debt levels for all 28 EU countries is €11.39 trillion.  Both numbers are up 3.1% on 2012.

It's been another bonanza year for those who are holding on to all that debt. They have pocketed another €365 billion in interest payments (€279 billion if you just include the Eurozone).  This brings total interest payments for the period from 1995-2013 (the period for which Eurostat provides numbers) to €6.24 trillion. Anyone out there wondering why our governments are so heavily in debt?  Over 57% of Eurozone debt is entirely explained by those interest payments.

The details for individual countries are also interesting.  France's debt levels have increased by 4.6% from 2012 to reach €1925.3 billion. Italy is up 4.0% to €2069.2 billion. The UK's debt levels are up 3.0% to £1475 billion. But the record goes to Slovenia - up an impressive 31.8% to reach €25.3 billion.

A few countries actually managed to get their debt levels down a bit. Germany's debt dropped by 0.6% but is still a very impressive €2147 billion. The Czech Republic actually got its debt down by 7.6%.

But overall, interest payments are still costing European taxpayers 2.8% of total GDP. That's an awful lot of money to pay to banks who don't even have the money that they lend to governments. As the Bank of England stated clearly a few weeks ago, Banks just invent the money they lend out of thin air. And as I recently pointed out, they don't even need to have any capital to back up their loans when they make loans to Governments that are rated between AAA and AA-. That's because the risk-weighting of such loans is 0% (as defined by the Basel banking rules). They can literally create infinite amounts of public sector debt and just sit back and let the interest payments roll in.

What a wonderful system.....

Message to François Hollande : How to save over €50 billion in taxpayers money per year

Following the catastrophic results for the governing socialist party in last weekend's French municiple elections, François Hollande (the French president) has nominated someone from the  right-wing of his party as Prime Minisiter - Manuel Valls.

Valls is keen on balancing the budget using austerity - he said so clearly when he was a presidential candidate in the primaries in 2011 - so I think that we can look forward to €50 billion in cuts to the French goverment's budget in the next couple of years.

So, where could those cuts be made? Education? Research? Health? Transport? Housing? Energy?

I have a better suggestion. How about not paying the interest on public sector debt? That amounted to €52.2 billion in 2012. And the total from 1995-2012 came to €825.9 billlion. The numbers for 2013 will be coming out in the next couple of weeks, so I will be able to update the numbers again.

What I already know is that total government debt increased by a further 4.5% in the year to the end of 2013, to reach a total of €1925.3 billion. That's now 93.5% of French GDP - up from 90.6% at the end of 2012.

Even though the markets are being "kind" to the French government by only asking for interest at 2.25% on long-term loans, the fact is that any payment to the banking system is a total rip off. When Banks buy government bonds they create the "money" used to buy those bonds out of thin air. And, as I showed last week, they don't even have to have any capital to back them up, because according to the Basel regulations, lending to AAA or AA rated governments is zero rated for risk. It doesn't count.

This raises an interesting option. Suppose there was a friendly bank that was prepared to make loans to the French government at 0% interest over 100 years. Couldn't the French government then use those loans to pay off its debt - thus avoiding over €50 billion a year in pointless payments?

If a bank has bought French government debt with non-existant money, it follows that if the French goverment were to pay off that debt with equally non-existant money, the bank would be forced to write-off the debt. As you hopefully realize - money can be created when banks make loans, but it can also be destroyed when those loans are paid off.

But there's a problem. The fact is that most government debt is not held by banks. As soon as a bank buys government bonds (using money that it didn't have), it then sells those bonds onto things like pension funds, insurance companies, and overseas investors.

In fact, it's not easy to find out exactly who holds all that debt. But, in 2011, Reuters published a list of the 50 main holders of French debt, although it should be noted that this list doesn't include institutions such as Central Banks, which are not required to reveal their holdings. You can see that most of the players are indeed insurance companies, pension funds and other non banks.

So, the problem is that if a friendly bank provided 0% loans to the French government who then bought back the €1925.3 billion of debt, this would flood the markets with new money, and that could be very destabilising.

But it seems to me that there is a way out. Commercial Banks could be forced to buy back those bonds with existing money (not by creating yet more new credit). After that, the  French Government could buy back those bonds on condition that those Banks agree to write off the debt completely.

The net result of that would be to decrease the assets of the commercial banks - by transfering those assets to a non-profit making "friendly" bank who would charge 0% interest.  This would, at a stroke, reduce the need for tax-payers to foot the bill for interest payments, saving the government over €50 billion a year.

It's not as if French Banks are short of assets. Have a look at this list of the 50 largest banks in the world. BNP Parisbas had $2.474 trillion in assets at the end of 2013 - putting it at number 3. Another French bank - Crédit Agricole - comes in at number 4 with €2.431 trillion. Société Générale has $1.651 trillion. I don't think it would be a bad thing if those asset levels were reduced a bit. Especially since those banks don't have enough capital reserves to justify those assets.

Of course, the insurance companies and pension funds will scream that we have just cut off their easy zero risk income stream. Tough. They might have to start using their money to make real investments in the economy, instead of creaming off 3% of GDP every year for doing nothing. 

I think that this might work. Comments, please?

Videos from Positive Money's Conference

For those of you who weren't at Positive Money's Conference on the 1st of March, I can thoroughly recommend watching Ben Dyson's superb 30 minute talk on Sovereign Money Creation. You can find the video here.

Positive Money's blog on the Conference also has a shorter video of Ben answering questions from the floor.

Amusingly, 2 minutes into that video, you can see yours truly asking Ben a couple of questions. Firstly, I noted that Central Bank lending to governments was in principle banned by the Maastricht and Lisbon treaty. To that, Ben answered that while lending was banned, the treaty says nothing about GIVING freshly created money to governmnents. Nice one Ben!

I also asked him whether he thought that direct payments by central banks into citizen's bank accounts might also work. While he agreed that it was an option, he thought that spending money directly on activities such as house building would probably be even more efficient as a way of getting money into the economy.

No problem with that. I'm personally in favour of doing both. As long as we all agree that the key is debt-free money creation, there are plenty of options to be explored.

Euroclear - €572.8 trillion in transactions in 2013

EuroClear  released a press release on he 28th February 2014 that gives some more impressive numbers about the scale of financial transactions. 

"Turnover, the value of securities transactions settled, was a record EUR 572.8 trillion, a 5.8% increase over prior year. "

Their main site also boasta that "Every 6 days we settle  transactions equivalent to the GDP of the EU". Impressive.

Other information in the press release includes the following statement.

"The number of netted transactions settled in the Euroclear group grew by 7.1% to a record 170.4 million"

The majority of this was probably done in continental Europe, but the report also says that

"Fund orders routed through Euroclear UK and Ireland’s EMX Message System increased by 19.5% to a record 49 million messages in this period."

So, that presumably means that about 24% of the total was handled in the UK. That means that I can add an extra €137.5 trillion to the UK total of £1840 trillion that I calculated last week.  That's about £113 trillion, bringing the UK total to £1952 trillion.

The biggest Bank scam of them all - Banks lending inexistant money to governments and charging interest

Now that the Bank of England has openly admitted that Commercial Banks create money out of thin air when they make loans - they lend money that they don't have - I thought it would be worth pointing out clearly what this means in the case of soveriegn debt.

You have probably heard the story that Commercial Banks are supposed to have a certain amount of capital to back up their loans. You often hear that Banks can only generate about 10 times as much in loans as they have deposits.

Well, this is quite clearly wrong.

Take a look at the 192 page document published by the Bank for International Settlements on "Minimum Capital Requirments".

Starting on page 19  you can find the details of how Credit Risk is calculated.

First we learn that there are two different systems in use.

"The Committee permits banks a choice between two broad methodologies for

calculating their capital requirements for credit risk. One alternative, the Standardised

Approach, will be to measure credit risk in a standardised manner, supported by external credit assessments

The other alternative, the Internal Ratings-based Approach, which is subject to the

explicit approval of the bank’s supervisor, would allow banks to use their internal rating

systems for credit risk."

Then we get to hear how how the standardised approach works. Here's a table showing how the risk weighting works for lending to governments.

Yes, you have read that correctly. When a Government has a rating between AAA and AA-, the risk weighting is 0%. Here is a map of Standard & Poors credit ratings for European Countries (you can find similar graphs for Fitch's and Moody's.

So, if you are in countries like the UK, France, Germany, Belgium, the Netherlands, Switzerland, Austria, Norway, Sweden, Finland and Denmark, commercial banks can create unlimited amounts of "money" to make their loans - WITH NO CAPITAL REQUIREMENTS AT ALL.

And then, those Banks can sit back and collect the interest on that loan made with non existent money. Those interest payments have cost a fortune - as you can see in the table I compiled last year.

Even when the Banks create money to lend to countries that are rock-solid like Germany, they still get to rake in a fortune in interest. German taxpayers have handed over €1,174 billion since 1995. Italian taxpayers have handed over €1,433 billion. French taxpayers have handed over €835 billion. And so on.

Isn't this the most incredible racket you have ever heard of? By comparison, Mafia mobsters going round local shops and demanding money for "protection" is nothing.

Here we have the Banks lending unlimited amounts of inexistant money to governments with ZERO risk, and "earning" interest. And of course, if any government was to complain, they would soon pay for it by discovering that all of a sudden, their interest payments went up from a couple of percent, to 27% (like it did for Greece in 2012). As I say, the Mafia are small fry compared with this.

This has to stop. It cannot be justified.

UK financial transactions in 2013 : At least £1840 trillion

It's the time of year when I like to have a look at how financial transactions were doing in 2013. Many of the key players are quite keen to boast about just how much activity they are handling.

For example, CLS group has a report saying that it handled an average of  $4.99 trillion a day in 2013. up from $4.89 trillion a day in 2012. With roughly 250 trading days in a year, that would total $1250 trillion.

As I reported yesterday, NYSE Liffe (which does something like 99% of its trading through its London Office) has reported handling €474 trillion in 2013.

LCH.Clearnet Ltd has a graph on its web site showing  monthly notional volumes for its SwapClear trading arm.

By clicking on the histograms for each month I found that the total for 2013 added up to an impressive $507.8 trillion. Interestingly, the numbers for the start of 2014 are looking particularly strong, with $61.6 trillion in january and $49.8 trillion in February.
 
LCH.Clearnet Ltd's Fixed Income's website reports the "key fact" that it handles €11.8 trillion repo trades per month based on nomimal values. Over 12 months that would suggest that it  handled €141.6 trillion in 2013.

The CHAPS Co Website has the following graph showing monthly volumes and values.

And you can read that "The total value transmitted in CHAPS in 2013 was £70.1 trillion, an average of £277 billion daily."

The BACS system, which is used to process many direct debit and account transfers in the UK published a bulletin in January 2014 intitled "Record breaking year for BACS" in which it said that " Direct Debit continued to grow, topping 3.5 billion across the course of the year, with a total value of £1.1 trillion. With Bacs Direct Credit payments, that made for a combined 5.7 billion items processed in 2013, worth almost £4.2 trillion."

Adding in the numbers, together with some other figures that I have for things like London Stock Exchange and the London Metal Exchange and older figures for other payment systems from the BIS, I get the following table showing at least £1843 trillion in UK-based transactions for 2013. This compares with the figure of £1760 trillion that I generated two years ago. Clearly the financial markets have not been too seriously hit by the recession.

The table also compares the amount of transactions with the total tax revenues for the UK government - namely £564 billion (nicely plotted in a very recent pie chart on the Guardian's web site). The ratio between transactions and tax (over 3260:1) suggests that you could actually get rid of every UK tax and replace the whole lot with a single flat-rate FTT on all financial transactions of 0.031%. Those who follow my blog will know that I have pushing this possibility since october 2010.

But even the £1843 trillion number must be an underestimate. For example, I have no idea how much trading is being done by Barclay's Bar-X  platform. And LCH.ClearNet Ltd has a number of other business streams for which I have not been able to find numbers, in addition to SwapClear and Fixed Income. Specifically:

• ccCFDs
• Commodities
• Credit Default Swaps
• Derivatives
• Energy
• Equities
• Freight
• Foreign Exchange

If anyone knows how to find the value of the transactions in these areas, do let me know.

Note added 15th April 2014 : I've just found a website where Barclays says that their Bar-X platform handles $50 billion a day. With roughly 250 tradings days a year, that means that we can add in an additional £7.5 trillion at least. But I found another site that says  that the Barclays system handles up to 1000 trades a second. I suspect that the £7.5 trillion may be conservative.

NYSE Liffe Europe : €474 trillion in 2013 - up 27.6%

I've just had a look at the transaction figures for NYSE Liffe. They really are very open about them - you can download all the details on their Monthly Statistics page. So I did. And here are the results for the period 2006-2013.

Activity peaked at over €500 trillion in 2010 but then dropped back to €372 trillion in 2012 - well it was a global financial crisis after all.

But I'm sure you'll all be relieved to hear that things have picked up nicely in 2013, with a total of €474 trillion. That's an impressive increase of 27.6% on 2012. Well done!

There are some other interesting things to extract from the data. Firstly, since the €474 trillion was achieved with 113 million transactions, that means that an average transaction was worth an impressive €4.19 million.

But there another interesing gem here. It's the Premium Turnover which was €46.3 billion in 2013. That's 0.01% of the total transaction value.

Now, if you remember, last week I showed you the total Premium value for 2013 for that other major global player - the Options Clearing Corporation. I got a value of $1.2 trillion in Premiums. But when I asked the nice guy at OCC what total volume that corresponded to, he unfortunately stopped corresponding with me.

But, if we take the Premium value for NYSE Liffe (namely 0.01%), this presumably means that we can multiply up the $1.2 trillion number by 10,000 to get the true value of financial transactions handled by OCC. And the result is.... $12 quadrillion. Gulp.

Just think. If the US government was to tax those transactions at a rate of 0.025% they could abolish every other tax in existence, because all the other taxes raise less than $3 trillion a year.

Even the Tea-Party should love that one.