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How to Fix the Banking System and make it less socially harmful

Publié par Eco-Tunisie sur 11 Novembre 2012, 08:47am

Catégories : #Dette



When the chief economics editor at the Financial Times writes that the essence of the contemporary monetary system is:

"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.Book-01-400x230.jpg

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 today. 

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 borrow? 

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 someone. 

When you take out a mortgage from the bank, the bank doesn't take that money from somebody's grandma's life savings. 

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 years. 

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 loans. 

And the only way that we, as the public, can get our hands on this money, is to go into debt to the banks. 

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 halt. 

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 crisis. 

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 proposal.

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.


Draft Legislation

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 economy
  • 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 adaptations.



Upcoming book:


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.

IMF Working Paper Offers Strong Support for Full-Reserve Banking

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…”


Economists calling for Full Reserve Banking

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.


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