How to Fuel the Economy Without Increasing Debt, through Sovereign Money
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http://www.positivemoney.org/ Ben Dyson, Founder of Positive Money, speaking at the Positive Money 2014 conference. He recapped how the nature of money has changed since the Bank Charter Act of 1844, which outlawed bank creation of paper money. Most money today is electronic. There had yet to be a democratic debate on the consequences of this. Indeed, there had hardly been any democratic debate on the consequences of Quantitative Easing (QE). In terms of where this private bank money went -- 40 per cent went into the property market, 37 per cent to financial markets, 10 per cent to credit cards and personal loans and only 13 percent to productive business. In our system today, "more money means more debt". If we have a crisis and we want less debt then we have to accept that we will end up with less money circulating, because when the loans are repaid, the money disappears from the economy. Under the present system, there are two ways to get more money into the economy: The first way is to get the private banks creating new money by creating new debt. That is the situation where "more money equals more debt." So, interest rates were lowered to 0.5% in the expectation that "lower interest rates will get people to borrow more." There have also been various "funding for lending" schemes. The second way is to get the Bank of England to create money. It has initiated QE, whereby it creates money and buys bonds from pension funds and insurance companies. This money floods into the bond market and some floods into the stock market. It artificially increases bond prices, in the same way that the banks' privately-created money pushes up mortgage prices. The idea behind QE is that those who see the value of their bonds go up will then spend more on the High Street. But in reality, it means that the relatively small number of people who have the money in the first place, take their money and put even more of it into the bond market. In short, QE is a scheme which has made the very wealthy much better off, but has done very little to create jobs and get the real economy going. Incredibly, around £375 billion has been created but there has been very few questions asked in Parliament about the wisdom of this process, about how the money is created and where it is spent. This is remarkable considering the tortured debates in Parliament about the spending of sums which are a mere fraction of this figure! Ben explained that the alternative is Sovereign Money. The idea of Sovereign Money is that instead of the BoE creating money and putting it into the financial markets, it should be put into the real economy, through spending on infrastructure, through tax cuts, or through the simple expedient of giving it to people. This would allow us to escape from the debt trap where, if we need more money then we must have more debt. http://www.positivemoney.org/our-proposals/sovereign-money-creation/ He said that for every £10 billion which gets added to the government account and spent into the economy then we would get £6 billion coming back in taxes, and that for every £1 which goes in, we would get £2.80 of spending throughout the economy. He suggested that a Sovereign Money creation of £10 billion would lead to 28 billion spending, up to 284 000 jobs and 5.6 billion tax revenue, and lower personal debt. (These calculations come from CBI figures.) Furthermore, this is a policy which can be done now. Private banks will still lend, but Sovereign Money will, to an extent, offset the negative effects of debt. Once it can be shown that Sovereign Money works, then we can point to the full solution, outlined in Modernising Money which is stopping banks creating money in the first place. -------------------------- SUBSCRIBE to Positive Money UK's videos: http://www.youtube.com/subscription_center?add_user=PositiveMoneyUK Like us on Facebook http://www.facebook.com/PositiveMoney Follow us on Twitter http://www.twitter.com/PositiveMoneyUK Follow us on Google+ http://www.positivemoney.org.uk/googleplus Positive Money is a not-for-profit research and campaign group. They work to raise awareness of the connections between our current monetary and banking system and the serious social, economic and ecological problems that face the UK and the world today. In particular they focus on the role of banks in creating the nation's money supply through the accounting process they use when they make loans - an aspect of banking which is poorly understood. Positive Money believe these fundamental flaws are at the root of - or a major contributor to - problems of poverty, excessive debt, growing inequality and environmental degradation. For more information, please visit: http://www.positivemoney.org/
Comments
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The analysis of QE is reasonable enough. Congratulations on the clear thinking there.
In addition to what has been offered by the speaker there are very relevant facts that distinguishes the new QE money from that bank created money that was paid off when bank lending shrank as a result of loans being paid back by many borrowers who wanted to reduce their debt after the crisis.
That reality is the fact that by any proper accounting new QE money added to the national debt since new money cannot be created without debt being created at the same time. That is because we are in a fiat money system.
The sovereign money situation has a problem in itself although it would be better than the QE system since it would provide people with money instead of just some people.
The whole idea of positive money is not necessary at all since the argument it is based on the need for people to have more money (purchasing power) to spend on things they need.
The problem with government spending more money or the government issuing more money units (newly created additional money units) is that newly created money competes with existing money and puts upward pressure on prices due to the ever present price / demand / supply mechanism.
The whole issue can be resolved by simply decreasing taxes since this would be a net same effect allowing people to have more money to spend as they see according to their need. This would be a much more effective solution since people know their own various intimate needs much better than some government (politicians) assuming that they know and making administrative decisions .
The whole idea ignores the reality that the lack of money is not the issue but a lack of wealth is. Wealth consists of goods and services not increased number of currency units in an economy and measuring wealth involves measuring output in real terms, not in just money terms.
If increases in the quantity of money were a real indication of wealth increases then those countries that had inceased their money supply the most would be the wealthiest when the reality is they are amongst the poorest. -
QE enriched (on average) the top 5% by £128,000 each but failed at its 'stated purpose' of increasing bank lending???
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Your arguments make sense. This sounds like a very well thought-out plan. Let's not implement this.
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It's not bad. I only oppose the climate change bullshit. I hope you are not getting funded by these corporations.
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When you advocate "sovereign money" .. how exactly would the process be? Governments would borrow at all-time low rates? But that would keep increasing government debt, not reducing.
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thank you
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Hi Ben It's Dai from the money chronicle on scoop.it at 26:37 on the time line you make the claim that 10bn will create 28bn worth of spending but, you did not explain how this money is nearly tripled. You just stated it was so.
For your average person or house wife if they go out and spend £10 they can only buy £10 worth of goods not £28 worth. The claim that £10 worth of spending can create £28 may be correct through something like the volume and velocity of money but, to the average person who can't see past the end of there nose as far as money and how it works, this sort of stuff needs explaining and demonstrating how it's possible.
If we are to convert the the average person to our cause we need to justify our claims. They may make a lot of sense to us but, the average person they make no sense at all in fact it may sound like BS unless we explain or show how it is possible. I think another video is in order showing how it is possible to turn £10bn into £28bn of spending.
In another video you used the analogy of an island and creating money for the islanders to use so, how would these islanders turn £100 into £280 worth of spending? -
An excellent 32 mins of viewing, which cleared up a LOT of the financial 'goings-on' in my head! Thank-you, Ben Dyson.
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This is a nice general awereness video about the problems of the economic system. However, it seems rather short-sighted and conclusions are drawn too eagerly. First, as you tend to focus on this point throughout, housing prices are less affordable no matter what system you use, for the simple reason that population grows (I am not saying this is the only determinent of house prices). Now what you are suggesting is creating a Department of Spending within the UK government, fully funded, for free, by the Bank of England, not via the efficient, open and transparent money/bond market that we have today -- which is not the problem of our economic system -- , but with a loan with 0% interest. This is very dangerous, and many countries forbid such transactions for good reasons. The talk goes on and argues that government spending will create virtuous cycles, and that taxes on those spending will result in the government's reduced debt. I could buy this if we do not consider the loan from the BoE as a debt. But it is. Further, the story does not stop there. What is the effect of these expenses on the prices, and health, of competitive firms? If this spending gives 200k jobs, what will happen to these jobs when the BoE, which supposedly makes independent decision regarding money emissions, will decide to cut this spending? One more point; bank, it is true, can create money 'out of thin air', and charge interest on it. This is simply because they assume the role of intermediary, allowing the users of this money to make final payment when they trade. So the risk of no-repayment is not any more on one of the traders, but on the bank; this justifies charging interest rates, which, if competition works (and this being not always the case is another problem entirely), should be set in such a way that they exactly cover the risks taken. There is absolutely nothing wrong about that mechanism of trade, which can be seen as one of the greatest inventions of mankind (really; money is THAT powerful). The problem does not come from there. QE did not work as much as it was expected to for reasons unknown to most, yet alternatives are difficult. There are more direct ways of making money 'flow', but the easy method that are described in this talk are possibly not sustainable and most certainly harmful to the economy. The analysis is shaky at best; certainly because of the audience of the talk. There is no denying that the economic system needs a change; but for a proposal to really be taken seriously, more effort is to be put in the careful scientific study of the new system. This is a very tedious task indeed, one that I, and others, are undertaking as we speak. You've done a great job raising awereness of where money comes from; but you should be careful on some parts of your talk, where you make too-easy a claim to be true. This makes it deviate from what would otherwise be a good linen of argumentation to, to put it bluntly, simple populism. I fondly encourage new economic thinking and movements that sprouted after the crisis such as positive money; yet it seems too much effort has been put into media coverage and not enough into careful scientific analysis. I'd be more than willing to voice my concerns more clearly on this talk and positive money in general, and share some ideas on how some research could help improve your argument. In the meantime, I wish you and positive money all the best.
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Ben, this is one of the best, clean-cut, informative speeches on such a complex matter I've EVER seen. Congrats. Fantastic! Thanks for making me understand and see the cross-connections! Awesome!
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Missing the entire point, the private bank of england needs to go, so that we don't have to pay interest on money that is printed & tax payers aren't saddled with greater & greater debt.
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Ben et al, excellent proposal! Only a handful of politicians understand this and proposals I have seen e.g. Cobden Centre generally conflict with banks' interests and are thus going to struggle. MP Carswell's credit/checking is a start but private members' bills also rarely make it. If I understand correctly, this looks like QE but through productive economy not bonds? Hence implementation would be a decision of Osborne?
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Is not the Bank of England a privately owned institution and therefore if the BoE prints money it would be more debt money?
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doesn't your solution create excess demand in the economy hence creating inflation?
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The GovernMental approach is not what Independence / Freedom is about as we lose independence and become victums of Govermental Hitler war mongering greed so lets go kill something to feed us again !!!! One day people are going to want peace so bad the GovernMental is going to have to get out of the way !
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So the plan is to replace an anticompetive oligopoly of debt creation with an anticompetive government monopoly on fiat currency creation.... Surely a better solution would be to allow competeing currencies and through fitness functions, let market demand evolve a best solution.
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