Break up the banks

from Peter Radford

Before they break us up. Again.

I have stayed away from discussing the banks in recent months largely because I consider the solution to our banking problems to be self evident. They’re too big. Make them smaller. Arcane debates over capital ratios, naked CDS prohibitions and other bureaucratic responses are all small fry and akin to re-arranging deck chairs. The chairs are just fine. It’s the Titanic we need to worry about. 

For instance, I look at the current Euro crisis through the prism of banking. The Europeans have allowed their banks to grow so large that they fear for their economies were one or more of those behemoths to collapse under the weight of toxic sovereign debt. So, central to the overall Euro crisis, is bank stability. Indeed that is the most pressing issue even if the inept leaders of various European nations don’t care to admit it.

With that said I will re-state my position: despite the reams of paper dedicated to bank reform here since the crisis began we have not taken strong or sufficient action to prevent a repeat. We are still susceptible to a banking crisis. Perhaps even more so given that the largest banks are all now much larger than they were when the original crisis erupted. The banks still are being heavily subsidized. There are insufficient incentives on the banks to limit their activities. And, they still exert undue influence on our political process. In short they remain anti-social and not focused on those aspects of their business that adds value to society at large.

There’s just no polite way to say this: the banks are nasty. They can do immense damage far, far, out of proportion to any value they represent. We need to do radical surgery not a facelift.

Since I have heard little substantive discussion of possible action to break up the banks into more manageable chunks – by which I mean pieces small enough to allow to fail – I have ignored banking regulatory discussions generally.

That changed last week.

Jon Huntsman, the most marginal of a host of marginal Republican candidates for President, has written an op-ed for the Wall Street Journal arguing that the banks are too big.

It makes sense that a right winger would take up the challenge, though Huntsman is hardly a extremist. Smaller banks would not live off the largesse of taxpayer subsidy the way are largest banks currently do. I would have thought that any right winger worth their salt would want to reduce subsidies. The implicit guarantees of “too big to fail” are a humdinger of a subsidy. So cutting the big banks down in size should be a top agenda item for any red blooded capitalist. Forgive me if I am wrong, but I imagine any Austrian or classical economist, Ayn Rand fan, or sundry libertarian would salivate at the prospect of cutting our big banks down, fostering true competition, and letting the devil take the hindmost. Even Gene Fama, whose laughable Efficient Markets Hypothesis I hold in utter contempt, is on board with our cutting the big banks down in size. It is a strange day indeed when I agree with a hard core University of Chicago person.

Huntsman is right when he argues the Dodd-Frank resolution authority method for eliminating “too big to fail” is a skimpy fig leaf at best. No right minded politician would allow one of our big banks to collapse, so the guarantee remains in force no matter what Dodd-Frank says. In the next crisis – which we will assuredly get one day – we will be treated to a repeat of the Lehmann/Bear Stearns mess where frightened politicians run around trying to shore up goliath organizations each of which is capable of destroying the economy. All the innocent sworn forbearance in the world will vaporize the instant one of the dinosaurs of Wall Street starts to implode. We simply cannot afford the disruption, uncertainty, and outright panic that would ensue. Smaller banks we close and lose every day. Big banks are too large to swallow so easily.

Surely we learned this.

Apparently not.

Our weak kneed politicians gave in to the assault of bank bought lobbyists and avoided the issue of size. Instead they produced the reams of Dodd-Frank. Full of nice details. Beautifully crafted. And demolished whenever a big bank crumbles.

In the annuls of our cautious response to the crisis the bank reform effort stands out as one of the least bold, ineffectual, and industry bought. And the competition for that title is stiff.

The greatest obstacle to progress, by which I mean getting smaller banks, has been the inordinate political clout they can muster to defend their privileges. So it is pleasant, to say the least, to see a Republican entering the fray. In the Wall Street Journal, no less.

Perhaps there’s hope.

Break up the banks!

  1. October 24, 2011 at 8:44 am

    It isn’t the size of the bank but who runs it and to what purpose that matters. J-C Spender and I in Confronting Managerialism say that managerialism is the problem. People don’t talk much about managerialism even in this blog. They simply seem to accept the fact that a management caste should be left to run our banks or our industries. They should not be surprised that they run them in their own interest, whether big ones or smaller ones. . Your reform must be more profound, Peter.

  2. Tim Knight
    October 24, 2011 at 2:58 pm

    I believe that the ‘too big to fail’ issue is irelevant for two reasons:

    Firstly, because we are talking about systemic failure here, and a domino effect. There is no significant difference between 10 monster banks ALL failing simultaneously (because of cross-dependencies), 100 big banks ALL failing simultaneously (because of cross-dependencies), 1,000 medium banks ALL failing simultaneously (because of cross-dependencies), or 10,000 small banks ALL failing simultaneously (because of cross-dependencies).

    Secondly, because it begs the question as to what you mean by ‘fail’. There would have been no problem if Obama, on gaining power, had announced and acted as follows:

    1. The central banking system will guarantee all deposits (see below).
    2. The central banking system will guarantee that all of the banks will survive as operational entities (we will nationalise them if necessary).
    3. The central banking system will guarantee that all of the clearing systems will survive (we will nationalise any and every failing bank if necessary, and will nationalise any and every clearing system if necessary).
    4. If the central banking system has to nationalise a given bank or clearing system:
    a. The equity shareholders may well get wiped out.
    b. Most senior bankers may well get wiped out (sacked without compensation or bonuses, and prosecuted for return of bank losses out of earlier pay and bonuses because of reckless mismanagement).

    If we return to the main issue – what to do about the baqnks, I believe we must first recognise that that the central banking system (including the global and state treasuries and regulators from the IMF downwards) already in effect act as implicit guarantors for every non-equity liability of every ‘approved’ financial institution, and that that role should be made explicit. The central banking system should act as borrower/lender of first or default recourse for banks. This would eliminate (the need for) inter-bank Owed-Wealth, and would eliminate bank liquidity as a macro-economic factor. In order to moderate the risk implicit in such a facility, the central banking system should itself commission all valuation and auditing standards and processes (including all lending to states and banks) conservatively on behalf of bank creditors (rather than allowing politicians and financial professionals free reign in their own self-serving interests), and should follow the precautionary principle in regulating financial innovation (i.e. financial innovation should be prohibited unless specifically approved, as opposed to permitted unless specifically prohibited). Indeed, the vast majority of financial innovation should be outlawed as spurious and reckless, in favour of simple inflation-linked current-accounting.

  3. Thomas Ponsard
    October 28, 2011 at 10:41 pm

    The “two big to fail” paradigm rests on the existence of a de facto state guarantee which encourages bank shareholders and management to seek out and undertake riskier operations and businesses (such as proprietary trading or principal finance in equities, junk bonds or derivatives characterised by a high volatility and, in good times, a higher return) in order to generate higher profits. This works to their advantage in good times (as the Bank is a widely diversified enterprise it usually grows at an equal pace to the broader economy, and in addition generates growth in market shares, penetration and national or international reach). Banks offer an excellent risk/return profile for investors in good times, and in bad times they carry limited liabilities for their shareholders. The shareholders benefit in good times from the de facto state guarantee (clients place their money in full confidence in the bank’s trust and allow the bank to grow) and in bad times their loss is limited (banks are limited liability companies and as such the shareholders can only lose as much as they have invested).

    I fully agree with the drive to make private banks smaller so that they are less of a threat to the broader economy: they are managed by humans, who by essence are fallible, and no man/woman should be allowed to carry the burden of a whole country/continent on his shoulders alone. Much less so a man/woman who has neither been democratically elected (he/she is rather co-opted by shareholders and in turn gains the right to annoint managers in a rather aristocratic way) nor governs in any sort of collegial manner (discipline and respect of hierarchy are notoriously strong in banks relatively to other industries, and unions far less prevalent than in most).

    For my part I believe however that simply shrinking or breaking up financial services into smaller mega-companies will not be sufficient to offer the transparency required for the fair treatment of all stakeholders. In my view we need to distinguish clearly the activities of clearing, ubiquity (the availability of finance in a homogeneous form and a convenient format in any part of the country/continent/world), savings and loans from other financial services. Indeed it is clear that a modern society requires a financial backbone to function, to organise payments and manage cash: everybody needs to be able to put their money in the bank, know it will be there when needed, and be able to withdraw it whenever convenient. In fact we tend to feel this is so necessary and obvious that we take it completely for granted on a daily basis. We are naturally reluctant to pay for these services. In essence, they are PUBLIC services, and as such should be extracted from the private sector (in Leonard Cohen’s words “who trick the mass for private gain”). I believe that Banks should be NOT FOR PROFIT organisations whose sole functions should be the above. As such they should benefit from an explicit guarantee from the state(s) in which they operate.

    Any other role should be specifically excluded from the banking sector, including (trading, brokerage, asset management, derivatives markets, equities, advisory, capital markets, private banking etc). These functions should be provided by other financial companies who specifically would have the obligation to disclose to their clients that they do not benefit from a state guarantee. The other, more risky businesses, are complex in nature. As such they require detailed understanding by savvy investors. They should come with a “health warning”, ie be obliged by regulation to communicate in detail and publicise to their stakeholders the known risks of any transaction which is performed by them. Investors would then be able to determine whether or not to pursue an investment in them. As such smaller specialised entities would be much more transparent than the current mish-mash of unintelligible businesses.

    The role of corporate auditors is to give a true and fair view of what is happening in banks. Unfortunately, for organisations of this size, the contract with the bank is usually the auditor’s only job of the year. As such there is a high risk of conflicts of interest. Adding to that the complexity of the task at hand, to synthesise and describe in detail a multitude of extremely varied businesses which all have different risks, bank reports are usually hard to decypher even for the most specialist analysts. For my part having worked in high profile investment banking roles for over 10 years I must confess I have never managed to understand them in any detail. Smaller specialist entities would give their stakeholders a much more transparent picture (enter at your own risk) and avoid the mystification which is prevalent (if you don’t understand what you are being sold, you will pay more than it is worth for it, and unintelligible banking jargon uttered by condescending salespeople facilitates that).

    I love your website by the way.

    I think there are 2 more underlying subjects: (i) the flawed assumption whereby investors are risk averse (eg: more individuals play the lottery than invest in government securities) and (ii) the lack of democracy in private companies, which I feel merit also touching upon but unfortunately am running out of steam for tonight…

  4. December 2, 2011 at 4:34 pm

    Modern Money – What You Don’t Know by BSN Writer (
    Euro Debt Crisis
    If anyone is wondering why the German government appears to be in no rush to save the crumbling euro, it should come as no surprise that this level of inaction was predicted well over a year ago – being the worlds second biggest exporter after China, Germany loves a weak euro, its a boon for German manufacturers with goods being sold in the euro zone and especially outside Europe. Germany will talk all night long about the need to bail out Greece, Italy et al but as Ellen Brown alludes to below, all it’s really doing is dishing out collective punishment while creating the conditions for huge changes to euro zone national policies and the structure of the European Union itself. Watch the Maastricht treaty come up for change in the new year – this won’t be a gradual, well intentioned and thoroughly researched amendment – this will be forced upon us, our legislators will barely have time to read it let alone understand the implications. The changes will consolidate the power of the international bond holders – making it illegal to propose even modest monetary reforms. Interest MUST be paid, at whatever cost to the fabric of society. Default will be illegal. QE will be punished unless the monies created goes directly to the banks.

    Changing national policies (to align with elite interests) is standard practice these days and it matters not whether the nation in question has a debt to pay or not. Of course it helps if the nation is already indebted as they’ll role over to the most insane demands so long as their supply of credit is maintained. The power wielded by global elites mean that they need barely disguise their intentions today – it’s as if they’re saying ‘if X-Factor and the shiny shiny celebrity freak show has not kept you in a waking miasma, if the threats to your financial security and the wellbeing of your family doesn’t have you worried enough, if you still have enough energy after working 70 hours per week or struggling to find work, and you can actually see through the bias of the mainstream media and our plans are revealed to you, then so what? What can you possibly do? Who will listen to you, who will believe you, help you, and object with you? You’re alone, a crazy maverick and we are the all powerful Wizards of Oz!’
    In the case of Greece and Italy, the bankers simply imposed their will by placing one of their own at the head of the government. The Goldman Sachs man responsible for hiding billions in Greek debt before they joined the euro is now the PM… you couldn’t make this up.
    ‘What we need are apolitical technocrats with knowledge of high finance, a career history in private banking, a willingness to climb the greasy pole and enough ruthlessness to ignore the desperate pleas of the people.” The mantras of these bankers in disguise is impose austerity, cut hard won public services and never, ever fail to pay the interest.
    For countries without a debt to the IMF, World Bank etc. like Libya, Syria, and Iran, the tried and tested method is employed – when corrupting the established power-base has failed and the jackals don’t succeed after years of assassination attempts, send in the intelligence agents to ferment internal discord and fund, arm and support an internal uprising, using if needs must, outside agitators and mercenaries. If this takes too long, or if there is a danger the sheeple may wake up and smell the coffee, send in the military, the cruise missiles, the fighter jets, bombers and drones. When there’s not much left, put boots on the ground so apache gun ship attacks can be called in to specific targets.

    As the late Harold Pinter described in his Nobel Prize acceptance speech, “When the populace has been subdued – or beaten to death – the same thing – and your own friends, the military and the great corporations, sit comfortably in power, you go before the camera and say that democracy has prevailed.”

    Then the assets can be stripped, the nation rebuilt (by western corporations), oil and other resource concessions can be given away, but most importantly, the nations finances can be brought under the umbrella of the hydra-headed monster of Basel, the Bank of International Settlements. From here on in, a once sovereign nation with a population of free people is enslaved, forced to pay the interest on wholly unnecessary, newly created national debt. Future generations will never know the freedoms their ancestors enjoyed, tax, interest, inflation – these terms will suddenly take on a crippling significance. The nation is now ‘owned’ – the bankers shall (and do) rule the world!!
    The European Central Bank Fiddles While Rome Burns
    by Ellen Brown
    “To some people, the European Central Bank seems like a fire department that is letting the house burn down to teach the children not to play with matches.”
    So wrote Jack Ewing in the New York Times last week. He went on:
    “The E.C.B. has a fire hose — its ability to print money. But the bank is refusing to train it on the euro zone’s debt crisis.
    “The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills . . . the highest interest rate Italy has had to pay to sell such debt since August 1997 . . . .
    “But there is no sign the E.C.B. plans a major response, like buying large quantities of the country’s bonds to bring down its borrowing costs.”
    Why not? According to the November 28th Wall Street Journal, “The ECB has long worried that buying government bonds in big enough amounts to bring down countries’ borrowing costs would make it easier for national politicians to delay the budget austerity and economic overhauls that are needed.”
    As with the manufactured debt ceiling crisis in the United States, the E.C.B. is withholding relief in order to extort austerity measures from member governments—and the threat seems to be working. The same authors write:
    “Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact . . . [that] would make budget discipline legally binding and enforceable by European authorities. . . . European officials hope a new agreement, which would aim to shrink the excessive public debt that helped spark the crisis, would persuade the European Central Bank to undertake more drastic action to reverse the recent selloff in euro-zone debt markets.”
    The Eurozone appears to be in the process of being “structurally readjusted” – the same process imposed earlier by the IMF on Third World countries. Structural demands routinely include harsh austerity measures, government cutbacks, privatization, and the disempowerment of national central banks, so that there is no national entity capable of creating and controlling the money supply on behalf of the people. The latter result has officially been achieved in the Eurozone, which is now dependent on the E.C.B. as the sole lender of last resort and printer of new euros.
    The E.C.B. Serves Banks, Not Governments
    The legal justification for the E.C.B.’s inaction in the sovereign debt crisis is Article 123 of the Lisbon Treaty, signed by EU members in 2007. As Jens Eidmann, President of the Bundesbank and a member of the E.C.B. Governing Council, stated in a November 14 interview:
    “The eurosystem is a lender of last resort for solvent but illiquid banks. It must not be a lender of last resort for sovereigns because this would violate Article 123 of the EU treaty.”
    Read more:
    Modern Money Mechanics

    The money problem, as far as I can tell, only has one viable solution, it happens to be fair, transparent and sustainable and I believe, with a concerted push, it will happen in our lifetimes. Anything else is all smoke and mirrors.

    There are some things about modern money that are still not known by most people or worse, not believed – just because they’re not reported by the mainstream media does not take away their validity. Just because the BBC’s clueless Robert Peston has only mentioned ‘fractional reserve banking’ half a dozen times in the last decade does not mean it is not the cause of our financial woes.

    Firstly we need to face the fact that our entire money supply is created as an interest bearing debt by private banks. Just re-read that sentence and think about it for a minute – the implications are staggering.

    The actual figure is 97% (so effectively all) of our money supply is created in this way with the other 3% being created by the government in the form of cash.

    The 97% is created as a debt and is owed back to banks, with interest. Consider then that the money supply is made up of loan principle (P) but the total debt to be repaid is principle plus interest (P + I).

    Now it doesn’t take a genius or even a junior banker to realise that P < P + I that is there is always more money owed than is currently in existence. So where does the money to pay the interest come from? It can only come from more debt. The method of supply money to the economy relies on every increasing levels of debt – it doesn't matter whether this is household personal debt, company debt or government debt – it’s all still debt and it’s all owed to private banks.

    Now there are some obvious political implications arising from this insanity. As proverbs tells us, the borrower is always servant to the lender – so who do you think really rules this land? Cameron? Think again.

    Since the government does not have its own effective money supply but instead borrows money from private banks, the nation cannot be considered sovereign. A sovereign cannot be in debt. As Damon Vrabel points out here, [] "A true sovereign is in debt to nobody and is not traded in the public markets. For example, how would George Soros attack, say, the British royal family? It’s not possible. They are sovereign. Their stock isn’t traded on the NYSE. He can’t orchestrate a naked short sell strategy to destroy their credit and force them to restructure their assets. But he can do that to most of the other 6.7 billion people of the world by designing attack strategies against the companies they work for and the governments they depend on.

    The fact is that most countries are not sovereign (the few that are being attacked by CIA/MI6/Mossad or the military). Instead they are administrative districts or customers of the global banking establishment whose power has grown steadily over time based on the math of the bond market, currently ruled by the US dollar, and the expansionary nature of fractional lending. Their cult of economists from places like Harvard, Chicago, and the London School have steadily eroded national sovereignty by forcing debt-based, floating currencies on countries. So let’s start being honest and stop describing their debt instruments as sovereign."

    So I think we can all agree that the current phrase, lazily repeated by economists, bankers and their lackeys in the mainstream media, 'sovereign debt crisis' is an oxymoron. It makes no sense to us although it does reinforce the false idea that nations rule themselves rather than the truth, nations are run by a cabal of private bankers and bondholders.

    Secondly, and possibly more profound, is the truth that banks create money! Contrary to popular belief, bank loans do not come out of existing deposits. When banks make loans, they create brand new money.

    Michael Rowbotham describes the origin of debt in his brilliant book ‘The Grip of Death’ written in 1997, “It is actually not in the least surprising that nations are chronically in debt, governments have inadequate resources, public services are under-funded and people are beset by mortgages and overdrafts. The reason for all this monetary scarcity and insolvency is that the financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt. The reason for the failure of economists to question patently invalid monetary data becomes clear – there is a total acceptance by them of the most extraordinary method for supplying money to the modern economy.

    The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people's money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created.

    It is important to illustrate what this debt-based financial system actually means in practical and numerical terms. The March 1997 statistical release from the Bank of England shows that the total money stock in the United Kingdom currently stands at approximately £680 billion. This is the total of all the money in existence in the economy; the coins, notes, bank and building society deposits of everyone – the rich, the poor, businesses, public and private corporations; the lot. The figure is the measurement of money known to economists and bankers as'M4'. To place this figure in context, M4 in 1963 stood at £14 billion, in 1975 it was £53 billion and by 1980 it had risen to £2O5 billion.

    If people are told that there is £680 billion of money in the economy, and are then asked if they can guess how much of this money has been created by the government, they are likely to be puzzled. Why, all of it, surely? Surely a government is responsible for the currency of the nation? When people are told that the same statistical release from the Bank of England shows that the total of money created by the Treasury on behalf of the UK Government is a mere £25 billion of notes and coins, they naturally ask where does the rest of the £680 billion come from? What is the origin of the £655 billion which has not been created by the government?
    If they are then informed that this other £655 billion – 97% of all money in the United Kingdom – has been created entirely by banks and building societies, and that they have created this staggering quantity of money out of nothing, most people are totally flummoxed. If you or I make money, this is called counter-feiting, and we are looking at the prospect of four walls, iron bars and a slim glimmer of daylight in twenty years time.

    If they then ask how private, commercial companies can create money, and are told that it is their mortgage, their personal loan and their overdraft which has led to the creation of this £655 billion; that governments rely upon the majority of people going into debt simply to create money to supply the economy; that virtually every pound in existence, whether circulating or deposited in bank accounts, is matched by an equivalent pound of debt – if they are told this, people generally stop asking questions. They get that uncomfortable look in their eye. 'This guy is definitely right out of his tree…'

    Through a barrier of doubt and suspicion, you might add that banks and building societies account 97% of the money in the economy as their own, temporarily 'on loan' to the economy; that the majority of mortgages are illegitimate and unnecessary and that each generation's debts exceed those of the previous generation; that bankruptcies and repossessions have to be seen in the light of an impossible scramble for inadequate money; that the creation of money as a debt is directly responsible for recurrent booms and slumps and generating the intense pressure for economic growth in the developed world, as well as causing the appalling debt of the Third World; and that these facts have been established by Royal Commissions and the system denounced repeatedly by leading economists, bankers and statesmen.

    Most people, when they are told this, dismiss the claims utterly and in their minds clearly regard you as a politically disturbed person; a sad case of mental fixation, perhaps unable to cope with the demands and opportunities of the modem world. This is really quite understandable. The natural assumption is that there must be more to this matter. If banks and building societies do indeed create money, there must be a rationale behind the decision to leave the creation and supply of money to them. It defies belief that such an extraordinary arrangement should exist without there being good reasons behind it. “

    Ellen Brown confirms the same: The international bankers have succeeded in doing more than just controlling the money supply. Today they actually create the money supply, while making it appear to be created by the government. This devious scheme was revealed by Sir Josiah Stamp, director of the Bank of England and the second richest man in Britain in the 1920s. Speaking at the University of Texas in 1927, he dropped this bombshell:

    The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.

    One final thing to understand before we move on to solutions is inflation. Inflation in the UK is officially reported at over 5% – that is the price of most of the things we buy doubles every 14 years – the actual inflation rate when we take into account mortgage debt repayments and fuel bills is actually much higher. The best description of inflation I’ve heard of is from Chris Martenson – he rightly concludes that we’ve been living through an era of massive inflation, it’s a monetary phenomena and it’s ubiquitous – and shockingly, it’s a matter of policy!

    Solution to the global financial crisis

    So how do we escape this debt serfdom? Well, not by following the advice of the terminally stupid: politicians, bankers, economists and mainstream media pundits must all be ignored – they do not serve the interest of the people. They advocate bank bailouts, more borrowing from private banks and there’s no end to their madness. BBC’s Robert Peston and Channel 4’s Faisal Islam are particularly dangerous – by reporting with an air of authority, they both lend credence to the idea of there being no alternative to austerity, to cuts in pension, to widespread unemployment, that governments and bankers are working for the interests of the people. These ‘journalists’ are paid to put a favourable sheen on everything their corporations produce, a gleaming patina is their stock in trade, damage limitation is the name of the game.

    We must remember that we cannot borrow ourselves out of debt any more than we can drink ourselves sober.

    There are solutions out there – well actually there is a solution out there – a return to debt-free money. Put simply, the government can create its own debt free money supply – much in the same way it creates the cash of the nation but instead creates digits on a computer screen. This newly created money is initially used to buy back all outstanding government bonds – that is pay off the national debt – completely. While this is happening, the banking regulators simultaneously raise the banks reserve requirements so that on the day the national debt is entirely repaid, the reserve requirement for fractional lending is 100% – in effect making it impossible for banks to create money.

    Immediately after this momentous event, income tax for the all but the richest 1% can be cancelled. There will be no need to collect tax as there will be no interest to pay on the national debt – it simply won’t exist. Education, healthcare, pension provision, public transport, infrastructure including roads, bridges etc can all be funded by the debt free money supply – so long as the money created is spent on ways which will lead to an increase in the flow of goods and services, inflation will fall and cease to be a problem. Money will retain its value!

    Going into the future, we can consider ‘citizens dividends’ – an idea first touted in the 1930’s. At current prices I would consider this to be worth about £12,000 per person. Every year, every adult in the country is given a non-means tested payment of £12,000 – this is essentially to raise the level of dignity of everyone in the country. Some may use the money for holidays, to pay of their debts, to give to charity, to start their own business. Some may use it to supplement their income, perhaps enabling them to work part time and spend more time with their family. This is funded, like everything else, by the government created debt free money supply.

    The citizens’ dividend is not a fixed amount – it varies according to tightly measured metrics – if private borrowing increases, implying there’s not enough money in the economy, the following years dividend is raised. If private borrowing falls, implying there’s too much money in the economy, the dividend is lowered for the following year.

    Its time we all realised that money is not a naturally occurring medium, it’s not backed by a scarce commodity like gold, its not to be controlled by the 1% – it should serve the people rather than the other way round. This notion of false scarcity is an invention of the 1%. We can live in abundance – we just need to realise money and finance is simple – it’s merely made to appear complex and boring. We have the power to make these changes and to make them in a very short time frame. This is the civil rights struggle of the 21st century.

    For more info, and educational materials, see

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