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Sheffield Equality Group2nd 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)
2.6% 97.4%
Debt-based money
£57bn £2,100bn
Private companies (banks) have created 97% of our money supplyas 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”
Mervyn King, Governor of the Bank of England
“When banks extend loans to their customers, they create money by crediting their customers’ accounts”
• Why is that so bad?– inescapable debt– boom/bust– inequality
• Handout
• Why is that so bad?– inescapable debt– boom/bust– inequality
Inescapable debt
Money£2.1 trillion
(“M4 supply”)
Debt£2.4 trillion
(“M4 lending”)
Assets
Mortgage
Liabilities
AssetLiability
Bank money (credit) has to be borrowed into existence
Money and debt are created simultaneously
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
• When banks make loans they create money
• When loans are repaid money disappears
• When new loans are created faster than old ones are repaid, money supply grows
• When old loans are repaid faster than new ones are created, money supply shrinks
-100
-50
0
50
100
150
200
250
300
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Annual change in “M4” money supply (source Bank of England stats)
£ Billions
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
Boom / bust
• Why is that so bad?– inescapable debt– boom/bust– inequality
Inequality
• The rich get richer…
• Video
Households
BanksNon-banking
FinanceSector
Govt
interestinterest, wages, dividends
tax
tax benefits,wages
dividendsfeescommission
Banking sector in context
“recycling”
Inequality
<< consumer debt … mortgage debt >>
NB – includes direct transfers to/from households – interest, salaries, dividendsexcludes 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 Moneyobjectives
1. To create a stable money supply based on the needs of the economy• £40-80bn new money each year
2. To reduce the burden of personal, household and government debt• debt-free money• created by a public body• spent into the economy rather than lent
3. To align risk and reward• currently, banks take the upside of risk, taxpayer takes the downside• no bail-outs
4. To provide a structure of banking that allows banks to fail• without jeopardising the payments system
-100
-50
0
50
100
150
200
250
300
£bn
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Positive Money demands …
ALL money (physical and digital) should be
• Created debt-free– free of interest and repayment
• in sustainable and stable quantities– 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