When the chief economics editor at the Financial Times writes that the essence of the contemporary monetary system
"the creation of money, out of nothing, by private banks..."
then it might be time to pay more attention to where your money comes from.
This talk, delivered by Ben Dyson of Positive Money, explains why almost everyone is in debt, why the financial crisis
continues, and how the current banking system (which the Governor of the Bank of England described as the worst possible) is at the root of most of the social and economic problems that we face
Discover the few simple changes to banking that would reduce debt, poverty and economic instability and that would ensure
that the reckless behaviour of banks could never threaten the global economy again.
Have you ever wondered why there's so much debt? Or why the experts and authorities seem completely unable to solve the
current debt crisis?
Well the reason they can't solve it is because they're trying to fix and repair the existing banking system. But the
existing banking system is completely flawed. It's the existing system that has buried all of us under a massive mountain of debt.
In the next 3 minutes I'll show you how the design of the banking system guarantees that the vast majority of people will
end up in debt, and why allowing the banks to go back to business as usual would be the worst thing for the economy and for society as a whole.
But first, where do you think all this debt came from? Many people would assume that a bank needs to get money from a
saver before it can make a loan to a borrower - after all, isn't that what banks do? Taking money from people who want to save it, and lending it to businesses and people who need to
Well, Not exactly.
Here's a fact that not many people know. A bank doesn't actually need to have any real money before it can make a loan to
When you take out a mortgage from the bank, the bank doesn't take that money from somebody's grandma's life
No. Instead, they simply open up a computer, and type some numbers into your account.
You get a huge wad of money in your account, and you also get a huge wad of debt that you'll be repaying over the next 25
But the money that you borrowed was created out of nothing and just typed into your account.
We know that's hard to believe, but you don't need to take our word for it. The Bank of England themselves say that "When
banks make loans, they create additional [bank] deposits for those that have borrowed the money." These 'bank deposits' are just the numbers in your account.
And Martin Wolf, the chief economics editor at the Financial Times, says that "The essence of the contemporary monetary
system is the creation of money, out of nothing, by private banks' often foolish lending."
So almost all the money we use today is made in this way - out of nothing, by banks, when they make
And the only way that we, as the public, can get our hands on this money, is to go into debt to the
In other words, almost every pound that we need in the economy - to run shops, businesses, factories, schools and
hospitals, must first be borrowed by us from a high-street bank. And if one person has a million pounds, the rest of us MUST be a million pounds in debt.
If we try not to go into debt, then the banks would be unable to create money and the economy would grind to a
This is effectively a whole-scale privatisation of the power to create money.
I know what you're probably thinking, but this is no conspiracy. We've been through over 500 documents from the Bank of
England to make absolutely sure that this is how the system works.
From this research, we've developed a simple solution to the debt crisis. It involves removing this power to create money
from the banks, and making sure that money - whether it's cash or electronic money - can only be created by the Bank of England. Any new money would be created and spent into the economy -
instead of being lent by banks to people who already have too much debt. This new money would allow us, collectively, to reduce our total debts to the banks, and help us to end the debt
The authorities are trying to patch up a system that is fundamentally broken. If we let them continue, then we will all
end up even deeper in debt, and problems like poverty, extreme inequality and economic chaos will get worse and worse. We need a solution to the crisis that doesn't involve passing the costs back
on to ordinary people. And we need you to get involved.
How to Fix the Banking System (and make it less socially harmful)
Alternatively, if you prefer something with a bit more detail, our submission to the Independent Commission on Banking (ICB) may be worth looking over. Written in collaboration with the new
economics foundation and Professor Richard Werner of Southampton University, it explains in detail how a full reserve banking system could be implemented in the UK, including how the transition
from fractional reserve to full reserve could work in practice.
A short critique of fractional reserve banking is also included, explaining how it makes economic stability extremely unlikely whilst also necessitating bailouts and taxpayer funded deposit
insurance whilst creating a wide range of market distortions. Additionally the proposal also addresses some of the common misconceptions, objections and reactions to the full reserve banking
Unfortunately, judging from their interim and final reports the ICB failed to fully understand our proposals or their benefits. To see a full rundown of our interactions with the
ICB, click here.
Between October 2009
and May 2011, a small team including members of the Positive Money team worked on drafting comprehensive legislation that would implement ‘full reserve banking’ in the UK. Full-reserve
banking is a proposal that has been put forward by Irving Fisher in response to the Great Depression, and updated by James Robertson and Joseph Huber in Creating New Money (free PDF download). The draft legislation achieves a few key fixes to the banking system:
It prevents new bank lending from creating new money, ensuring
that there will be a stable money supply
It ensures that banks that fail can be shut down, rather than
having to be bailed out at the expense of the taxpayer
It democratises the investment priorities of banks by requiring
them to disclose to customers how their money will actually be invested
It separates the payments system and the lending side of a
bank’s business, so that poor investment practice by a bank doesn’t threaten the payments system for the whole economy
It limits the power of the Bank of England in manipulating the
It ensures, as much as possible, that money is created in an
open, transparent manner and that this power to create money is sheltered from abuse
It takes the power to create money out of the hands of both vote
seeking politicians and profit-seeking bankers.
Whilst we are not currently focused on promoting specific legislation, the full text of the bill can be downloaded
here (PDF, 3mb) and gives an extremely detailed outline of how the UK monetary system could be reformed. The same principles could be applied to other countries too with some
Why Our Monetary System is Broken & How it Can Be Fixed
As the title suggests, the
book explains why the current monetary system is broken, and explains, in
more detail than ever before, exactly how it can be fixed.” The product of three years of research and development, these proposals offer one of the few hopes of escaping from our
current dysfunctional monetary system.
Modernising Money shows how a law first implemented in the UK in 1844 (but never updated) can be combined with reform proposals that grew out of the Great Depression of the 1930s to provide the
UK with a stable monetary and banking system, low personal and government debt and a thriving economy. Whilst inspired by Irving Fisher’s original work and variants on it, the
proposals outlined in this book have some significant
differences. Detailed but accessible to non-economists. The book is likely to be released in December 2012/January 2013.
Pre-orders with a discounted price will be available soon. Watch out this space.
The IMF has released a
discussion paper in which the authors advocate Irving Fisher’s original 1930s proposals for banking reform, which remove
the ability of banks to create money and which are the inspiration for Positive Money’s own proposed reforms. They’ve used state of the art economic modelling, and found strong support for the
benefits of the proposals – reducing debt, making the banking system safer and stopping the instability in the money supply.
“The effectiveness of countercyclical policy would be further enhanced under the
Chicago Plan relative to present monetary arrangements. [B]ank runs can obviously be completely eliminated… It would lead to an instantaneous and large reduction in the levels of both
government and private debt, because money creation no longer requires simultaneous debt creation…”
It may appear that Positive
Money’s proposal for banking reform is somehow too radical or too marginal, since mainstream media are rather silent about it.
But despite the fact that this information rarely makes it into current news, the fact is that many very well-known, important, respected and famous economists were or are calling for a
full reserve banking system. Their proposals differ from each other, however the 100% reserve requirements is common to all of them.