I will be speaking at the American Monetary Institute’s Annual Conference in Chicago. The conference runs from September 30th October 3rd 2010. More details here: http://www.monetary.org/2010conference.html
Chicago is an incredible city and well worth visiting in its own right, and the conference last year was outstanding.
I just posted an update on the strategy and the structure of the Call4Reform campaign on the Call4Reform site:
http://www.call4reform.org/2010/06/calm-before-the-storm-plans-for-the-campaign/
A lot is happening behind the scenes, and we are preparing the infrastructure for a campaign that can grow to 100,000 campaigners. Everything should be ready by late September – just as the evenings start to draw in and people start to feel the pain of the Coalition’s spending cuts.
Despite the seriousness of the situation, there’s a lot to be optimistic about. Economies around the world have been running on debt-powered life-support, and the move to ‘Austerity’ means the life-support machine is about to be switched off. The only way to rescue the economy now is to implement real reform of the way money is created, and that means that everything is stacked in our favour.
It’s only a matter of time now…
Read the update and let us know if you have any suggestions or ideas for the campaign:
http://www.call4reform.org/2010/06/calm-before-the-storm-plans-for-the-campaign/
By 2029, fractional reserve banking will be no more. The banking system will have been either replaced (by a system based on the proposals on this site), or it will have completely imploded. The rescue efforts of the UK, US and European governments have been fundamentally pointless – simply postponing the ‘final collapse’ by a few years, but doing absolutely nothing to address the deeper issues.
The predictions below are all derived from data for the last 20-40 years. They are simple projections into the future, making the assumption that the ‘powers that be’ ignore the fact that fractional reserve banking doesn’t work and try to prop up the existing system as long as possible. By 2029, with debt being 5 times greater than it is today, the system is very likely to collapse under its own weight.
The fractional reserve banking system is designed so that the majority of money is created as a result of people taking out loans. The end result of this is that all money is debt (with the exception of the 3% of all money which is actually created by the government).
The current (2009) money supply is £2 trillion. By 2029 it will be £9.15 trillion, if not more.
Total debt will also be in the region of £9.15 trillion by 2029.
This is calculated by taking the average increase in the money supply (M4) from 1990 to 2009 – an average growth of 7.9% – and applying it to the money supply going forwards. The average rate of annual growth in the money supply for the last 40 years is actually 11.6% – if this figure is used, the money supply grows to £17.9 trillion!
By 2050 the money supply, and therefore total debt, will be £45 trillion.
Average debt per adult in the UK will be £203,136 (including mortgages).
The average house in 2029 will cost over £773,088.
This figure is arrived at by taking the average house price of £160,224 (Nationwide Building Society, August 2009 figures) and assuming this also grows quickly enough to keep up with the money supply.
The minimum wage in 2029 will be £26.21 per hour.
Arrived at by taking the 2009 minimum wage of £5.73, and assuming it grows in line with the money supply (so that minimum wage workers get no poorer or richer in real terms).
Your savings will lose 60% of their value over the next 20 years!
Assuming you put £10,000 in your savings account that pays 3.5% (after tax), by 2029 you will have the (2009) equivalent of £4,201 in real terms.
Steve Keen is a university-based economist who is blessed with the power of independent thought! His ‘Debt Deflation’ website explains what is really going on in the economy, with full economic and statistical analysis. I highly recommend it:
http://www.debtdeflation.com/blogs/
It’s gradually becoming obvious that around 98% of university professors and government economists have got it very very wrong.
Some proposals that follow the 100% reserve solution specify that banks hold one physical unit of currency for every unit of currency paid in by depositors. For example, if I paid £100 into my current/checking account, and therefore hadn’t given the bank permission to loan the money out, the bank would be required to hold £100 in physical cash – notes and coins – to meet the ‘reserves’. This was the idea in the original Chicago plan, proposed in the 1930s, when much of existing money was in the form of cash, rather than electronic numbers in computer systems.
This is completely unnecessary. The idea that ‘reserves’ need to be something physical – cash or gold – is a throwback to the days of commodity money (eg. gold coins).
The other reason why some proposals suggest that reserves need to be physical is because they believe it is the only way to prevent the banking system from creating money. In reality, a few accounting rules can prevent banks creating money. While the problem of how to prevent banks creating money has caused some confusion, the answer should also be obvious to anyone with an understanding of computer systems and specifically databases. (To give you an insight, banks will not have the function to make a ‘credit’ or ‘debit’ request to the central bank computer systems – the request will need to be “Transfer $X from Account A to Account B”. The accounting rules would not allow them to ‘credit’ a borrowers account without debiting the account of a depositor (or numerous depositors) by an equivalent amount).
Under the proposal on this site (and those used in the American Monetary & Financial Security Act), there is no need for banks to hold any more cash than customers will actually need to withdraw. The ’100% reserves’ required for checking/current accounts are still simply numbers in a computer system – they have no physical form, and don’t need to have.
After the reform proposed on this site, it will be impossible for the banking system to create money. They will be subject to the same rules as you or I when we use internet banking – they can only move money from one account to another. There is no need for them to hold physical cash in order to make this happen – we simply need to make a few changes to the accounting rules.
Please ask any questions using the form below.
Lastest Update: 30th January 2010
In the next few months, legislation will be introduced into the US Congress proposing a reform to the banking system along the lines of that promoted on this site – in short, to prevent the private creation of money and to start creating money publicly for the benefit of the economy, society and nation. This is without doubt the greatest ever advance in the campaign for reform of the monetary system.
This legislation is the result of 14 years of hard work by Stephen Zarlenga, director of the American Monetary Institute. Zarlenga has researched around 3000 years of monetary history to find out what has really worked, leading him to conclude that the only real solution is publicly-created, debt-free money (get the book ‘Lost Science of Money’). It is only thanks to the fact that Stephen has spent the last couple of decades raising awareness, educating on this system, and lobbying politicians, that we now have legislation in Congress. The Representative who will actually be proposing this legislation was originally approached by Zarlenga around 5 years ago, leading to this major advance in the movement towards a real reform of the monetary system.
The legislation is currently with the bill writers (a legal team within the machinery of US congress). They are drafting the legal version of the bill. I have been told that the bill writers have been faithful to the original proposal (and made no attempt to water it down), but that it still requires a few changes before it is ‘loophole free’.
Once the text of the bill is ready, it will be formally filed with Congress and given a ‘HR’ number. This is when the publicity really begins.
In order for the bill to progress, we need to get 190 Representatives to sponsor the bill. The only way to do this is with grass-roots lobbying, and with the help of a few Congresspeople who already understand these issues and appreciate the importance of this reform.
Consequently, there will be a lot of education and campaigning required. This is probably also when the mis-information campaign will start – journalists with minimal understanding of the economy will shout about the risks of inflation (inflation would actually be less under the reform), and vested financial interests will bring out their lobbyists. Considering that the US health care industry has employed 6 lobbyists for every 1 member of Congress to oppose Obama’s health care reform, it should be clear that we will face similar opposition from the retail banking sector. (Interestingly though, the reform will help asset management firms, pension and mutual funds, so these institutions could become allies once they understand the reform).
If you are a US citizen, your help is needed, even if you can only spare time to write to your Representative and Senator. Please contact me to find out how you can get involved.
Once the bill has secured 190 co-sponsors, the bill can then progress to a vote in the House of Representatives (the UK equivalent is the House of Commons). We don’t want this to be a close call, so it will be essential that all US Representatives are educated on the necessity of this reform and the benefits it will bring for America (and in time, the rest of the world) to ensure that there is a decent majority in favour.
When the House of Representatives vote in favour of the reform bill, the bill will pass to the Senate for a vote. The same lobbying campaign that was used on Representatives will now need to be repeated with Senators. The Senate will either request amendments, or pass the bill. (The UK equivalent of the Senate is the House of Lords).
When the bill is passed, one of the most poorly designed and economically destructive monetary systems will be replaced with a monetary system that actually helps the economy, helps capitalism, and helps society. Many people will only appreciate the significance of this moment in the years that follow – in the same way that you only notice pollution in the air when you step out of a deep natural cave, we will only appreciate the fact that this current system is toxic when we step into the post-reform economy.
We are closer than we’ve ever been, but we shouldn’t under-estimate the sheer size of the challenge ahead. Millions of pounds of lobbying money will be spent on opposing this reform, and the mainstream US media is hardly known for its quality or balanced reporting. It will need a massive on-the-ground campaign with hundreds of thousands of ordinary Americans campaigning for this, and be prepared for the inaccurate information that is put out about this reform. Getting a society as polarized as the US to wake up to a common sense reform that benefits 99% of the population will be difficult, but not impossible. I’ve offered my time and expertise to the American campaign team, but it needs more people. Again, if you are a US citizen, please contact me. Even if you can’t spare the time yourself, you can tell friends and family in the US and let them know what they need to do to protect their own interests.
Some critics of the reform argue that it creates a ‘massive concentration of power’ with the government, which will lead to corruption.
The logic behind this argument is the following: if you allow the government to create a lot of money and spend it into the economy, there is the scope for massive corruption as this money gets siphoned off, or goes to contractors who pay bribes to government officials.
In most European economies, and in the USA, governments are already responsible for spending around 40% of GDP. The reform proposal merely funnels the annual growth in the money supply – which will be in the region of 5% of the current money supply – through the government, in addition to the 40% of all spending that they take through taxes.
(Note that 5% of the money supply is not the same as 5% of GDP – in absolute terms, it is likely to be much smaller.)
Let’s put some figures to this discussion. The table below show the billions of Pound Sterling created by banks, through the fractional-reserve banking process, in each year up to 2007.
|
Year
|
£bns created by commercial banks |
|
2000
|
68
|
|
2001
|
59
|
|
2002
|
65
|
|
2003
|
72
|
|
2004
|
94
|
|
2005
|
148
|
|
2006
|
168
|
|
2007
|
177
|
(Source: Bank of England official statistics – derived by measuring the annual increase in M4)
Let’s assume that the money creation in 2005-2007 was excessive (triggering the sub-prime crisis and the financial crisis of 2008), so let’s choose the 2004 figure, rounded up to £100bn as a ‘good’ level of annual increase in the money supply.
Under our proposals for reforming the financial crisis, the government – and not the banks – would create this £100bn and spend it into the economy.
In the 2007-2008 financial year, the UK government spent £558 billion (according to UK Treasury statistics). Adding the £100bn newly created money to this amount is only a 15% increase in the government’s budget.
If you want to argue that increasing the government’s budget by 15% would lead to massive corruption, then logically you should also be arguing for the complete end of government in all forms. After all, if you believe that £100bn will lead to terrible corruption, then you must believe that the £558 billion that the government currently spends must already be the source of phenomenal amounts of corruption.
The risk of corruption as a result of our reform proposals is no greater than the risk of corruption that already applies to 100% of tax revenue. If you funnel a lot of money through any group of people, there will be a degree of corruption. But I have never heard any economist or academic say ‘We shouldn’t raise taxes because it will lead to corruption’, so it makes no sense to argue this with regards to this reform.
No doubt corruption takes place at certain levels of government – more so in some countries than others. However, the choice is simple: would you rather run the risk that a small percentage of that newly created money be used for ‘corrupt’ purposes, or would you rather stick with the current system, which has just thrown tens of millions of people out of employment, and bankrupted most of the world’s governments – including that of the USA?
The fact that commercial banks – and not the government – create the vast majority of money in society, can be pretty hard to believe at first. You probably have a suspicion that I (and the other few hundred writers on this subject) have made a mistake – misread something, or misunderstood economics, or got our terminology confused. So it might help you to hear it from someone slightly better known.
On April 14th 2008 Barack Obama made the following statement in a speech at Georgetown University. Watch from 13.53 onwards.
“[A]lthough there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks – ‘where’s our bailout?,’ they ask – the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.” (Find the original transcript on the New York Times site.)
Or in plain English:
If we give one dollar to you, we’ve created one dollar. But if we give one dollar to the banks, they’ll lend it over and over again until there are eight or ten dollars of loans to families and businesses.
Now, it’s surprising and infuriating that someone as allegedly as intelligent as Obama can make this statement without being embarrassed, or realising the injustice that he is referring to. From the lack of conviction in his voice at this point, I would say he doesn’t really understand what he is referring to (he sounds like he’s reading out loud, rather than speaking from the heart). Here’s the implications of the system that he describes.
When bailout money is given to the bank to shore up their capital, it allows the banking system as a whole to create a mountain of debt on the back of this initial money injection. $1bn injected by the government and given to a commercial bank will eventually – through the ‘multiplier effect’ – become $10 billion of debt from the US public to the banks.
The system that Obama refers to has the destructive effect that, every dollar that is given to the banks to improve their capital base will increase the debt burden of the US public by ten times that amount!
Who Benefits From the Extra Loans Created?
If a $1 billion injection of capital can lead to $8-10billion of loans, as Obama points out, then we should ask some questions about what happens to this money. Specifically:
The banks charge interest on every loan made as they ‘multiply’ the original injection by ten times. When the principal amount of the loans is repaid, the debt from the public is canceled, but the money is not destroyed – it returns to the banks, and is used to fund even more loans, creating a permanent legacy of debt. The money to pay the interest on the loan also has to be borrowed from the banks!
As $1 billion injection from the US government results in $10 billion of outright debt from the US public to the commercial banks. However, because interest is charged on every loan, the total amount that the banks earn from this $1 billion of bailout money is likely to be over $25 billion. As the loan and interest is repaid, the banks count this as profit.
So, by giving bailout money to the banks directly, the government is providing the banks with a windfall profit 25 times greater than the amount that it injects! For every $1bn that the government gives to the banks, the American public will lose $25bn of their own wealth!
Obama seems to be intelligent, so why doesn’t he appreciate the following points?
Even more outrageous is the fact that, if the bailout money had been given to the people first, they could have used it to pay down their debt, and the money would then have ended up in the banking system to create more loans. In other words, he could have given the money to ‘the people’ first, allow them to improve their financial position, and still create the desired stimulus for the economy.
So, Obama – why do you condone a process that a) traps your country’s citizens in debt, b) provides a massive windfall profit for banks (and bankers)? Is it because you don’t understand it?
