Nationalise money not banks
October 14th, 2008The flurry of raised hands for bank guarantees from central bankers and treasury ministers around the world fails to convince me we are out of fire. Certainly guaranteeing interbank lending is helpful as the pipes are well and truly frozen in that part of the monetary world.
The global banking system has now been underwritten, guaranteed and in some cases nationalised completely. There is no surprise in that course of action as it was all they could do. Whether they take stakes in, takeover or buy preferred stock makes no difference. Now they have bought some time we will have to wait and see how it pans out. The underlying problem remains the same though.
They have not addressed the difference between money and credit.
Money is what the sovereign authority issues. This carries no interest burden which is a future claim on goods and services yet to be produced i.e. drives the growth imperative.
Credit is what banks issue based on deposits and “other types of capital” that are in the bank. This carries interest. Credit makes up 97% of the money supply. Credit is treated as money although laws are very clear that only sovereign authorities can create money.
Confused?
There is a strong argument to say that bank credit is fraudulent money. I digress.
Instead of supporting the credit creation system we need to support the money creation system. It’s that simple. Let me be clear: banks do not lend out your deposits. They use your deposits as collateral on new loans.
Take Kiva, my favorite microfinance outfit: I deposit $25, find a borrower and lend them the money. My $25 is gone and i have to wait for it to be repaid. That is true lending. Think of it as investment.
Bank lending is garbage.
The answer is to nationalise the supply of money and remove the interest burden at the point of creation. I think this is likely to happen at some point as governments run into difficulties with their guarantee schemes.
We will need a new monetary authority who will issue new money into the economy and monitor the supply of money in the economy at any given time.
Only then will we be able to build a genuinely productive and healthy society and economy.
Tags: banking, central banking, central banks, credit, financial crisis, lending, money, new zealand
October 5th, 2009 at 9:50 pm
Dear Editor,
who wrote the “Nationalise money not banks” article?
I´m working on the same theme in South Africa and would like to get into contact with the mind behind it. You may contact me under m@3877.com.
Yours sincerely
Michael Duerr
November 21st, 2009 at 2:45 am
I’ve only recently (the last 18 months) taken any interest in money and credit, I must admit what I am finding out is disturbing. I know many people feel that the Zeitgeist movie is “conspiracy nuts” at their finest but I watched Zeitgeist Addendum which is mainly about the Federal Reserve and the US financial system and what they said seemed to make sense to me. The fractional reserve banking system is a giant Ponzi scheme it would seem. Reading your article about nationalising money it would seem you agree, is this an accurate conclusion on my part? Also what steps can be taken to change the present system? Cheers, I enjoy reading your site.
Regards
Tom Hunsdale
November 21st, 2009 at 4:49 am
Michael,
I sent you an email.
Tom,
Good to hear that you have taken an interest in this issue. And yes I have met plenty of conspiracy nuts in the last 10 years or so myself but conspiracy or not, one always can look at the facts.
The conspiracy lies within the area of who did what and why. But the facts never change. So for example it’s pretty clear recently that Goldman Sachs played a huge part in the way the US authorities dealt with the crisis last year. Of course it’s easy to see as both Paulson and Geithner are GS people (as many officials are these days)…and what of Warren Buffet buying into GS when it looked pretty horrible…..and what of Bear Stearns, Lehmans and Merrills) who was left standing?
It’s all pretty obvious….even Sorkin’s book “Too big to Fail” lays it all out in the open.
But I digress. It’s not so much conspiracy as incompetence. The rich will always look after themselves as will the vested interests that support them.
But the fractional reserve system is quite clearly a Ponzi scheme…..which has survived in tact due to the continuing rise in global land/property prices which all the debt is created against.
When property prices in the US crashed it put enormous strain on the system eventually bringing close to collapse. The phenomenal leverage just became too much to bear.
The answer is to create a consistent and stable supply of money. We need to forget about interest rates and inflation which has been the focus for the last 30 years. It’s done nothing but cause harm at a time when technological innovation has been so amazing.yet we still have many people who are illiterate and fill up our prisons.
The forced abandonment of the Gold Standard was the start of the rot and constant deregulation of financial markets has simply perpetuated the disaster. I’m not saying we have to go back to Gold. In fact I don’t think we should as that in itself would cause terrible instability.
What we need is for countries to create their own supply of money…imagine it in a physical sense. For example, if the money supply is $100bln…then we need to know there are actually $100bln of notes in existence. New money can only be created by the issuing authority and therefore the supply can be monitored and controlled (unlike now). In fact the Reserve Bank Act strictly forbids anyone else from creating money yet banks to do it all the time when they create new loans.
I’ll post more on the actual steps we need to take to make this process happen.
Please keep up your interest and keep researching the subject.
kind regards
Raf