Archive

Author Archive

Bundesbank rejects 100%-money based on sophistry and false claims

May 16, 2017 5 comments

from Norbert Häring

In its April monthly report, Deutsche Bundesbank explains that banks create money ex-nihilo and rejects the proposal of 100%-money. The full English version is now online. The arguments employed to discredit 100%-money are a mix of sophistry and misleading or false statements.

With some delay, Bundesbank has joined the Bank of England in explicitly stating that the treatment of banks and money creation in most textbooks is wrong and that banks are not intermediaries, transferring money from savers to investors, but rather creators of money.

A key statement is this:

Sight deposits are created when a bank grants a credit or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry. This refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers.

All the explanations are impeccable, albeit framed in a way that is very friendly toward the interests of commercial banks. The Bundesbank is stressing the “services” that banks provide. It does not even mention the benefits, which banks derive from their extraordinary privilege of having their short-term debt instruments treated as money.

Still, overall the article is a welcome attempt to bring knowledge and sanity back into the treatment of money.

The Annex titled “Remarks on a 100% reserve requirement for sight deposits”, however, is quite disappointing.   Read more…

Bundesbank corrects textbook mistakes on money creation, rejects 100%-money

May 11, 2017 19 comments

from Norbert Häring

In the April-edition of their monthly report, the Bundesbank has belatedly joined the Bank of England in explicitly stating that the treatment of banks and money creation in most textbooks is wrong: banks are not intermediaries; they create money ex-nihilo. This helps the Bundesbank to reject criticism that central banks are currently “printing” too much money. At the same time, the Bundesbank rejects the proposal of 100%-money, i.e. bank deposits fully backed by central bank money.

So far, the Bundesbank has only published an English summary of the article “How money is created”, originally written in German (and a French summary). Once the article is available in full translation, I will write a bit more about the (mostly faulty) arguments of the Bundesbank against 100%-money.

The most important sentences regarding money creation are already there in the summary, though:

The majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank grants a credit or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry. This refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers.

IMF tells governments how to subvert public resistance against elimination of cash

April 7, 2017 2 comments

from Norbert Häring

The International Monetary Fund (IMF) in Washington has published a Working Paper on “de-cashing”. It gives advice to governments who want to abolish cash against the will of their citizenry. Move slowly, start with harmless seeming measures, is part of that advice.

In “The Macroeconomics of De-Cashing”, IMF-Analyst Alexei Kireyev recommends in his conclusions:

Although some countries most likely will de-cash in a few years, going completely cashless should be phased in steps. The de-cashing process could build on the initial and largely uncontested steps, such as the phasing out of large denomination bills, the placement of ceilings on cash transactions, and the reporting of cash moves across the borders. Further steps could include creating economic incentives to reduce the use of cash in transactions, simplifying the opening and use of transferrable deposits, and further computerizing the financial system. 

The private sector led de-cashing seems preferable to the public sector led decashing. The former seems almost entirely benign (e.g., more use of mobile phones to pay for coffee), but still needs policy adaptation. The latter seems more questionable, and people may have valid objections to it. De-cashing of either kind leaves both individuals and states more vulnerable to disruptions, ranging from power outages to hacks to cyberwarfare. In any case, the tempting attempts to impose de-cashing by a decree should be avoided, given the popular personal attachment to cash. A targeted outreach program is needed to alleviate suspicions related to de-cashing; in particular, that by de-cashing the authorities are trying to control all aspects of peoples’ lives, including their use of money, or push personal savings into banks. The de-cashing process would acquire more traction if it were based on individual consumer choice and cost-benefits considerations.

Note, that the author is not talking about unreasonable objections and imagined disadvantages: He does count it among the advantages of de-cashing in the very next paragraph that personal savings are pushed into banks and he also does count total control of all aspects of financial life under the pros, as in the last sentence of the last quote below.   Read more…

Indian ministers and CEOs flock to the US to report to the digital colonizers

March 6, 2017 Leave a comment

from Norbert Häring

To “prepare the next generation of world leaders”, the Massachusetts Institute of Technology (MIT) will hold its 2017 MIT India Conference, this time  on “Digital India”. Members of the Indian government and CEOs are travelling to Cambridge to report on the “success” of the US inspired crackdown on the use of cash. As usual, the plight of the cash-using poor and the data-security and privacy nightmare resulting from mandatory biometric identification are unlikely to be discussed.

Developing counties run by authoritarian governments under weak legal restraints are great places to try out disruptive technological plans for changing the social landscape. As Bill Gates said in 2015 at the “Financial Inclusion Forum” in Washington, countries like India can transit to full digitalization of the economy faster than the USA, inter alia, because there are much less restrictions from legal mandates to protect people’s privacy and data.

“Notebandi”, the sudden banning of banknotes representing over 80 percent of Indian cash in circulation, which happened in November 2016, was such a disruption on the way to full digitalization, which could not possibly have taken place in the US, but in India it could.   Read more…

The power of gold: Why Deutsche Bundesbank had to promise to leave 1200 tons in New York

February 27, 2017 8 comments

from Norbert Häring

With big fanfare, Deutsche Bundesbank announced on February 9 that ahead of plan they had repatriated 300 tons of gold from New York. This put a positive spin on a rather disturbing fact –1236 tons of gold that is supposed to be part of Germany’s currency reserve will continue to be kept outside of German control in New York – indefinitely.

The German gold in question is being kept in storage at the New York Fed, an institution that is owned and controlled by Wall-Street-banks, in a country, whose current president considers it an imposition that the law and so-called judges tell him what he is allowed to do and not allowed to do.

I am not criticizing the Bundesbank for storing 37 percent of Germany’s official gold in in a place there it has no control over it. It seems clear that they negotiated hard with the US and acted rather shrewdly. Their negotiation position was much enhanced in 2012 by the leakage of a report of the German Court of Auditors, which was very critical of the conditions under which German gold was being held in New York. This created public and political pressure on the Bundesbank to renegotiate and to get that gold out of New York. At the same time, the US-side could hardly afford to snub this demand, because there was lots of speculation, even in the US, that something was amiss with the gold reserves of the US and the rest of the world that were stored in the country. The way in which the official gold of the US, and the gold held in custody for other countries, is guarded against public scrutiny and shielded from its owners, gives fodder to any number of conspiracy theories. Had the New York Fed refused to let a foreign central bank, which was under such obvious pressure, retrieve some of their gold, these conspiracy theories around official gold might very well have become intense enough to damage trust in the dollar.

Read more…

How India became Bill Gates’ guinea pig: A conspiracy as recounted by the main actors

February 22, 2017 1 comment

from Norbert Häring

Microsoft’s Bill Gates is one of the richest and most influential people on earth. He announced in 2015 that his Bill & Melinda Gates Foundation was aiming at achieving full digitalization of the payment systems of India and other populous developing countries by 2018. This “financial inclusion” program for India dates back to well before Narendra Modi came to power. It was elevated to official US policy by Executive Order in 2012, because the President saw vital US security interests are at stake.

Speaking for the Bill & Melinda Gates Foundation at the “Financial Inclusion Forum” in Washington, organized by the Treasury Department and USAID on December 1, 2015, Bill Gates said (min 17):

“Full digitalization of the economy may happen in developing countries faster than anywhere else. It is certainly our goal to make it happen in the next three years in the large developing countries. We have very significant efforts in Nigeria, Pakistan and India, (and) a dozen other countries, where we work with the central banks to make sure that the right kind of transaction switch is available…(min 20)…We worked directly with the central bank there (India) over the last three years and they created a new type of authorization called the payments bank, and those customers will be able to use their mobile phones to perform basic financial transactions. And 11 entities applied, including all the mobile phone providers, and were granted that payment bank status.”

“Financial Inclusion” was defined by PayPal-CEO Dan Schulman in an interview during the forum as:

“Financial Inclusion is a buzz word for bringing people into the system.”

The cooperation of the Gates foundation and the Reserve Bank of India (RBI) is and has been a very tight one. Nachiket Mor, a “Yale World Fellow”, is head of the Gates Foundation India. He is also a board member of the RBI, with responsibility for financial supervision. He chaired the RBI Committee on the Licensing of Payment Banks and a financial inclusion committee that the RBI convened in 2013.

+++Note: Since this text puts forward a conspiracy theory, I want to let the actors and their documents speak  for themselves as much as possible. Where my own judgement and additional information figure in significantly, as in the following lines, it will be in italics and clearly marked. If you are skeptical, you may want to jump over those sections in italics in a first round, to not be unduly influenced in your interpretation of the quotes from the main actors and their documents.   Read more…

A $500 bn pot of gold: How Boston Consulting and Google pushed Modi to end the era of cash

January 27, 2017 5 comments

from Norbert Häring

Boston Consulting Group (BCG), the omnipresent US-consulting company, and Google, the global data miner, issued a joint report in July 2016 on the “$500 bn Pot of Gold”, which is the Indian digital payment market. Even though the authors deny it, the report gives much reason to suspect that the authors knew that something radical was imminent from the Indian government. The report is remarkably honest about the aims of the whole exercise.

There is no statement in the BCG-Google-report “Digital Payments 2020” to the effect that it is related to the joint initiative of USAID and the Indian ministry of finance, formally established in 2015, to push back the use of cash and promote digital payments. Rather it is presented as a freestanding initiative of BCG and Google. I reached out to one of the authors, BCG’s senior partner Alpesh Shah, to ask about this and he insisted:  “This was a joint BCG-Google report, with no connection / relation to USAID/Indian Ministry of Finance.” However, there is much to suggest that there was a connection. First of all, the subject so perfectly fits with the program of that partnership. The subtitle of the report is “The Making of a $500 bn ecosystem in India”. The steering committee for the report included a representative of Visa, member of the Better Than Cash Alliance together with USAID and affiliate of the partnership of USAID and Indian finance ministry to advance digital payments. It also included PayTM and Vodafone, which are also part of the CATALYST coalition, a project, which according to USAID, is a “next step” in said partnership of USAID and the Indian finance ministry.

The report is a call to arms for all payment service providers. They are alerted that things are going to be shaken up in India. On page three it says:  Read more…

The Group of Thirty might finally end its scandalous existence

January 23, 2017 1 comment

from Norbert Häring

The European Ombudswoman has announced that she will investigate the membership of the President of the European Central Bank (ECB), Mario Draghi, in the Group of Thirty. this is a shadowy forum of the most senior executives from large commercial banks and the most important central banks.The Group of Thirty meets behind closed doors without the press and without minutes taken. Some of the institutions are being supervised by the ECB. This group could come to an end, in its current form, if the EU-Ombudswoman finds fault with Draghi’s membership.

Some Background on the Group of Thirty: It was founded in 1978 upon an Initiative of the Rockefeller-Foundation. It has a little more than 30 (usually all-male) members, mostly active or former top manages of large international financial institutions and active or former central bankers. Often they are both at the same time. Almost a third of members are representing US-institutions. Its main purpose is the mingling of commercial bankers and central bankers. The central bankers have their groups in Basel, there they regularly meet. The big international banks have groups like the Institute of International Finance there they discuss current topics and issue reports. The Group of Thirty is the only mixed group and the central bankers that go there, do not apply any of the usual transparency and anti-corruption rules that otherwise govern their relationships with commercial bankers.   Read more…

Catalyst’s Malick, unhappy about my reporting on US influence, hits back with false claim

January 18, 2017 1 comment

from  Norbert Haering

In a news piece on rediff, one of India’s most popular news-sites, Badal Malick, CEO of the US-Indian organization Catalyst, explains via a friendly journalist, what Catalyst is doing and that my writing on Catalyst and on Washington’s meddling in the fight against cash in India was bogus. He did not convince me. Maybe he will convince you.

To very briefly summarize my piece “‘A Well-Kept Open Secret: Washington Is Behind India’s Brutal Demonetisation Project‘”( augmented here or both in a consolidated version on zero hedge), I had written that the longstanding US influence, notably the influence of the Better Than Cash Alliance, in the fight against cash in India has been conspicuously absent in the discussion about the sudden demonetization that Premier Modi decreed on 8 November 2016. I have then provided the evidence of this US involvement, including the launch of Catalyst less than four weeks before the demonetization. The rediff-article even mentions that Catalyst was launched at a conference in Delhi hosted by the … drumrolls …  Better Than Cash Alliance.

This is the part of the rediff-article that deals with my writing:  Read more…

A well-kept open secret: Washington is behind India’s brutal experiment of abolishing most cash

January 3, 2017 11 comments

from  Norbert Haering

In early November, without warning, the Indian government declared the two largest denomination bills invalid, abolishing over 80 percent of circulating cash by value. Amidst all the commotion and outrage this caused, nobody seems to have taken note of the decisive role that Washington played in this. That is surprising, as Washington’s role has been disguised only very superficially.

US-President Barack Obama has declared the strategic partnership with India a priority of his foreign policy. China needs to be reined in. In the context of this partnership, the US government’s development agency USAID has negotiated cooperation agreements with the Indian ministry of finance. One of these has the declared goal to push back the use of cash in favor of digital payments in India and globally.

On November 8, Indian prime minster Narendra Modi announced that the two largest denominations of banknotes could not be used for payments any more with almost immediate effect. Owners could only recoup their value by putting them into a bank account before the short grace period expired. The amount of cash that banks were allowed to pay out to individual customers was severely restricted. Almost half of Indians have no bank account and many do not even have a bank nearby. The economy is largely cash based. Thus, a severe shortage of cash ensued. Those who suffered the most were the poorest and most vulnerable. They had additional difficulty earning their meager living in the informal sector or paying for essential goods and services like food, medicine or hospitals. Chaos and fraud reigned well into December.  

Not even four weeks before this assault on Indians, USAID had announced the establishment of „Catalyst: Inclusive Cashless Payment Partnership“, with the goal of effecting a quantum leap in cashless payment in India. The press statement of October 14 says that Catalyst “marks the next phase of partnership between USAID and Ministry of Finance to facilitate universal financial inclusion”. The statement does not show up in the list of press statements on the website of USAID (anymore?). Not even filtering statements with the word “India” would bring it up. To find it, you seem to have to know it exists, or stumble upon it in a web search. Indeed, this and other statements, which seemed rather boring before, have become a lot more interesting and revealing after November 8.  

Read more…

The World Bank on the way back to the Washington Consensus – with Chicago Boy Paul Romer

July 20, 2016 2 comments

from Norbert Häring

On Monday the World Bank made it official that Paul Romer will be the new chief economist. This nomination can be seen as a big step back toward the infamous Washington Consensus, which World Bank and IMF seemed to have left behind. This is true, even though Paul Romer has learned quite well to hide the market fundamentalist and anti-democratic nature of his pet idea – charter cities – behind a veil of compassionate wording.

Romer won significant academic merits with his theory of endogenous growth. He modelled the production of new knowledge within his model rather than letting it drip from sky in convenient increments, as growth theory had done before. At first sight, this sounds like a good qualification for the task at hand. However, Romer has admitted in an interview that it is of rather little use for development economics, because it fails to discriminate between the production of new knowledge at the knowledge frontier, i.e. in highly developed industrial countries, and the adaption of knowledge, which is of particular importance for catch-up processes in poor countries. Still is honors him, that he knows and talks about the limits of his theory.   Read more…

Anti-cash warrior Summers finally discloses his enormous conflicts of interest

February 26, 2016 2 comments

from Norbert Häring

For years, former treasury secretary and Harvard-professor Larry Summers has been the most prominent voice in favor of getting rid of cash. For years, he has ignored all ethics rules of professional organizations, which demand of professional academics to disclose any information about potential conflicts of interest whenever they publish their findings or take a stand in public discussion. Now, finally he came clean.

When Larry Summers started the campaign for abolishing cash and moving to a cashless society, as in his speech in front of the IMF in 2013 the argument was, that cash was in the way of interest rates going as low as needed in a stubborn low-growth environment. In the current debate,  in which the German government and the ECB have chosen to use the argument of illicit financing of terrorism and tax evasion to justify a planned ban on larger cash transactions and the abolishment of the 500-Euro-note, Summers is opportunistically switching to the same argument in his quest for the cashless society. In a column that appeared on February 16  in the FT, the Washington Post and others, he argued for abolishing the $100-bill. He pointed to a “study” by a Harvard Professor Peter Sands, which purports to show, but simply claims with the most superficial evidence, that getting rid of large denomination banknotes would reduce crime significantly. Read more…

Plutonomy has made it onto Wikipedia

May 19, 2014 1 comment

from Norbert Haering

Those who have been following this blog for a while will be aware of the history of the infamous term “plutonomy”.

According to Wikipedia: Plutonomy (from Greekπλοῦτος, ploutos, meaning “wealth”, and νόμος, nomos, meaning “law”, a portmanteau of “plutocracy” and “economy“) is a term that analysts of Citigroup have used for economies “where economic growth is powered by and largely consumed by the wealthy few.” [1]

This is the link to the Wikipedia-entry, which is not yet listed on search engines: https://en.wikipedia.org/wiki/Plutonomy. For eight years, plutonomy was without mention on Wikipedia, despite huge public interest. According to Edward Fullbrook, entries on Plutonomy have consistently been the most read on this blog. In particular, the 2010 blog-entry Citigroup attempts to disappear its plutonomy report has been the most read in the history of this blog with over 37,000 views according to Edward. The suppression efforts of Citigroup seem to have been ongoing according to this blog entry at least until the end of 2011 and might be still ongoing. Read more…

George Soros‘ INET: An institute to improve the world or a Trojan horse of the financial oligarchy?

March 25, 2014 10 comments

from Norbert Haering

Let’s assume that there is a financial oligarchy which exerts strong political influence due to the vast amounts of money it controls. Let’s further assume that this financial oligarchy has succeeded in having financial markets deregulated and that this has enabled the financial industry to expand their business massively. Then, in some near or far future, their artfully constructed financial edifice breaks down, because it cannot be hidden any more that the accumulated claims cannot be serviced by the real economy That might be due, for example, to millions of people having bought overly expensive houses on credit without having the income necessary to service this debt. This is the kind of situation we are interested in.

If such a situation occurs, the leading figures of that financial oligarchy might recall that there has been a financial crisis in the 1930s of similar origin, and that during and after this crisis, laws were passed which broke the power of the financial oligarchy and taxed their profits steeply. They might remember that it took their forbearers decades to reestablish the favorable state of the late 1920s, with deregulated finance and very low taxes on incomes and estates, even huge ones.

The financial oligarchy might also recollect that economics is their most important ally in shaping public opinion and policies in their favor. To prevent a loss of power as it happened hence, they might want to make sure first that economics will not challenge the notion of leaving financial markets mostly to themselves and will continue to downplay the role of money and the power of the financial oligarchy, and of power in general.

Read more…

Don’t blame the victims, Mr.Weidmann!

March 25, 2014 Leave a comment

from Norbert Haering

A working paper published by the European Central Bank (ECB) shows that strong wage increases have not been the cause for the troubles of the euro zone’s crisis countries. Rather, capital flows have caused bloated house and asset prices and exaggerated construction activity and unsustainable economic activity in general, which in turn has pushed up wages. This diagnosis flies in the face of the of the story often retold by the ECB and other European policy makers that peripheral countries lost their competitiveness, because they did allow exaggerated wage increases for many years, and that declining wages are the appropriate cure for a crisis caused in this way.

Even countries not in crisis are expected to increase their competitiveness, according to the Euro Plus Pact, signed in March 2011 by 23 countries.

It is all the more embarrassing, that two members of the Competitiveness Research Network of the ECB and other central banks and international organizations have published a paper called “The Euro Plus Pact: Competitiveness and External Capital Flows in the EU Countries” in the ECB’s working paper series, which shows that the focus on labor cost is mistaken, because the diagnosis behind it has it the wrong way round. Hubert Gabrisch of the German research institute IWH and Karsten Staehr of Estonia’s central bank find in their empirical analysis for the years 1995 to 2012 that increases in the current account deficit exerted a clear positive influence on subsequent wage increases, but not the other way round.

Read more…

Despite some BIS-economists, deleveraging does matter

March 24, 2014 1 comment

from Norbert Haering

Outstanding credit to the private sector in the euro area has been shrinking for a while now. It is shrinking fast in several peripheral countries and the European Central Bank (ECB) seems unable or unwilling to do anything about it. Given that the economy of the euro area is barely crawling out of recession and that inflation is predicted to be significantly below the central banks’ target rate for the next two years at least, this seems troublesome. Two economists of the Bank for International Settlements (BIS) help out with a study called “Credit and Growth After Financial Crises”: The authors claim: „We find that declining bank credit to the private sector will not necessarily constrain the economic recovery after output has bottomed out following a financial crisis.”  So if there should be a problem, it is not because of a credit crunch or anything like that, we learn. To obtain their result, BIS-economists Előd Takáts and Christian Upper examine data from 39 financial crises, which were preceded by credit booms. “In these crises the change in bank credit, either in real terms or relative to GDP, consistently did not correlate with growth during the first two years of the recovery”, they write.

Thus, against the consensus, deleveraging need not hold back the upswing, is their contention. By extension, this means that even if all sectors of the economy are deleveraging, government may also reduce the deficit or pay down debt, without necessarily causing trouble.

The trouble is, the BIS-economists use an entirely inadequate method for coming to their conclusion, and they even seem to do so knowingly.   Read more…

The Rise of the Economics Underdogs

April 28, 2010 Leave a comment

Handelsblatt, the German equivalent of the Wall Street Journal and the Financial Times, today featured an article on the Revere Prize in Economics.  Here is an English translation.  Read more…