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Sheffield Equality Group
2nd Oct 2013
Peter Verity
“The difficulty lies, not in the new ideas,
but in escaping from the old ones”
(John Maynard Keynes)
• 97% of money
–is created by private banks
–out of thin air
–and ‘loaned’ to us at interest
• Video – “what is money”
Banking facts
• The money in your bank account is bank credit ie.
numbers on a computer representing how much they
owe you (liability)
• When banks make loans, they create new money
• When loans are repaid, money disappears
• Banks don’t need ‘savings’ before they make ‘loans’
• Banks make profits from lending something they never
had; they will create as much credit as we are willing to
borrow and can be trusted to repay
• The Bank of England has little or no power either to
increase or decrease the supply of bank credit
• (discussion)
Debt-based money
£57bn
£2,100bn
2.6%
97.4%
Private companies (banks) have created 97% of our money supply
as debt-based money
Debt-based money
“The process by which banks create money is
so simple that the mind is repelled”
J K Galbraith, economist, 1975
“of all the ways to organise banking,
the worst is the one we have today”
“When banks extend loans to their customers,
they create money by crediting their customers’
accounts”
Mervyn King, Governor of the Bank of England
• Why is that so bad?
– inescapable debt
– boom/bust
– inequality
• Handout
• Why is that so bad?
– inescapable debt
– boom/bust
– inequality
Inescapable debt
Assets
Debt
Liabilities
Money
Mortgage
£2.4 trillion
£2.1 trillion
(“M4 lending”)
(“M4 supply”)
Bank money (credit) has to be borrowed into existence
Money and debt are created simultaneously
Liability
Asset
My money is someone else’s debt
There is never enough money to pay off our bank debt
Inescapable debt
• More money = more debt
• Less debt = less money
• Forever growing economy ≡ forever growing debt
• The problem is - too much debt and not enough money!
“…pay off the credit card and store card bills”
“UK banks need to increase their lending levels”
• Why is that so bad?
– inescapable debt
– boom/bust
– inequality
Boom / bust
• • When
Whennew
banks
loans
make
are loans
created
they
faster
create
than
money
old ones are
repaid, money supply grows
Whenold
loans
are
repaid
money
• • When
loans
are
repaid
fasterdisappears
than new ones are
created, money supply shrinks
300
250
200
£ Billions
150
100
50
0
-50
-100
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Annual change in “M4” money supply (source Bank of England stats)
Boom / bust
• Banks create as much as we are willing to
borrow and can be trusted to repay
• The system is inherently unstable
• Two modes
– Self-reinforcing upward spiral (boom)
– Self-reinforcing downward spiral (bust)
• “Steady-state” economy almost impossible
• Why is that so bad?
– inescapable debt
– boom/bust
– inequality
Inequality
• The rich get richer…
• Video
Banking sector in context
“recycling”
tax
Govt
tax
benefits,
wages
dividends
fees
commission
Banks
interest
interest,
wages,
dividends
Households
Non-banking
Finance
Sector
Inequality
<< consumer debt … mortgage debt >>
NB – includes direct transfers to/from households – interest, salaries, dividends
excludes transfers to govt (tax), financial sector (eg. Pension funds), and overseas
Inequality
• £100M - £200M in net interest payments to banks every day
– (excluding to payday loan companies)
• Redistribution of wealth
– from the bottom 90% to the top 10%
– from the real economy to the banking sector
– from the rest of the UK to the City of London
• Mainly from middle/upper-income households, measured by value
(as a matter of choice?)
• Lowest 10% pay most, as a percentage of income
• Large-scale redistribution by govt needed to (partially) offset the
damage
• Why is that so bad?
– inescapable debt
– boom/bust
– inequality
• Short discussion?
• The Positive Money campaign
– objectives
– reforms
– who we are
Positive Money
objectives
1.
To create a stable money supply based on the needs of the economy
•
£40-80bn new money each year
300
250
200
150
£bn 100
50
0
-50
-100
2.
1999
2001
2003
2005
2007
2009
2011
2013
debt-free money
created by a public body
spent into the economy rather than lent
To align risk and reward
•
•
4.
1997
To reduce the burden of personal, household and government debt
•
•
•
3.
1995
currently, banks take the upside of risk, taxpayer takes the downside
no bail-outs
To provide a structure of banking that allows banks to fail
•
without jeopardising the payments system
Positive Money demands …
ALL money (physical and digital) should be
•
Created debt-free
–
•
in sustainable and stable quantities
–
•
free of interest and repayment
by a publically accountable organisation
as a public benefit
–
instead of for the benefit of private profit-oriented banks
BANKS should do what most people think they already do!
•
Keep our money safe
•
Only lend money that has been deposited by savers
Banking the way most people think it already works
• Transactions (current accounts)
– Electronic transfers, ATMs
– It’s legally mine! Don’t spend it, don’t lend it, keep it safe
• Lending/borrowing (“savings” accounts)
– Lend my money where I choose (risk, ethics)
– Pay interest depending on risk and term
• Banks can’t create new money, they can only
lend money already saved in savings accounts
Who are Positive Money?
• National organisation
– 12,500+ internet supporters, plus Facebook etc
– website – publications, downloads & videos
– target: “influencers” – economists, academics, media
•
www.positivemoney.org.uk
– sign up to support (and donate?)
• local groups (17 including Sheffield)
– raising public awareness
– monthly get-togethers, last Monday in month
– street stalls
•
www.positivemoneysheffield.pbworks.com
– join our email list; 120+ contacts
Next Sheffield events
Mon Oct 28th
• Member’s talk –
“from Aristotle to Positive Money – a short history of monetary reform ideas”
•
Quaker Meeting House – 7:15 meet, 7:30 start