28 Nov 2015

Adair Turner - "Between Debt and the Devil: Money, Credit and Fixing Global Finance"

I've been a bit quiet of late. But of course, there has been plenty going on in the world - not least the massacre of 130 innocent people by a bunch of totally deranged and brain-washed fanatics in Paris. I'm not really a very religious person. But there are times I wished I was. I would love to be able to believe that Allah, or whoever their God is, will make their souls suffer in Hell for eternity in punishment for what they did. Unfortunately, I suspect that the suicide bombers are no more, could never again feel any guilt for their actions. It is the families of the victims who will be suffering now, along with any right minded human on the planet.

But, I digress. Let me talk about something much more encouraging. It's the book by Lord Adair Turner, the ex-head of the UK's Financial Services Authority that came out last month - "Between Debt and the Devil: Money, Credit and Fixing Global Finance".

There are some recent reviews in papers such as the Guardian, the Independent, and the Financial Times, and has been well received by Positive Money (not surprisingly when you read what he says!).

For someone so very well placed, Adair Turner is amazingly lucid about the real causes of the recent financial crisis that hit the world. I lost count of the number of places where he made it abundantly clear where he thought  the blame should be laid. I quote:
"the most importatnt causes of the the 2007-2008 crisis and most-crisis recesssion [..] lay in the specific nature of debt contracts, and in the ability of banks and shadow banks to create credit and money"
"The dangers of excessive and harmfull debt creation are inherent to the nature of debt contracts. But they are hugely magnified by the existence of banks...."
"... banks do not intermediate existing money, but create credit, money and purchasing power which did not previously exist... [...] the vast majority of bank lending in advanced economies does not support new business investment but instead funds either increased consumption or the purchase of already existing assets, in particular real estate and the urban land on which it sits."
"...unless tightly constrained by public policy, banks make economies unstable".
"...banks left to themselves will produce too much of the wrong sort of debt."
 "Banks, unless constrained by policy, have an infinite capacity to create credit, money and purchasing power; so do shadow banking systems..."
"Banks and shadow banking systems left to themselves are bound to create too much of the wrong sort of debt and leave economies facing severe debt overhangs".
"The amount of credit created and its allocation is too important to be left to bankers: nor can it be left to free markets in securitized credit".
"Left to themselves, banks inevitably choose higher leverage than is good for society as a whole".
"... even banks that never fail and never need to be rescued with public money can cause economic harm if, along with the other banks in the system, they create excessive quantities of debt";
"Unless deliberately constrained, banks and shadow banking systems can create private credit, money, and purchasing power in limitless amounts".
".. we cannot leave either the quanity of credit created or its allocation among different uses entirely to free market forces".
"We cannot therefore avoid the need to intervene to offset the inefficiency and instability that free financial markets will invariably generate".
 "At the core of financial instability in modern economies [...] lies the interaction between the infinite capacity of banks to create new credit, money and purchasing power, and the scarce supply of irreproducible urban land. Self-reinforcing credit and asset price cycles of boom and bust are the inevitable result'.
 He is scathing in his opinions on effects of innovations in the financial sector.
"The summary scorecard on three decades of financial innovations is therefore simple: whatever their theoretical advantages, their actual impact was a disaster".
He is also scathing about the failures of modern economics, noting that "modern macroeconomics largely ignored the operation of the financial system and in particular the role of banks." As he points out, "You cannot see a crisis coming if you have theories and models that assume that the crisis is impossible".
"Modern macroeconomics focussed little attention on the role of banks. But when economists and financial theorists did describe banks, they usually made a dangerously simplistic assumption - that banks take depositis from households to lend money to businesses and entrepreneurs, allocating capital resources between alternative investment projects. In fact [..] most bank lending in modern economies [...] is unrelated to business invement but instead funds a competition among households for the ownership of already existing real estate".
Turner "rejects the pre-crisis othodoxy that gloabl financial integration is limitlessly beneficial and argues that some fragmentation of the international financial system is a good thing".

 He also makes it clear that there are solutions.
"We need to reject the idea that the quantity and allocation of private credit can be left to free market forces".
"Several economists who lived through the boom of 1920s America and the subsequent Great Depression, such as Irving Fisher and Henry Simons [..] believed that "fractional reserve banks," which [...] can create credit and money, were so inherently dangerous that they should be abolished. Milton Friedman made the same case in 1948".
"In 1948 Milton Friedman argued that such fiat money creation, financing small puhblic deficits with government created money, would be a better and more certain way to achieve stability and low inflation than relying on private bank credit and money creation".
"In the depth of the Great Derpession several eminent economists presented a truly radical plan - the Chicago Plan - to President Roosevelt". That plan said nothign about punishing bankers, limiting their bonuses, ensuring good risk control, or fixing misaligned incentives. Instead it proposed abolishing fractional reserve banking".
Turner repeatedly points out that even in times of weak growth:
"thre is always one more option left. That option is 'fiat" money creation, using central bank-printed either to finance increased public deficits or to write off existing public debt".
"Friedman was right: governments and central banks together can always overcome deficient nominal demand by printing and spending money. That is jsut as well, since without the option of money finance there may be no good way out of our debt overhang predicament".
"...once we admit that money finance is possible, there is no technical limit to how much fiat money can be created and how much nominal demand produced.."
"...there is not reason the use fo monetary finance cannot be appropriately constrained within precisely the same discipline of central bank independence. Central bank committees that today vote to approve interest rate movements or quantitative easing operations could also be given the power to apporve or disapprove either a Bernanke-style helicopter money drop ora one-off government debt write-off."
"Faced with ta debt overhang and a deficient nominal demand, we must be willing to use the money finance option".
"...central banks cannot focus solely on low and stable inflation nor financial regulation only on the solvency and liquidty of individual instantions. Public policy needs quite explicitly to manage the quantity and to influence the allocation of credit alllocation: it cannot rely on free markets in credit to produce optimal solcity results."
"...we must constrain the overall quantity of credit and lean against the free market's potentially harmful bias toward the "speculative" finance of existing assets". 
I also note that he thinks that "policies such as financial transaction taxes might make economies more efficient".

He also takes quite seriously the possibility of some form of QE for the people. For example,  he notes that:
"A government could, for instance, pay $1,000 to all citizens by electronic transfer to their commercial banks deposit accounts".
"Printing money in its modern electronic form is thus without doubt a technically possible alternative to either pure fiscal or pure monetary policy".
"..it works through putting new spending power directly into the hands of a broad swath of households and businesss, rather than workign throught the indirect transmission mechanism of higher asset pricesa dnd induced private credit expansion. It does not rely on regnerating potentially harmful private credit growth, nor does it commit us to maintaining ultralowinterest rates for a sustained period of time".
 In sum, a remarkable book, from someone very well placed within the world of international banking and finance. Well worth reading.

OK, he goes short of fully backing the 100% reserve banking model. But frankly his arguments are not convincing. I get the impression that he is just trying to walk a delicate tight-rope - if he went for an all-out "let's abolish banks" position, he might lose some of the key players that he is trying to convince.

Nor does he address the question of why we ended up with the current system, and largely ignores the fact that the system will be difficult to reform because of the enormous vested interests that will fight to keep the bankers' gravy train on the rails. But at least he has come very clean about the major problems inherent to the current unregulated financial system. And he makes a strong case for the idea that we should be taking very seriously the option of allowing central banks and governments to do some money creation of their own.

18 Oct 2015

Australian Financial Transactions - the true picture. And how to get rid of nearly all taxes with a simple Financial Transaction Tax

Last week I compiled figures from the Bank for International Settlements for Financial Transactions which supposedly provide a reasonably complete view of financial activity in 23 countries. According to BIS, the total for Australia was just over 69 trillion Australian Dollars (AUD).

Well, it turns out that the true number is virtually twice that. The Australian Financial Markets Report (AFMR) provides a much more detailed analysis than BIS, and you can find all the details on their site. You can download the info as a detailed 68 page report as a pdf file, or as an excel sheet.

Here are the main numbers.

For 2014-2015, the total was AUD 135.2 trillion - up 7.2% on the previous year, and 95% larger than the number provided by BIS.  But, looking at the two sets of data, I can see little sign of a real overlap. BIS provides numbers for credit transfers, direct debits, card payments and cheques that don't get mentioned in the AFMR. One number that BIS mentions that could overlap is the figure for RITS (the Reserve Bank Information and Transfer System), but there is no obvious corrsesponding figure. Likewise,  BIS gives a 10 trillion dollar figure for Austraclear, but again there is no easy correspondance.

As I consequence I propose to put everything in the same table, where you can see all the numbers.

So, while I may be double counting some numbers, I would like to suggest that maybe the total figure of over 204 trillion dollars may actually be quite realistic.

Can I also congraulate the Australians for producing such a comprehensive report.  In it, you can get a wealth of details about the breakdown of where financial trading occurs. And in the pdf file, they  also include reports about the role of particular players. For example, you can learn that one of my favourite companies - LCH.Clearnet Ltd - whose figures have been largely "nav" for years in the BIS data set is big in Australia. I quote:
"SwapClear continues to lead the cleared market in interest rate swaps (IRSs) denominated in Asia-Pacific currencies and clears over 80% of the cleared market in AUD IRSs. Of the entire AUD interest rate derivative (IRD) market (i.e. cleared and non-cleared),SwapClear clears 65% of this total".
I dream of a day when every country is obliged to be as thorough as the Australians in providing full details of what goes on. And of course, do I need to stress the fact that I pointed out last year, that Australian Financial Transactions dwarf total revenue from Taxation? Here are the official numbers from the Australian Bureau of Statistics :

Note that the figures are in millions of dollars, not billions as for the transaction data.  A simple calculation shows that the Australian government could replace their entire tax system with a universal transaction tax of 0.21%.  And the following table shows what would be needed to replace each of the main sources of tax revenue by a simple and painless automatic transaction tax on all transactions, assuming that my figure of over $204 trillion is realisitic.
Would Australian citizens vote for a government that promised to abolish all Income tax by replacing it with a 0.12% tax on transactions? Or replacing Taxes on provision of goods and services (sales taxes) by a 0.05% FTT? Or replacing property taxes with a 0.02% FTT? Or scrapping employer payroll taxes with a 0.01% FTT?

Unless they are insane, surely they would have to vote for this.

Go for it Australia! (and thanks to my friend Susy in Australia for her support over the years).

11 Oct 2015

Anniversary : 5 years of Simon Thorpe's ideas on the economy

My very first blog entry dates from 5 years ago when I created the "Simon Thorpe's Ideas on the Economy" website. It was Sunday the 10th of October 2010.

I've generated one hell of a lot of stuff in the intervening 5 years. To be exact, there are some 533 posts, which have had over 216,000 visits. You can download a reasonably complete pdf file with my contributions that runs to over 600 pages.

One nice point is that while my ideas have evolved enormously in the last five years, I get the impression that I really haven't said too much that I would reject today. This is actually particularly impressive given that when I first started getting interested (obsessed!) by the economy in the summer of 2010, I hadn't really got a clue. I have really had to learn just about everything myself by reading over one hundred books and countless articles and posts on the web.

I can remember believing that if we are in debt, it must be because someone - the Saudis? or the Chinese? must have lent us money. Little did I know that actually, all money is debt - created by commercial banks.

I'm particularly happy to see that my very first propostion - the proposal that essentially all the existing taxes could be replaced by a simple, universal tax on financial transactions - is still just as viable as ever. The original document dating from October 2010 can still be downloaded from the Hal Archive site here, and there is not much in it that I think was wrong.

Indeed, my current proposals essentially combine that very same mechanism of taxing the $11 quadrillion in financial transactions at some modest level (probably well below 0.1%), and simply reinjecting the same money back into the economy by direct, debt free basic income payments to citizens.  The amount needed to allow the economy to function well will depend on the country. In the Eurozone, a few hundred euros per person per month would already be very effective. But in third world countries like subsaharan Africa, you could probably get an equally robust effect for a fraction of the amount of money - maybe just a few dollars per person per month.

Adair Turner and Mario Draghi : Could it be time for Peoples' QE?

As you may be aware, I am convinced that Central Banks should stop creating money and injecting it into the financial markets. Instead, they should be injecting the money directly into the economy, preferably by putting the money directly into the pockets of citizens in the form of a debt free Unconditional Basic Income.

I think that it makes perfect sense. The European Central Bank is currently printing €60 billion a month, and intends to keep going for another year at least. But this money has been going to the financial markets in the hope that somehow the money will encourage the banks to start lending again. But even if they did start lending, this would only increase further the ludicrous amounts of debt that are currently clogging up the global economy - over $200 trillion, according to a recent report by the McKinsey group.

Imagine what could happen if, instead of giving the €60 billion to the financial markets and praying, the ECB simply gave the same amount of money to the Eurozone's 330 million citizens as direct, unconditional payments. Everyone could be given roughly 182 euros a month. That's 724 euros for a family of four - more than the minimum wage in 6 Eurozone countries, including Greece.

Apart from the obvious, and direct, boost to the Eurozone economy, it would also give Central Banks a far more efficient way to control the amount of money in circulation. I simply cannot understand how anyone like Mario Draghi (president of the ECB) or Mark Carney (governor of the Bank of England) can seriously argue that controlling the base interest rates at which commercial banks can borrow from the central bank is enough. We have had near zero interest rates for years, but the Eurozone is still in the doldrums. More is needed.

For a long time, I have assumed that the fact that both Draghi and Carney are ex-Goldman Sachs bankers ("the blood sucking vampire squid") meant that there was zero chance that they might call into question the commercial banks' monopoly on money creation.

But, to my joy, it turns out that serious people in banking are beginning to admit that we may really need something better.

Firstly, on the 7th of September, I attended a meeting called "Making Money Work: can innovations in monetary policy promote long-term prosperity?” that was organized by Positive Money in London in which Lord Adair Turner, the ex director of the now defunct Financial Services Authority was talking about the idea that governments, or rather central banks, should be allowed to create money themselves. He shared the platform with Steve Keen, one of my favourite economists (!) and a journalist from the Financial Times. At the end of the presentation, questions came from such notables as Richard Murphy, the founder of the excellent web site "Tax Research UK", and apparently quite close to the new Labour leader Jeremy Corbyn, and  Nathalie Bennet, leader of the UK Green Party (whose election manifesto included both the idea of introducing a Financial Transaction Tax and an Unconditional Income).

Adair Turner has a new book out called "Between Debt and the Devil - Money, Credit, and Fixing Global Finance" which I have just ordered. The Positive Money website has a discussion of what he says, and it is clear that while he is not yet convinced that we can abolish the ability of commercial banks to create money, he seems clear that direct money creation by central banks and governments is perfectly defendable. For example, he says:
“[C]ompared with a pure monetary stimulus [such as QE], [helicopter money] works through putting new spending power directly into the hands of a broad swath of households and businesses, rather than working through the indirect transmission mechanism of higher asset prices and induced private credit expansion. It does not rely on regenerating potentially harmful private credit growth nor does it commit us to maintaining ultralow interest rates for a sustained period of time.”
“Ideally, the major advanced economies should have implemented Bernanke-style helicopter money drops in the immediate aftermath of the 2007-2008 crisis. If we had done so, the recession would not have been so deep, and we would now be further advanced in escaping the debt overhang.”
Hear, hear!

But Adair Turner isn't the only important figure who has been talking seriously about allowing governments and central banks to create money. Even Mario Draghi has been talking about the possibility!

Again, I thank Positive Money for pointing this out.  In the European Parliament, Draghi was asked about Helicopter Money and QE for citizens, to which he replies:
“For hundreds of years central banks have injected money in the economy through either banks and/or markets. That is what we know, and so we will certainly consider these ideas that are being discussed; they are being discussed everywhere and the ECB is part of these discussions in academic fora and in other circumstances.
We should also not underestimate the legal aspects that would apply to the euro area and to the ECB, so one should ask the question whether this helicopter money is consistent with the Treaties and so on.
I saying this not as a way to prejudge decision-making one way or another, but the gravity of the challenges right now basically would demand that we use all available instruments within our common knowledge, and that is what we know now.”
Could it be that Draghi is reaching a point where he thinks that the main obstacles are legal? If so, can I respectfully remind him that while  Paragraph 1 of Article 123 of the Lisbon Treaty prohibits Central Banks lending directly to governments, Paragraph 2 of the same article says that this restriction does not apply to "publicly owned credit institutions"?

In other words, there is absolutely no legal reason why the following could not be done.
  1. Each Eurozone Government should set up a publicly owned credit institution. Let's call it the "National Citizens Bank"
  2. Each National Citizens Bank would open accounts for all the Citizens in each country, which could be linked to each citizen's normal bank - much as you can link a paypal account to a conventional bank account.
  3. The European Central Bank should divide the €60 billion a month that it currently injects into the financial markets, and instead provide the funds to each National Citizens Bank, with an amount that depends simply on the population of each Eurozone Country.
  4. The National Citizens Bank would then credit each account with roughly €182 every month which can then be spent directly into the economy, or used to pay off debt. 
As people pay of debt, this actually decreases the total amout of money in circulation, so in fact, it may well be that the net increase in money would be substantially less than the €60 billion provided by the ECB. If so, then the monthly payments could well be increased.

And, if ever there were signs of the economy overheating and inflation starting to kick in, I trust you all know that I have another solution for that. Simply get the ECB to impose a very modest tax on the €2 quadrillion or more in Euro-denominted transactions taking place within the Eurozone. That way, the amout of Citizens' QE could be increased well beyond €60 billion a month, with no risk.

Finally, with a little extra effort, it would be perfectly possible for Central Bankers to impose the tax on transactions within their own jurisdictions for the other currencies. Thus, Mark Carney could impose the ECB's FTT rate on the huge volume of euro-denominated transactions occuring in the UK (for example, the €238 trillion in euro-denominted trades performed by one company, LCH.Clearnet Ltd in 2014).

To summarize - if the only reason for not doing QE for People is legal, then sorry that excuse is now clearly no longer a problem. It's just political will that is lacking.

BIS Transaction Figures from 2006 to 2014 - Data for the US, the UK, China, Brazil, Mexico, Japan, Canada, Australia and Sweden

To complete my coverage  of financial transactions in the 23 countries covered by the Bank for International Settlement's annual Statistics on Payment, Clearing and Settlement Systems here are the numbers for some of the other key players.

First, I provide the numbers for the US, which total $3.27 quadrillion for 2014 - the highest value since 2008. But, of course, this number is way below the true value which would have to include such major players as the Options Clearing Corporation which processed over 4 billion transactions in 2014, and the Chicago Mecantile Exchange which handles a further "3 billion contracts, worth approximately $1 quadrillion annually (on average)". Since I have no way of knowing what is the value of the transactions handled by OCC, the true total for the US is frankly anyone's guess.

Next, let's look at the numbers for the UK.

I suppose that the good news is that for the first time, BIS has decided to add extra entries for some additional players, including the London Metal Exchange (LME) and CME (Chicago Mercantile Exchange) Clearing Europe Ltd.  They have even provided a number of LCH.Clearnet Ltd - £63 trillion. But this is presumably just the number for trading in sterling, because if you look at my own analysis of LCH.Clearnet Ltd in 2014, I got a total of $614 trillion. of which 17% (£66.5 trillion) was denominated in sterling. Why not include the other 83%? They also don't include anything about CLS which I believe is mainly based in the UK, and which BIS itself says was involved in over $1.28 quadrillion in foreign exchange.

For the first time, I thought it would be interesting to include the full BIS figures for some other countries. There are some that I haven't analysed in detail (Mexico, Korea, Russia, Hong Kong, South Africa,  Turkey, Saudi Arabia and Singapour), but you can get a rough overview (measured in US dollars) elsewhere and the details can be found in the original BIS data sheets.

For certain countries  I have therefore provided numbers since 2006 so that you can see how the figures are changing.

The increases are particularly striking in the case of China,  where transactions have increased from 734 trillion yuan in 2006 to a whopping 4.46 quadrillion in 2014.

Another country that has been expanding a lot is Brazil, where transactions have increased from 293 trillion real in 2006 to nearly 1.1 quadrillion last year. Such information is really significant because there are rumours that Brazil is thinking of reintroducing a tax on transactions. They had one from 1993 until 2007, but it was killed off after presssure from financial sector lobbies. Apparently they  considered that the tax was too difficult to avoid (!). In any case, it is very encouraging that the Brazilian authorities were able to provide the BIS with some of the most detailed figures, with 24 different platforms listed in full.

Interestingly, Mexico turns about to be another increasingly big player with transactions increassing from under 1.2 quadrillion Pesos in 2006 to over 1.8 quadrillion in 2014.
 Other countries are more stable, but have also shown steady increases in transactions. For example, Japan has increased its financial transactions from 60 quadrillion yen in 2006 to nearly 71 quadrillion in 2014

Canada has gone up from under $133 trillion in 2006 to nearly $208 trillion in 2014.

Australia has increased from under $51 trillion in 2006 to over $69 trillion in 2014. But I can't help noting that the Australia authorities have been particularly slow in providing numbers for the Australian Stock Exchange. Apparently the numbers have been "nav" since 2006. One wonders why the BIS even bother including entries for such "selected" exchanges.
 Sometimes though, transactions can actually go down. Thus the same period actually saw transactions in Sweden drop a bit from nearly 307 trillion SEK in 2006 to around 244 trillion last year.

But, in general, financial transactions across the 23 countries for which the BIS has been compiling data have been increasing steadily, as you can see from the table I posted last week.

It is now over five years that I have been campaigning in favour of the idea that it would be a very smart move to impose a simple automatic transaction tax on all electronic financial transactions. For me, these figures, boring though they are, demonstrate that such a scheme is perfectly doable. All that is lacking is political will.

BIS Transactions in 2014 - Data for 5 Eurozone Countries

The Bank for International Settlement's annual Statistics on Payment, Clearing and Settlement Systems provides detailed information for only 5 of the Eurozone countries. Here are the detailed figures. Figures in red are copied from the year before because currently unavailable.
The total value of transactions for France, Germany, Belgium, Italy and the Netherlands comes to €1.66 quadrillion - down nearly €400 trillion since a peak of well over €2 quadrillion in 2013. What happened? Should we conclude that financial transactions in the Eurozone are really down by 20%?

Well, no. If you look at the details, you will see that virtually all the change can be explained by a single change. The entry for "total value of executed securities trades" for Eurex in Germany (which you can find on page 137 of the 593 page pdf file) shows a drop from €535,148.33 billion in 2013 to €92,528.16 in 2014. I honestly have great difficulty in believing that this trading has just evaporated. I think it is far more likely that the transactions have moved to some other trading platform that is not included  in the 23 countries detailed in the BIS report. For example, it would be enough for the trading to be registered in Luxembourg (a country not included in the BIS report) for the transactions to become invisible.

I will stick with my conservative estimate that financial transactions in the Eurozone are well over €2 quadrillion a year.

As I have been saying for years, it is clear that we need full transparency on financial transactions. All movements of money should be clearly visible. And if the BIS is to be a serious organisation, it should not be allowed to only report transactions on "selected" platforms.

5 Oct 2015

BIS Transactions in 2014 - Country by country breakdown

In my last post, I listed the 50 biggest players in the $11 quadrillion of financial transactions listed in the latest version of the Bank for International Settlement's annual Statistics on Payment, Clearing and Settlement Systems.

In this post, I have broken down the figures according to country, and I have provided the figures for all years since 2006.

As you can see, the number one country is the US, with nearly $3.2 quadrillion in transactions - the highest total ever, with the exception of the bumper year of 2007 when US transactions exceeded $3.4 quadrillion.

Next comes CLS - which isn't even a country -  with nearly $1.3 quadrillion.

Germany is next on the list. But for some reason, it's transactions dropped a lot from a very impressive $1.46 quadrillion in 2013 to less than $900 trillion in 2014 (hence the blue colour). I'll try and analyse what happened in a later post.

The UK comes in at number 5, but here again, the figures simply cannot be serious.  When you can see that transactions in the UK exceeded $2 quadrillion in 2008, the current total of just under $800 trillion is obviously wrong and easily explained in part by the fact that LCH.Clearnet Ltd, which did $641 trillion in 2014, is mysteriously invisible to people at BIS. They similarly seem unable to find anything about transactions on the London Stock Exchange - also "nav" for several years, despite publishing data on the web. Oh well.....

Then we have the EU, whose large scale transfer system such as TARGET2 handle very large number - in the case the BIS figures didn't have the numbers for 2014, which is why I used the figures for 2013.

The new kid on the block at number 6 is China. Their transactions have quadrupled from a mere $134 trillion in 2006 to $727 trillion in 2014.

Other impressive numbers are provided for Belgium which, despite it's relatively small size, managed to handle $565 trillion last year. It's a shame that BIS don't report figures for Belgium's neighbour Luxembourg. I bet that with outfits like Clearstream operating from Luxembourg, the numbers are probably mouth-watering - at least for anyone interested in introducing a Financial Transaction Tax. According to Clearstream's website, "For 2014, Clearstream processed 43.65 million international transactions, an increase of 6% compared to 2013." Unfortunately, I haven't been able to find the value of those transactions. If anyone knows, do send me a message.

It's interesting to note that two of the countries that you might have thought would be very active in financial markets, namely Switzerland and Singapore, are actually quite modest, clocking up a mere $45.9 trillion and $15.5 trillion respectively. I suppose that could be because the BIS's policy of only reporting "selected" players may mask much of the activity in such countries.

I suspect that there is probably only one way to find out. Politicians should decide that ALL financial transactions should be reported - wherever they occur. Is it really too much to ask? 

2 Oct 2015

BIS Financial Transactions for 2014 - over $11 quadrillion

Note added Saturday 3rd October: Revised and corrected version.

On the 30th of September, the Bank for International Settlements published their preliminary figures concerning the Statistics on payment, clearing and settlement systems for 23 countries. You can download the data as a 593 page pdf file or alternatively, as two separate excel files.  One of the excel files gives comparative tables for the 23 countries in US dollars, which makes it easier to add the numbers together. The other one provides the detailed information country by country, but using the local currency of each country in turn.

Using the comparative tables, I have extracted all the data concerning financial transactions to produce an enormous excel sheet containing all the different numbers. This involves extracting the numbers from Table 8 (Payment transactions by non-banks), Table TRS3 (Trades executed on selected exchanges and trading systems: value of transactions), Table PS3 (Payments processed by selected interbank funds transfer systems : value of transactions), Table CCP3 (Transactions cleared by selected central counterparties and clearing houses, and Table CSD3 (Transactions processed by selected central securities depositories). All the figures are given in billions of US dollars.

The complete table includes over 230 different entries, and is frankly rather boring to read. But in the following table, I have presented just the 50 biggest entries for 2014, together with the corresponding data since 2006 when available.  There are a few numbers in red. This refers to data that is not yet available ('nav') and in that case, I used the number for the previous year. The Total values at the end include all the numbers I could find.

The value for total transactions in 2014 comes to over $11 quadrillion.

The number is down by about $300 trillion on 2013, but $11 quadrillion is still a very large number. And, with a minute transaction tax of (say) 0.1% would raise trillions in tax revenue that could be injected into peoples pockets in the form of a debt-free Basic Income (for example). But I digress.

For me, the really interesting thing is to see who the biggest players are.

I'm delighted to see that BIS is now providing information about the transactions handled by the multinational entity CLS - the world leader in Foreign Exchange. It is worth extracting the relevant numbers directly from the BIS document. Here they are:

In 2014, CLS handled over 204 million transactions, with an average value of over $6.2 million. That means  a total of $1.278 quadillion (yes, the numbers are in US billions, except for CLS, where they decided to use trillions of US dollars as the measure.

Number 2 on the list is the GSD - Government Securities Division  of the DTCC (Depository Trust and Clearing Corporation) based in the US which also handled over $1 quadrillion in 2014.
It is followed closely by another US based system - Fedwire, which handled $884 trillion.

Number 4 on the list is the European Union's TARGET system. The BIS didn't have the numbers in their report despite the fact that the numbers are provided month by month on the European Central Bank's website. It seems reasonable to suppose that the number will be close to the value in 2013.

And so it goes on.

But, while the $11 quadrillion figure is impressive, it is seriously underestimated. For example, my favourite London based outfit, LCH Clearnet Ltd, which I reported had handled over $641 trillion in 2014, doesn't even get a look in. It has been "nav" since 2009. And what about the Options Clearing Corporation, which handled over 4 billion transactions last year, generating $1300 billion in premiums. They might easily be handling several quadrillion every year in transactions. But it too is  nowhere to be seen in the BIS report.

I suppose that BIS do say that they are only reporting "selected" exchanges and trading systems, "selected" interbank funds transfer systems, "selected" central counterparties and clearing houses, and "selected" central securities depositories. Isn't it about time that someone, somewhere started compiling ALL the data on financial transactions?

If the full details were known, it would be even clearer that taxing those transactions would be a very intelligent alternative to the counterproductive and inefficient taxes that we currently use.

6 Sep 2015

The 50 biggests banks in 2014 : $65 trillion in assets - $758 billion in Capital

I really like the list of the worlds 50 biggest banks provided by the www.accuity.com website. Now that their table is based on the bank balance sheets for the end of 2014, it is possible to get a clearer idea of what is going on by copying all the numbers into an Excel sheet. And here are the results.

As you can see, the total assets held by those 50 banks total very nearly $65 trillion.  That's a very substantial proportion of the roughly $80 trillion value that you get by adding up all the figures for Money Supply of all the economies in the world.

But the amount of capital they have is only about $758 billion. And that means that the banks have 86 times more assets than they have capital. So much for the myth that banks always keep about 10% in reserve...

Those ratios vary enormously from bank to bank. For example, the Norinchukin Bank in Japan only has 24 times more assets than capital. But the winner is the Wells Fargo Bank, which has assets that are a staggering 2953 times larger than their assets. I have no idea how they are allowed to get away with it.

It's very interesting to compare the current table with the numbers the first time I blogged about this in 2013. At that time, based on bank balance sheets that mainly dated from the end of 2011, total assets were very close to the current values - $64.2 trillion, as was the figure for total capital, namely $785 billion.

But behind those headline figures the whole picture has changed. Back in 2013, the biggest bank in the world was DeutschBank with $2.8 trillion in assets. But since then, they have got rid of over $737 billion worth of assets and have dropped down to number 8. Barclays, which was number 4, has offloaded over $304 billions worth and dropped to the number 6 slot. Likewise, Credit Agricole SA which was number  6 has reduced its assets by over $311 billion and dropped down to number 10.

At the same time, you can see that Chinese banks have been buying up assets like crazy, so that now 4 of the 5 largest banks in the world are now Chinese, with the Industral & Commercial Bank of China Ltd now being  the biggest bank there is. It is the happy owner of well over 3.3 trillion dollars worth of assets. Aren't they lucky.

Now, frankly, I haven't really got a clue (as I am sure some kind reader will point out). But I just wonder why the destablising of the entire global economy that we have witnessed over the past couple of years might not be explained by the fact that Chinese banks have somehow been convinced to buy up trillions worth of assets from the Western Banking sector. 

Of course, I would never wish to suggest that the Bankers in charge of the worlds 50 biggest banks could possibly not be working for the general good of the world's citizens.

14 Aug 2015

Paul Mason : Postcapitalism - A Guide to Our Future

I've just finished reading a remarkable book by Paul Mason that came out on the 30th of July. It's called "Postcapitalism - A Guide to Our Future" and I believe that it could be a very significant contribution indeed.

Paul Mason is currently Economics Editor at Channel Four News in the UK, a post that he previously held on the BBC's Newsnight program. Given that his origins include being a member of the Trotskyist Workers' Power group, it is actually quite surprising to find him in such a high profile media position. It actually goes against my assumption that the media are controlled by financial interests. I will have to start watching Channel Four News!

The book gives a very radical and innovative view of history, and offers a vision of a postcapitalist society that really does seem to be within reach.

He argues that Neoliberalism is broken, and that
 "This is the real austerity project : to drive down wages and living standards in the West for decades, until they meet those of the middle class in China and India on the way up". 
He argues that :
"Postcapitalism is possible because of three impacts of the new technology in the past twenty-five years.
First, information technology and reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages.
Second, information goods are corroding the market's ability to form prices correctly. This is because markets are based on scarcity while information is abundant. The system's defence mechanism is to form monopolies on a scale not seen in the past 200 years - yet this cannot last.
Third we are seeing the spontaneous rise of collaborative production: goods, services and organizations are appearing that no longer respond to the dicates of the market and the managerial hierachy. The biggest information product in the world - Wikipedia - is made by 27,000  volunteers, for free, abolishing the encyclopaedia business and depriving the advertising industry of an estimated $3 billion a year in revenue."
"By creating millions of networked people, financially exploited bu with the whole of human intelligence one thumb-swipe away, info-capitalism has created a new agent of change in history: the educated and connected human being".
"The main contradiction today is between the possibility of free, abundant goods and information and a system of monopolies, banks and governments trying to keep things private, scarce and commercial".
Mason's analysis includes a historical approach that includes a lot of discussion of the significance of thinkers such as Karl Marx. Much of this was very new for me, but I was literally gob-smacked to discover that Marx had foreseen the situation where the costs of production could drop to almost nothing - the "economics of free stuff".

Marx had written a whole collection of his personal notes known collectively as the Grundrisse that were not read in Western Europe until the 1960s, and not translated into English until 1973. In one part, written in Feburary 1858, which has become known as the Fragment on Machines, Marx had "imagined an economy in which the main role of machines was to produce, and the main role of people was to supervise them".  As Mason puts it:
"Marx drops a bombshell. In an economy where machines do most of the work, where human labour is really about supervising, mending and designing the machince, the nature of the knowledge locked inside the machine must, he writes, be "social".
 "In this model, scribbled on paper in 1858, but unknown to the left for more than 100 years, capitalism collapses because it cannot exist alongside shared knowledge".

Marx "imagined socially produced information becoming embodied in machined. He imagined this producing a new dynamic, which destroys the old mechanisms for creating prices and profits.... And he imaged information coming to be stored and shared in something called a 'general intellect' - which was the mind of everybody on earth connected by social knowledge, in which every upgrade benefits everyone. In short, he had imagined something close to the info-capitalism in which we live."
"Furthermore, he had imagined what the main objective of the working class would be if this world ever existed: freedom from work".
Later on in his book, Mason proposes a number of ways that we could, as a society, move towards this ultimate utopian goal. Amongst the proposals, one that he describes as "the biggest structural change required to make postcapitalism happen: a universal basic income guaranteed by the state". 

Mason notes that
"The basic income, as a policy, is not that radical. Various pilot projects and designs have been touted, often by the right, sometimes by the centre-left, as a replacement for the dole with cheaper administration costs. But in the postcapitalist project, the purpose of the baisc income is radical: it is (a) to formalize the separation of work and wages and (b) to subsidize the transition to a shorter working week, or day, or life."
"A basic income paid for out of taxes on the market economy  gives people the chance to build positions in the non-market economy. It allows them to volunteer, set up co-ops, edit Wikipedia, learn how to use 3D design software, or just exist. It allows them to space out periods of work; make a late entry or early exit from working life; switch more easily into and out of high-intensity, stressful jobs."
"Under this system, there would be no stigma attached to not working. the labour market would be stacked in favour of the high-paying job and the high-paying employer.
The universal income, then, is an antidote to what the anthropoligist David Graeber calls "bullshit jobs": the low-paid service jobs capitalism has managed to create over the past twenty-five years that pay little, demean the worker and probably don't need to exist."
It all makes perfect sense to me. And it's good to see that Mason is obviously also a clear supporter of putting money creation in the hands of the state:
"the state (via the central bank) would have to take on the task of creating money and providing credit, as advocated by supporters of so-called "positive money"
He has a whole pile of detailed arguments to back his vision, quite a few of which involve numbers that I too think are absolutely fundamental.

For example, when talking about the amount of money "printed" by Central Banks in an attempt to keep the current system from falling to pieces, he says that he calculated that "the combined amount of money printed globally, including that pledged by the ECB, at around $12 trillion - one sixth of global GDP"

And there is a graph that I would have liked to generate myself - a graph of how world money supply (measured by M0, M1, M2 and M3)  has swollen since Nixon took the dollar off the gold standard in 1971.

The good news is that this graph confirms my own number for the current size of the world money supply in 2014 - namely around $80 trillion.

He also uses one of my favourite facts - namely the fact that "the global debt of banks, households, companies and states has risen by $57 trillion since the crisis" (he quotes the figures from the Kinsey report that put global debt at nearly $200 trillion at the end of 2014.

There's also a beautiful graph showing how income for the vast majority of us has stagnated over this period since the early 1970s, while the revenue of the 1% has gone through the roof.

As Mason says, this cannot be sustainable.

I've only just skimmed the long list of subjects that Paul Mason discusses in his book. I learnt a huge amount. And I must say that I find his whole vision of a new utopia very attractive. Indeed, I think that many of my own proposals for IOU based cooperation with Owe'm or the introduction of parallel state-run currencies like the N-Euro fit beautifully with this. I wonder if he would be interested in presenting something on Channel Four News about them!

8 Aug 2015

N-Euros with IOUs! The next stage....

During my discussions with Steve Clarke and Ciaran Mundy at the Bristol Pound, I talked about the two different Cyclos-based systems that I have set up  - the OWEM IOU based system that I set up last year and my more recent N-Euro system.

One comment that they made concerned one problem they saw with my OWEM system. Suppose I send you an IOU for £20 because you mowed my lawn, but after one year, the debt is still outstanding. What could you do to recover the debt? My standard response would be to say that you would be well advised to never mow my lawn again, because I can't be trusted! You will have done some work for me, for which you have got nothing in return - either from me, or from someone else for whom I may have done something.

This is not a total catastrophe when the sum involved is just £20, but with larger sums it could become a real problem and discourage people from joining in.

So, my second reaction was to say that it might be possible to include a mechanism that forced the IOU to be paid off with "real" money, once some predefined period has elapsed,  if and only if the IOU has not be cancelled out in the meantime.

Obviously, before you could implement such a system, you would want to have both the IOUs and the "real" money in the same system. And that got me thinking.

Maybe I should combine the IOU features of OWEM with the more classic money transfer mechanisms that I have already put into the N-Euro system?

So that is what I have done! With a bit of fiddling around in the configuration of the N-Euro system, I have now arranged things so that anyone signing up to the N-Euro system is systematically provided with two separate accounts - a standard N-Euro account, and an N-Euro IOU account. 

Here's a screen shot of my N-Euro account where you can see the status of my two accounts.

As you can see, my basic NEuro account has a balance of N€ 120.00, and my NEuro IOU account is currently at N€-85.00. You can also see that the total IOU value that I could use is N€ 9,915.00 simply because the administrator of the N-Euro system (i.e. Me!) has arbitrarilly decided to set the upper limit for emitting IOUs at N€ 10,000. I am a very generous person.

The next screen shot shows why I am currently at N€-85.00. It's because I have sent IOUs to various Citizens and Businesses that I created within the system and the overall balance is now N€-85.00.
Obviously, all these numbers have just been made up for illustration. But hopefully you can see the point. By having two different accounts - one containing "real" NEuros, and the other keeping a tally of the IOUs, it is easy for people to know where they are. For example, I'm currently at 120-85 = N€ 35.00.

A next stage could be to set a limit to the duration of any particular IOU such that, at the end of the period, the N-Euro system would make an automatic transfer between the two "real" N-Euro accounts and cancel out the IOU.

This sort of mechanism would probably not be too difficult to implement within the Cyclos system.

Think a bit about how this could work. You could start by giving every citizen a basic allowance of real NEuros of say N€ 100.00. Most of the time, you wouldn't need to use your actual N-Euros at all - they would be just there to implement a mechanism that would be used only if all else fails.

Those who have heard about the OWEM system will know that one of the really neat aspects of such a system is that in many cases IOUs will simply cancel out on their own.

Let's go back to that £20 IOU that I sent you for mowing my lawn. The simplest ways to cancel the IOU would be for me to either provide services or goods to you worth £20 - for example, I could lend you my car for a couple of hours, or give you 10 kg of cherries from a tree in my garden. At that point, you send me an IOU for £20 that cancels the debt.

But the IOU can also be cancelled out via other people. Thus, suppose I send you an IOU for £20 because you mowed my lawn. But I give 10 kg of cherries to my neighbour (worth £20) and my neighbour lends you his car for a couple of hours. We are all quits, and no actual money has been transfered anywhere. It was all done with IOUs. The trick is to find loops in the IOU network. But the whole thing becomes even more interesting when there are loops involving tens or even hundreds of people, possibly including plenty of people who have never met, and probably never will. The N-Euro software will be able to do all that IOU cancellation automatically.

And, if in the end, as a last resort, it is necessary to make an actual money transfer, then the N-Euro software could look after that too.

I suspect that with just a very modest amount of base money injected into the system, the amount of economic activity that could be built upon that could be very significant indeed.

I've been talking about N-Euros here, but I should stress that you could do exactly the same thing with any monetary system - Euros, Dollars, Pounds, Bristol Pounds, Bitcoins.... you name it, Cyclos could do it.

I've still got some development work to do to get this fully functional. And above all, I need a few more people signing up for N-Euro or OWEM accounts so that it can actually start doing something useful. Paying Citizen1, Citizen2 and Business1 gets a bit tedious in the end. How about having  some real transactions with some real people?   You can sign up here for N-Euros, or here for OWEM.

Bristol Propects - another scheme for reforming money

My last post talked about how the Bristol Pound is remarkably close to providing a true alternative to conventional bank created money. Bristol City Council can pay their staff with them, and anybody in Bristol can pay their taxes with them. Unfortunately, they have to purchased with conventional sterling - money created almost exclusively by the commercial banks when they make loans.

But last Monday, Steve Clarke (Bristol Pounds director) and Ciaran Mundy told me about another interesting scheme they are setting up. The scheme is called  Bristol Prospects and aims to  help small and medium sized companies in the region who either have excess capacity and want to make new sales, or need the provision of easily accessible and low cost credit. These two groups of businesses will be bought together in the Bristol Prospects network and will offer each other ‘mutual credit’. It sounds quite close to the WIR Bank system that has been running very successfully in Switzerland since its creation in 1934.

In the Bristol Prospects system, there are two ways that  businesses can obtain credits. If a business is capable of running at a profit, but is short of cash, it can obtain Prospects directly following a centralised vetting process. Alternatively, businesses supplying the Bristol City Council can have invoices paid with Prospects. In both cases, the Prospects are provided for a limited period of 120 days, with the idea that they can be used to stimulate trade between different partners. The Credits can be spent with any other business on goods or services in the network at the same value as sterling.

When Steve and Ciaran were telling me about the Prospects idea, I was intrigued to compare the idea with my own OWEM proposal. With OWEM, anyone can extend  credit to anyone else, whether an individual or a business by accepting an IOU. One interesting feature of the system is that whatever happens, the net amount of "money" in the system is always zero. If I send you an IOU for £20, my account is as -£20 and your account is at +£20, but the overall system is still at zero. This means that the amount of credit in the system can increase almost without limit. As long as people are prepared to accept IOUs from other people for providing work or services, things can progress with no money at all.

We didn't have enough time to fully compare the relative advantages and disadvantages of the Bristol Prospect scheme and OWE'M, but I believe that both provide a way to inject interest-free credit into an economy. That has to be good news.

I also made the suggestion that an OWE'M style IOU system could be included in the Bristol Pound system as an alternative way to increase the amount of Bristol Pounds that are effectively in circulation. Again, we didn't really have enough time to fully explore this possibility, but I think it could be very interesting.

Bristol Pounds - Debt free money creation at last??

I have been pushing for the introduction of a parallel official currency that might be called the N-Euro. And a Cyclos based banking system using the N-Euro is now up and running, with a dedicated information site at N-Euro.info.

One key feature of such currencies is that they could be pegged to the level of the conventional Euro, and its value guaranteed if a local, regional or national authority accepted it for the payment of taxes or other official fees.  The other key feature would be that the same official authority could use it to pay its staff, or to pay for pensions or other benefits.

With these two key features in place, the stage would be set for bypassing debt-based money creation by commercial banks. The authority could simply pay its workers for the work they do by effectively printing the tokens themselves. There would be no need to go and borrow those tokens from Commercial Banks, and no interest to pay! Simple!

So imagine my pleasure when I discovered that those two key features have already been implemented in at least one complementary currency - the Bristol Pound, launched in September 2012.

It turns out that, as of april 2015, you can now use Bristol pounds to pay your local council taxes in Bristol. You can also use them to pay business rates, as well as gas and electicity bills, and you can buy train tickets to London if you want. Several hundred local businesses will accept payments in Bristol pounds, and payment can be done by simply sending an SMS with the following format: "pay" "your PIN" "trader name" "value". Easy. There's an App that you can use which even hides the fact that it is working via an SMS.

The whole thing is built on Cyclos - the banking system developed by the Social TRade Organisation (STRO) that I have used for my own OWEM and N-EURO systesms.

But it doesn't stop there, because it turns out the Bristol City Council can pay its own workers in Bristol Pounds. Indeed, Bristol's mayor (George Ferguson) is paid entirely in Bristol Pounds, and a fair number of the council's staff receive some proportion of their pay in Bristol Pounds.

Brilliant! Could it be that the people at the Bristol Pound have succeeded in doing something that has not been done since Abraham Lincoln decided to print $400 million "Greenbacks" which he used to pay his soldiers and buy munitions, enabling him to win the American Civil War. That really annoyed the Commercial Bankers, who had offered to lend him the money he needed at interest rates of between 24 and 36%. Unfortunately for the bankers, Lincoln effectively told them to get stuffed - "I'll print my own!" he said. And it worked brilliantly.  But we all know what happened to Abraham Lincoln. Of course, any suggestion that he may have been taken out by the Bankers is pure speculation. (If you want the full story, you can consult the text of the R.E. Search's 1935 book "Lincoln : Money Martyred").

So, have Bristol done it? Have they succeeded in creating their own parallel currency that doesn't require the money to be created as debt by Commercial Banks?

Unfortunately no. The only way that the people at the Bristol Pound managed to get their scheme through the rules and regulations imposed by the FCA (the Financial Conduct Authority) was to have a scheme where every single Bristol Pound has to purchased with an ordinary Pound - one that has been created out of thin air by one of the UKs Commercial Banks.

Specfically, they had to set up a system with the Bristol Credit Union which has the authorisation to swap Bristol Pounds for "real" Pounds. The Credit Union is then required to swap them back when required and on demand. It is that which gives the Bristol Pounds their value.

So, sorry folks. It was a false alarm. No -  the Bristol Pound people have not been allowed to repeat Abraham Lincoln's coup. It's a real shame.

Last monday I spent a fascinating couple of hours talking with two of the people behind the Bristol Pound. Steve Clarke (Bristol Pounds director) and Ciaran Mundy were kind enough to share their vision for the currency they launched three years ago. They are acutely aware of the fact that despite the fact that the Bristol Pound has the two essential features that I want to see in the N-Euro, it really hasn't really changed anything fundamentally. We are still totally dependent on Commercial Banks to create 97% of the money in circulation as interest bearing debt.  They are so close, and yet so far.

But, while talking with Steve and Ciaran, I came up with what might just be a way to break the system.  It turns out that about £800,000 worth of "real" pounds has been swapped for Bristol Pounds that are held with the Bristol Credit Union. But, not surprisingly, the Bristol Credit Union doesn't just put all the notes into a big safe. Instead, it lends most of the money out - at interest.  Like conventional banks, it just has to keep some percentage of the money in case some of the  people with Bristol Pounds want to swap them back for "real" Pounds.  And, like all conventional Banks, they just keep their fingers crossed that everyone won't want to swap the £800,000 of Bristol Pounds that are in circulation on the same day. If they did, they would be very embarrassed, because the money wouldn't be there any more.

So, if the Bristol Credit Union is lending out the money that people have deposited with them, what would stop them lending the money to Bristol City Council? Let us suppose that they lend 90% of the money to the Council (keeping 10% in reserve), and that the Council then promptly used the money to buy some more Bristol Pounds - 90% of £800,000 or £720,000 worth. There would now be £1,520,000 of Bristol Pounds in circulation.  And then the Credit Union could lend 90% of the £720,000 (i.e. around £650,000) to the Council again, and the Council could get yet another £650,000 pounds worth of Bristol Pounds. It could use all these wonderful  Bristol Pounds to pay its staff and provide public services. The Bristol Pounds could circulate in the local economy. And if the Bristol Credit Union decided to impose a 0% interest rate on the loans, everyone (except the commercial bankers) would be very happy.

Does this money multiplication idea sound weird? Actually, the money multiplication process is how commercial banks are supposed to operate anyway. So, in principle, there is nothing to stop it happening.

But here again, we discover that the Banking regulations have been neatly set up to stop this happening. As Steve and Ciaran explained to me, the Bristol Credit Union cannot lend more than some fixed percent of their money to an institutional body like the Bristol City Council.  Yes, the rules of the Financial Conduct Authority have been well written to prevent anyone except Commercial Bankers from creating money.

However, don't tell anyone, but there may be around that one. Suppose the Bristol Credit Union lent the £720,000 to some group of individuals, who then independently decided to lend the money on to Bristol City Council. After all, if an invidual felt like lending to the council at 0% interest, surely it's their right to do so? If the group of individuals who lend the money to the Council  agreed not to ask for their money back, the system would be safe.

Why shouldn't the Bristol Credit Union do this? After all, that sort of shenanigans is what commercial banks do all the time. Remember that, at the height of the financial crisis, Barclays allegedly lent £6 billion to Qatar which was then used to buy shares in ... Barclays. Since, as a commercial bank, Barclays could simply create the £6 billion out of thin air, this illustrates beautifully the nature of our money system. Money creation is in the hands of a priveledged few, who are able to use this priveledge to rake in hundreds of billions of taxpayers money in the form of interest payments on public sector debt every year.

I sincerely believe that systems like the Bristol Pound (and perhaps the N-Euro) are perhaps one of the simplest ways to end this madness. I can see no reason why Bristol City Council, or indeed any other official authority, should not be able to introduce parallel currencies that could be used by citizens and businesses - without debt, and without interest to pay. We would all be better off - with a few exceptions. Namely, those who currently control the money creation process and get to charge us all interest.

26 Jul 2015

Global Household Debt at the end of 2014 - Over $39 trillion

In my last post, I used the Bank for International Settlements data on credit to the non-financail private sector to show that Private sector Debt had exceeded $100 trillion at the end of 2014. For most of the countries, the dataset allows that Private sector Debt to be divided between "Non-financial corporations" and what is described as "Household and NPISHs" where NPISH refers to "Non profit institutions serving Households". The exceptions are Argentina, Brazil, Malaysia, Russia and Saudi Arabia.

Nevertheless, the Figures for Household debt for the remaining 34 countries makes for fascinating reading. I've compiled the figures for debt at the end of 2014 in the following table. At the top of the table I give the data for 12 of the 19 Eurozone countries individually, as well as the number for the entire Eurozone. I provide the numbers provided by the BIS (in Local Currency Units), but I also use the dollar exchange rate to calculate the amounts of household debt in millions of dollars.

As you can see, you can find debt levels for households including nearly 4.3 billion people on the planet. That's a fairly substantial proportion of the total population that was estimated to be 7.2 billion in 2013. Together those 4.3 billion people have accumulated over $39 trillion in personal debt - averaging $9113 per man, woman and child.

The table includes population sizes for each country, and this allowed me to calculate per capita debt levels for each country.

The winners are the Swiss who have managed to rack up over $102,000 of personal debt each. They are followed by Norwegians, with nearly $86,000, the Danes with $77,000 and the Australians with nearly $72,000 each.  Luxembourg's residents each have over $64,000 of debt, and the Dutch $55,000.

And so it goes on. An important figure concerns the USA, where the average debt level is nearly $42,000 per person, followed closely by the UK at nearly $40,000 each (over £24,000).

It was relatively reassuring to see that my compatriots in France are relatively frugal with $18,400 in personal debt each (€14,700). But the most sensible people in Europe are, would you believe, the Greeks who each only owe around $13,000 (€10,300).

So, would anyone like to estimate how much interest we collectively pay on this $39 trillion of debt? Again, using a 5% interest rate is just guesswork, but that would already mean around $2 trillion a year.

Oh, and remind me once more where the Banks that lent out this €39 trillion get the money from? Was it from the man in the moon? Or someone on Mars? No, they just created all of it out of thin air with the wonderful magic money tree that they all have in the back of the bank.

So, how hard are they working to earn the $2 trillion a year in interest? Are they working at all?

Is anyone out there still trying to understand how it is that 1% of the worlds population owns half the world's wealth? I would have thought that the answer is blindingly obvious. It is all a direct result of the totally insane way in which we have given commercial banks a monopoly on the ability to create the monetary tokens that we are all forced to use.

Methinks it is time for a change.

25 Jul 2015

Global Private Sector Debt at the end of 2014 - over $100 trillion

The Bank for International Settlements compiles data about the level of Private (Non-financial sector) debt for 39 different countries every quarter. The latest set of data (published as an excel file on the 8th of June 2015) covers the period until the end of 2014.

It's a pretty complicated set of data, but I have extracted the main numbers in the following table which provides information for 39 countries. 12 of them are in the Eurozone countries, but BIS also provides a figure for the entire Eurozone - only 7% of the debt is held by the other 7 countries. The table also includes another 27 other countries, and I have converted all,the debt values into dollars using the exchange rate for 2014 from the World Bank.
You can see that Private Sector Debt is highest in the US, where debt had reached $25.5 trillion, followed by China with $19.8 trillion, and Japan with $7.9 trillion. Then comes a series of European countries - France with $4.8 trillion, the UK with $4.7 trillion, Germany with roughly $4.0 trillion and so forth. I was surprised to see that even countries like Canada and Australia have private sector debt levels of €3.5 trillion and $2.8 trillion respectively. That's huge, given their relatively small populations.

Total Eurozone Private Sector Debt stands at €16.6 trillion (over $20.7 trillion dollars).

Altogether, the total (Eurozone debt, plus the other countries) exceeds $102 trillion. And that's just 39 countries. Incidentally, I think these numbers are really correct - they certainly fit with the figures provided in a recent report by the McKinsey institute which reported figures for global Household and Corporate Debt of $40 trillion and $56 trillion respectively.

Let's assume that the Banks that created all that debt are charging interest at around 5% interest per annum - a round number which is probably not that far off the mark. After all, remember that Credit Card companies will happily charge  you 15-20%. That would mean that around $5 trillion in interest charges are being sucked out of people's pockets every year. Not far off $1000 for every person on the planet. Given that many of them don't earn anything like that much, you can begin to see the scale of the racket.

And that's without counting the 5.5% of all the taxes that we in Europe pay that goes to feeding the parasitic banking sector because our governments have agreed to borrow trillions from them as well. To be precise - over €12 trillion in the European Union, over £1.6 trillion in the UK, over €18 trillion in the US.  McKinsey puts the Global figure for Government debt at $58 trillion.

Would anyone care to explain to me why this system, in which Commercial Banks have been given the right to create debt by lending money they don't have and then charging everyone - citizens, businesses and governments interest, is a good idea?

It is certainly a good idea for the 1% at the top of the system who rake all this money in. It is an unmitigated disaster for the other 99% of us.

Our governments should be creating our money supply debt free and allow us to get the parasites off our backs, because the current system is clearly a total disaster.

14 Jul 2015

5.5% of all European Government Revenue goes to pay interest charges

Jim Crawford asked me for a Table with Interest Payments as a percentage of tax revenues for European Union countries. Here are the numbers, using figures from the Eurostat Database :

As you can see, the €356 billion paid out last year in interest payments on Public sector debt amounts to 5.5% of total government revenue. But the slice of taxpayers money going to pay those interest payments varies enormously between different countries. The Irish are top of the list with 11.6% of their tax revenue going to pay interest charges, followed by Portugal, Italy, Spain, Hungary and Greece. Even the UK manages to hand over 7.1% of its revenue in interest payments.

France and Germany are actually quite a long way down the list, but it is the Scandinavian countries who get off the most lightly, with Denmark, Finland, Sweden, Norway and Estonia all near the bottom. The notable exception is Luxembourg, who only uses 0.8% of its revenue to pay interest charges.

Overall, this distribution can explain why some countries seem perfectly happy to see countries like Greece forced by creditors to impose draconian austerity.

13 Jul 2015

Euros, N-Euros and Complementary Currencies

The Eurozone is in crisis. The feuding between the 19 members has now come out into the open, and the longterm prospects are looking grim, despite the apparent agreement signed overnight by the Eurozone ministers.

Personally, I'm actually a big fan of Euros, so I would be sad to see them disappear. I love being able to go to any of 19 countries in Europe, and make payments with a universally recognized currency. I pay €100 for a restaurant bill in Germany, Italy or Spain, and my bank account is debited by €100 - not €100 minus the exchange rate and the 2.5% "international charge" imposed by nearly all credit cards.  I see the Euro as something not unlike the International Bancor currency proposed by John Maynard Keynes during the second world war.

But even if I like the idea of a transnational currency like the Euro, does this mean that Euros should be the only official currency for the 19 countries? My answer to that is a clear No.

I see no reason why we should not have Euros for international trading, but some other Euro-pegged currency at the national level. And that is precisely where I think that the N-Euro proposal makes so much sense. Governments should be able to produce their own National N-Euros electronically, and debt-free. Those N-Euros can be used to pay public sector workers and pensions locally, and also  used to pay local taxes. However, they would have no validity for making international payments. This is important, because it means that Germans should not be able to object if the Greek government produces N-Euros locally. There is no way that Greek N-Euros could possibly devalue the value of the International Euro, or the ones used in Germany (if the German government decides not to have its own N-Euro system).

The fact is that these government-backed N-Euros would lie somewhere between the International Euro and the huge number of complementary currencies that have sprung up in the past couple of decades. I was interested to see that the list of complementary currencies has now expanded to 280. The Complementary Currency website keeps a track of them.

However, when I looked at the nature of these different Complementary Currencies, I was unable to find any where they had the official backing needed to give the currency true value.  Here is a table of the different types of currency (some are not included), but there is no sign of that critical government backing, anywhere.
There's probably a very good reason why no government has yet been able to back one of these complementary currencies. As soon as they did, it would immediately become clear that the use of the "official" currencies like the Dollar, the Euro and the Pound Sterling, all produced by Commercial Banks as interest-bearing debt, was a complete scam. There is simply  no reason why governments should be forced to borrow "money" from commercial banks, money that those banks create out of thin air, forcing taxpayers to pay literally trillions in interest charges. Remember that 86% of all European Government borrowing over the past 20 years has been used to pay interest charges on public sector debt. Keeping that gravy train on the rails will motivate the Bankers and complicit politicians, journalists and economists to do everything in their power to keep the status quo, even it is obviously a total disaster for 99% of the population.

The introduction of an N-Euro system, or an equivalent, would put an end to this insanity. I don't expect this to be easy. But there is a chance that, following the decisive vote in last week's Greek referendum, and the humiliation of the Greek people by the Bankers friends among the Eurozone finance ministers, there may be enough anger to get the system changed. I'm keeping my fingers crossed.