25 May 2015

A solution for Greece - a government backed "Bitcoin" pegged to the Euro

The Greek government is looking increasingly threatened by the Shylocks at the IMF and the ECB who want their pound of flesh, and are prepared to do what it takes to break the spirit of the Greek people who voted massively against the system. Default looks increasingly likely.

How can the Greek government manage to find the money to pay its civil servants and pensioners, if they have to find billions of euros to pay the loan sharks?

Well, here's an option. While Bitcoin is not exactly my idea of the perfect money system (it was a great deal for those who gave themselves the right to create them in the first place), what it has done is show that it is perfectly possible to create a totally independent monetary system that can actually work, without the complicity of the banking sector.

I've previously argued that one solution for hardpressed governments like the one in Greece (but also in Spain, Portugal and France) would be to introduce a parallel electronic money system - possibly called the N-Euro - partly because it would stand for National or New Euro, but also because I'm a Neuroscientist! See also my Youtube presentation on the subject.
 
Setting up such a system could be a bit tricky and complex. So, why not do it with a Bitcoin equivalent. There are now at least 740 different Cryptocurrencies currently in existence,
although only 10 have market capitisations of over $10 million. To the best of my knowledge, none of these systems has government backing.

Perhaps it is the right time for the Greek Government to change this?

My proposal is that the Greek Govenment could decide to pay some percentage of civil servant pay as well as state pensions and welfare in the form of a bitcoin equivalent - perhaps called the N-Euro. Those N-Euros would be valid for paying taxes in Greece (but not elsewhere), which would immediately give the currency a true value, a value exactly equivalent to the conventional Euro system.

The percentage of payments made in N-Euros could be anything - from 5% up. Interestingly, once the system is up and running, people would become more and more happy with the idea of using N-Euros, and businesses would be confident that they can use the currency to pay their taxes and would therefore be able to accept payments using the new currency. At that point, the percentage of the Greek public sector finance that used the N-Euro could be progressively increased, almost without limit.

There are actually a large number of advantages of this approach. One is that the N-Euros would be a true monetary system that does not depend on debt. In this way it would totally different from conventional currencies like the £ and the €. In such cases, up to 97% of the currency in circulation has been created by commercial banks as interest-bearing debt. In my opinion, this is a truly stupid system, that gives enormous power to the banks who get to decide where any new money goes (often to fuel house price bubbles and other asset bubbles). It also guarantees that at least 90% of the population will spend their lives paying interest to the money creators and their allies.

The Greek people and its government could thus be the first to break this system by inventing a truly debt-free money system. And, since the system could be entirely independent from the banks, there is no way that the vested interests could stop them.

Furthermore, since the newly created money would only be used to pay public sector workers to do vital jobs or provide the elderly with pensions, noone could seriously question that this newly created money was being used for important things - a huge difference compared with the situation where only commercial banks get to decide the priorities.

Note that there is a subtle difference between this current proposal and my earlier propositions concerning the N-Euro. Previously, I had proposed that individuals would choose what percentage of their pay (or pension or benefits) should be paid in N-Euros. Here, the percentage would be decided by the government. Given the critical situation, and the real possibility that the IMF and ECB could actually force the Greek government to lay off massive numbers of public sector workers and cut pensions even further, I suspect that few in Greece would object to getting 5%, 10% or even 20% of their income paid in the alternative electronic N-Euro.

Go for it Greece! And, once you have shown that we don't need bank created debt-based Euros, I hope that the system would spread to other countries like Spain and France.

24 May 2015

Let's compare an FTT with existing taxes

As more and more people are talking about the utility of introducing a modest Financial Transaction Tax, there have been more and more "studies" claiming to show that even a 0.1% tax would make the economy ground to a standstill.

Tim Worstall (with whom I've sparred on a number of occasions), has  published  a whole string of opinion pieces on the Forbes website arguing why the sky will fall in if ever there was an FTT- here and here and here, for example.

In February 2014 the City of London produced a report claiming that introducing an FTT in Germany would decrease GDP by 5.8%, and Italy it would produce a decrease of 13.0%.

Well, for me these so-called studies are clearly not providing a balanced case. Sure, any tax will have negative consequences for some sectors, so there is no big scoop in pointing out that there will be costs.

But there is a simple argument. If you agree that governments need to use taxation to raise revenue to pay for public services, then you need to look at what the effects of those taxes are. What behaviour does a particular tax discourage? What behavours does each tax encourage.

Recently, I gave the percentage of UK revenue coming from different taxes. So let's take them each in turn and ask what they each encourage and discourage.
  1. Income Tax -  £163.2 billion or 31.8%
    1. Discourages people from working hard
    2. Encourages people to find ways of avoiding it by using tax-havens and other tax-optimisation mechanisms
  2.  VAT -  £111.2 billion or 21.6%
    1. Discourages people from buying goods and services - hence putting a severe brake on the economy
    2. Encourages people to find ways of avoiding it by failing to declare payments and using a range of scams to reclaim VAT even when the payments were not made 
  3. National Insurance Contributions  - £109.2 billion or 21.3%
    • Discourages employers from taking on staff
    • Encourages employers to pay people illegally, or employ illegal immigrants instead of residents.
  4. Corporation Tax -  £42.3 billion or 8.2%
    • Discourages companies from making a profit
    • Encourages companies to declare their profits elsewhere, thus depriving the UK of tax revenue (eg. Amazon, Starbucks, Google etc).
  5. Fuel Duties -  £27.2 billion or 5.3%
    • Discourages people from burning petroleum products
    • Encourages ecologically responsible behavior
  6. Stamp Duty Land Tax  -  £10.7 billion or 2.1%
    • Discourages people from buying property thus reducing the mobility of the population
    • Encourages people to rent rather than buy property 
  7. Wines, Beer, Spirit & Cider Duties - £10.5 billion  or 2.0%
    • Discourages people from drinking too much, reducing the cost to the health system
    • Encourages people drink responsibly
  8. Tobacco Duties   -  £9.6 billion or 1.9% 
    • Discourages people smoking, thus reducing costs for health care
    • Encourages people to look after their health
  9. Capital Gains Tax   -  £5.8 billion or 1.1%
    • Discourages people from declaring profits and reducing flexibility in the economy
    • Encourages people to find ways of avoiding using tax optimisation systems involving tax havens, trusts etc.
  10. Inheritance Tax - £3.8 billion or 0.7% 
    • Discourages people from dying (!)
    • Encourages people to find ways of avoiding the tax using tax havens and other schemes
All the other taxes together only generate  £20 billion of revenue for the government (3.9%).

I think this list makes it clear that of the 10 main sources of tax revenue, the vast majority are simply destructive, since they discourage "good" behaviour, and encourage "bad" ones. The only exceptions are fuel duties, taxes on alcohol and tobacco.

There are two taxes that are currently not used at all, and that I believe any intelligent politician should take very seriously.

The first is the idea of taxing financial transactions. At the sorts of low levels that I believe would be sufficient (well under 1%), such taxes would have almost no impact on the behaviour of the vast majority of people and businesses. We are all perfectly used to paying an extra 3% for using credit cards (even if it's the merchants that have to pay up), so there is no way that 0.1% is going to make a difference. And the vast majority of business transactions would go through exactly as they do now. Only those who make their money via speculation would even notice.

The cost of implementation (one line of code in the software handling the transactions) would be nothing compared to the cost of collecting income tax, VAT, national insurance contributions, and corporation tax. And since it would be essentially impossible to avoid (without breaking the law), there would be no problems with evasion.

Yes, the financial markets would be encouraged to reduce the number of steps involved in any transaction, because anyone using a system where a whole series of intermediaries each takes a tiny sliver would be beaten by one where the transaction was made in one step. But that would surely increase the efficiency of the financial service industry, not the contrary.

Some people will perhaps try to argue that we really do need zillions of transactions to get the right price for financial products. But what percentage of the $10.7 trillion in FX trading that CLS boasts about having handled on one day last year (17 December) was actually necesssary to find the "correct" relative prices of each currency? Why not accept the fact that all that pushing and shoving back and forwards is just done because it allows people with very large amounts of money to move around to siphon money out of the system? We  have just seen that the big banks have just been fined billions for rigging the FX markets? A 0.1% FTT on those transactions would immediately end such criminal behaviour, with no need for any regulation.

The second missing element is a land tax, levied on the basis of the land surface owned by a person or business. Clearly, such a tax would discourage people and businesses from hogging land, and encourage large land owners to sell off they land. This is surely a good idea if we want a more equal society.

P.S. Note added Monday 25th May. For those who are interested, there is a fascinating and stimulating set of exchanges between me and Tim Worstall, probably one of the world's most prolific critics of FTTs. Some of it is in the commentary on this post. But there's a lot of other exchanges in response to Tim's piece on Forbes called "Memo to Elizabeth Warren: This is how you tax banks, not the Financial Transaction Tax".

23 May 2015

UK Financial Sector - why so secretive?

I've been trying to put some hard numbers on the scale of Financial Transactions in the UK, and my latest estimate puts the number at over £2 quadrillion for 2014. But it's hard work finding the information. One of the reasons is that for some reason, the UK Financial Sector doesn't seem to want to live in the same world as everyone else.

For example, there is a thing called the World Federation of Exchanges, which is "the trade association of 64 publicly regulated stock, futures and options exchanges." In fact, their web site includes information about no less than 192 different structures. 110 are full members of the WFE and there are a further 67  described as "Affiliates and Correspondants". There are just a handfull that are described as "Non Members". They include the two exchanges in the US (ELX and One Chicago), a few in various countries like Argentina (Rofex ), India (MCS-SX "India's New Stock Exchange", and the United Stock Echange of India) Iran (Teheran Stock Exchange) and Japan (Tokyo Commontity Exchange and the Tokyo Grain Exchange). Otherwise, for Europe, there are just two exchanges that are not part of the system : The Warsaw Stock Exchange, and the London Stock Exchange.

Why does the London Stock Exchange not want to be either a member, or even affiliated to the World Federation of Exchanges? Why has it also decided not to be included in the FESE (the Federation of European Securities Exchanges)? And why does it not provide any figures to the Bank for International Settlements - BIS - which has been recording "nav" (Not Available) since 2005, a year when the total value of executed securities trades was £5.2 trillion?

I've already complained about the fact that major players like LCH.Clearnet Ltd have avoided providing open information to BIS since 2009, and that level of secrecy is seen for several other players like Barclays, whose Bar-X trading platform appears to be invisible to anyone who is not a paid up member of the platform.

So, what's the explanation? 

My guess is that secrecy is one of the great strengths of the UK Financial Services industry. There have been numerous cases in recent history where it has been clear that the UK offers clients a wide range of options for hiding their financial transactions via a bewildering array of offshore sites. It's clearly a very lucrative proposition for many. But I think that this also explains why the City of London is so committed to blocking any attempt to introduce anything requiring transparency, including the option of a tax on financial transactions. Indeed, now that Cameron and Osborne are back in power for another 5 years with an absolute majority in Parliament, they are probably breathing a sigh of relief. They will now be able to count on the UK government to block any such propositions. It doesn't matter that taxing transactions make incredibly good sense for just about everyone. Keeping things hidden is clearly even more important.


14 May 2015

UK Financial Transactions in 2014 - at least £2 quadrillion

I've been suggesting to both David Cameron and the future leaders of the UK Labour party that they should seriously consider replacing much if not all of the current tax system with a simple tax on all financial transactions. I've argued that the level of such transactions is currently running at about £2 quadrillion a year in the UK - roughly 4000 times total tax revenue.

There's a bit of guesswork there, because no-one (except me!) seems to think that it is useful to add all the numbers up.

It's a problem that I have been trying to tackle for some time. My very first estimates were based on the data provided by the Bank for International Settlements, which documented total transactions in the UK of  £1152 trillion for 2008. I immediately noticed that there were going to be problems, because from 2010, BIS failed to include figures for one of the UKs biggest players - LCH.Clearnet Ltd - which had handled nearly £863 trillion  of transactions in 2008, but had disappeared off the map by 2010 (and has remained invisible to BIS ever since).

Since then, I have been trying to compile my own numbers, using sources that I found on the web. I thus published an estimate of £1760 trillion a year back in feburary 2012,  and in March 2014, I argued that the number was probably at least £1840 trillion.

So, what's the story today? Can I justify the £2 quadrillion figure?

Well, one of the big players in the foreign exchange markets in CLS. Their 2014 annual report, which you can download here, boasts on page 13 that :
"Throughout 2014, we settled a record average daily value of USD 5.1 trillion, up over 2% from 2013. On 17 December, we surpassed both our value and volume recordds, settling USD 10.7 trillion on ticket volumes of 2.1 million"
Assuming 250 trading days a year, thats already a handy $1275 trillion - around  £800 trillion. The problem is that CLS is a "global" organisation, working in many different countries, but nevertheless with a big presence in the City of London. Indeed, the BIS's triennial report based on data obtained for the month of April 2013 concluded that "The vast majority of global FX trading in 2013 has occurred via the intermediation ofdealers’ sales desks in five jurisdictions: the United Kingdom (41%), the United States (19%), Singapore (5.7%), Japan (5.6%) and Hong Kong SAR (4.1%)."

I note that the $5.1 trillion a day reported by CLS in 2014 is almost as large as the $5.3 trillion total reported in the BIS report.

I had already calculated that LCH.Clearnet Ltd's SwapClear system had handled a total of over $640 trillion in various types of Swaps in 2014. That's  over £400 trillion. The LCH.Clearnet site is remarkably detailed, and so it is possible to split that activity as shown in the following tabale. 

37% of the $640 trillion was in Overnight Indexed Swaps (OIS), 33% in Forward Rate Agreements (FRA), and just over 28% in Interest Rate Swaps (IRS), with very minor contributions from Basis and Zeroes (whatever they are).

LCH.Clearnet is also a big player in Fixed Income, and there's a graph you can download here  that breaks down volumes since 1999 for LCH.Clearnet Ltd and LCH.Clearnet SA. I believe that one handles transactions in Euros, and the other in Pounds. The total for 2014 was €146,716 billion - €81,560 billion for LCH.Clearnet Ltd, and €65,156 billion for LCH.Clearnet SA. That adds in a further £117 trillion.
LCH.Clearnet Ltd is also a player in the Foreign Exchange Markets - like CLS. I downloaded a table from their website  that reports monthly volumes over the past two years. This allowed me to calculate that the total for 2014 was a mere  $907,337,943,833.12 - not even a trillion.  Totally dwarfed by CLS who manage the same amount every couple of hours.

After that, we need to add in numbers for players like CHAPS, which (according to their main webpage) handled £68 trillion. They note that "CHAPS turns over the annual UK GDP every 6 working days". They also note that "CHAPS represents 0.5% of UK total payment volumes but 92% of total  sterling payment values (excluding internalised flows within Payment Service Providers)". That's interesting, because it implies that if £68 trillion is just 0.5% of total UK payment volumes, and that therefore the real total is 200 times that much - namely £13.6 quadrillion. Surely, some mistake?

We can add in the figures for the London Stock Exchange, another major player that BIS has not bothered to include in their figures. I downloaded their monthly figures for LSEG electronic order book trading for December 2014 that provides the following table, from which I calculated that the total value for all the different elements was £67.5 trillion. Interestingly, actual share trading only makes up for just over £1 trillion of that.
Some other numbers can be found in the BIS annual reports. However, those don't get published until about September, so I will use the figures for 2013. These include numbers for transacations processed by CREST (£279.75 trillion), ICE Clear Europe (£84.36 trillion).

I have found accurate figures for other payment systems used in the UK on the CHAPS website  where you can download a document with an Annual summary of Payment Systems. Here is an edited version of a table from that document, showing the figures for BACS, CHAPS, Faster Payments and Cheques.

The last big player that I want to mention is an entity that used to be called NYSE Liffe. In 2013 I calculated that they had handled €474 trillion in transactions, roughly £380 trillion.  At the time, they produced wonderfully detailed reports at the end of every trading day, and a very clear summary at the end of each year. Unfortunately, NYSE LIFFE has now disappeared - it has been swallowed up by ICE (Intercontinental Exchange), and since that time you can no longer download the NYSE Liffe annual factbooks.

I've been trying to compile detailed numbers for ICE Europe from their website, but it's proving tricky. You have to download data for each individual day, and there is no "Year to End" column that keeps a running tally. However,  I did manage to download set of figures concerning various types of Credit Products and found that ICE Clear Europe -CDS had handled a total of €2,566,278,963,677 worth of transactions denominated in euros,  together with an additional $118 009 232 426 in dollars.

Fortunately, the World Federation of Exchanges provides some detailed information on their website, and I was able to compile the following numbers for ICE Futures Europe for 2014.

The WFE also provides a number for transactions done by the London Metal Exchange (14.13 trillion dollars).

So, in this final table I provide a summary of what I currently have available. When the values are provided in Euros or Dollars I have converted the numbers into sterling using current rates.

The total comes to over £2400 trillion. Even if we decide that around half of the £800 trillion in foreign exchange handeled by CLS may be done outside the UK,  that still leaves a very healthy £2 quadrillion in transactions. I suppose that some of the activity listed under ICE may turn out to be occuring somewhere else, but it will be virtually impossible to know for sure, unless someone other than me takes the task of compiling realistic figures for the UK seriously.

In the end, as I have argued repeatedly, it looks very likely that the value of UK Financial Transactions really is around 4000 times larger than total UK tax revenue. And that means that an intelligent and responsible government could effectively replace the existing tax system with a minuscule Financial Transaction Tax of around 0.025%.

12 May 2015

An open letter to the future leaders of the UK Labour Party


Dear colleagues, 

The catastrophic results of last weeks General Election will no doubt cause a great deal of soul-searching in the Labour party. There will be some who will argue that the solution should be to move the party towards the centre ground – following the tactics of the Blair government. There will be others who will argue for a more radical left-wing approach. 

For my part, I sincerely believe that the problem with Labour's 2015 Election Campaign is that there were few truly radical proposals in it. Sure, Ed Miliband tried hard to convince voters that the NHS was safer in Labour hands, and there were a few proposals like the abolition of non-dom tax status and the mansion tax. But in many ways, this really only seemed like a somewhat toned down version of Tory austerity. 

Many would-be Labour voters probably ended up voting for the UK Green Party, who managed to attract 1,156,149 votes – despite only being rewarded with one seat.  The fact is thatthe Green Party's manifesto contained a far more imaginative set of proposalsthan Labour's. And yet was there anything in the Green Party's proposals that was fundamentally at odds with Socialist principles?

For me, there are three very major proposals in the Green Party's program that could and should be seriously considered by Labour. Indeed, for me they are so sensible that I have argued that David Cameron'sgovernment should also take them seriously. They are:
  1. Replacing much of the existing tax system with a very modest tax on Financial Transactions in the UK
  2. Replacing much of the existing Welfare and Benefits system by an Unconditional Basic Income that would be paid to all Citizens from birth to death
  3. Replacing the current system in which the Nation's money supply is created by private banks as interest-bearing debt
Let's look at taxation first. For some reason, UK politicians, including Labour, appear not to grasp the fact that taxing all electronic financial transactions would be a simple and fair way to raise revenue. It is difficult to obtain definitive numbers because of the deliberate opacity surrounding the activity of much of the UK's financial services industry, but it is almost certain that the total volume of UK financialtransactions is at least £2 quadrillion a year – that's £2,000,000,000,000,000. For example, in 2014 the London-based clearing company LCH Clearnet Ltd  handled some $642 trillion worth oftransactions. Amazingly, since 2010, LCH Clearnet's numbers have not even beenincluded in the Bank for International Settlements figures – they areapparently "nav" (not available). Likewise, the BIS figures do not mention other major players like Barclays, whose Bar-X clearing system does not provide public figures.

As I mentioned yesterday, the £2 quadrillion figure isnearly 4000 times higher than the revenue generated by all the taxes collectedby Her Majesties Customs and Excise - £513.6 billion in 2014-15, implying that the government could scrap all the current tax system, and replace the lot with a universal financial transaction tax of just 0.0257%. The idea that everyone would pay – not just the traders in the City.  Thus, if someone gets paid a salary (or a pension) of £2000, roughly 51p would be transferred to the treasury. And if they spent £1800 of that salary in credit card payments, gas and electricity bills, rent or whatever, they would lose a further 46p. So, while the amount paid by such an ordinary citizen would be negligible (less than £1), the amount that would be handed over by the high-frequency traders responsible for doing the $5.3 in foreign exchange trading would be very considerable.  But that's only fair. 

There is no reason to defend the current system based largely on VAT – value-added tax – that for some reason totally ignores Financial Transaction. A cynic would say that it is normal that the Financial Sector shouldn't pay VAT, because all that frantic trading doesn't actually add any value to the economy. But that is precisely why a radical reform of taxation would make so much sense.

Let me just point out one other huge advantage of using an FTT to raise the needed revenue instead of the current system. Currently, some 83% of all UK tax revenue comes from just four taxes, namely, Income Tax, VAT, National Insurance Contributions and Corporation Tax. All four are notoriously open to "tax optimisation" or evasion. Non-doms can declare their income abroad, and thus deprive the state of much needed income, even when they fully benefit from living in the UK. Scandals involving VAT claims are also rife, and have led to billions being paid out in unjustified "refunds". National Insurance Contributions can be avoided by paying workers under the counter. And, of course, the ability of multinationals like Starbucks, Amazon and Google to avoid paying their share of Corporation Tax has been a major scandal for years. All such abuses would end with a switch to an FTT based system. 

Finally, it is worth remembering that the cost of implementing an FTT would be tiny compared with the cost of the current tax system. Now that the vast majority of payments are made electronically, it is literally just a question of adding a single line of code to the software that handles the transactions to allow the treasury to recover the funds. And changing the rate when needed would be no more complicated than allowing for fluctuation in the exchange rate.

Let us now look at the second major reform. This is the proposal that we should effectively scrap most of the current welfare and benefits system, and replace it by the introduction of an Unconditional Basic Income that would be paid to all Citizens, from birth to death. We are already used to the idea of a Universal Child Benefit paid for every child under 16. And we are also used to the idea that all people over a certain age should be entitled to a basic State Pension. The idea would be that everyone should also receive a basic income throughout life. Some people find the idea of paying people money for doing nothing objectionable, but it actually makes very good sense. 


1.   It would eliminate at a stroke the need for food-banks and pay-day loans – two of the most appalling demonstrations of social injustice in the UK.


2.   It would mean that people who would like to be involved in unpaid but vital work such as looking after elderly or disabled members of their family, being involved in associations and charity and the like, would be able to do that without having to wait to be retired.


3.   It would be a massive boost to UK industry since it would be effectively a subsidy for UK business. Since families would already have a basic income, the amount needed to provide a living wage would be less. Cars and other manufactured goods could be produced for less in the UK than elsewhere. That has to be good for business.


4.   It would allow the UK labour market to be far more flexible. Many on the right have been arguing that zero-hour contracts are in a sense good for business, because it reduces costs. Introducing an Unconditional Basic Income would have the same effect. With a basic cushion to cover basic expenses, people would be happy to sign up for a job where they only have to go in to work when there is an actual demand. The rest of the time, they would be free to be involved in other useful yet unpaid activities .


5.   It would provide a solution to the challenge posed by waves of immigrants prepared to accept work at abnormally low wages. If the Basic Income was only provided to bona fide UK Citizens, or at least people who had been resident for a minimum period, this would make it much harder for clandestine immigrants to undercut residents.


6.   It would provide a permanent solution to a fundamental problem that many politicians are yet to come to terms with – the fact that paid employment is getting more and more scarce. It is already perfectly possible to eliminate cashiers in supermarkets. Before long, we will no doubt have driverless cars – and jobs as taxi, bus and lorry drivers will also become scarcer. Even highly skilled jobs like analysing X-ray images for tumours can already be replaced by computers. This trend is bound to continue.  We have to accept that fact and admit that there will not be enough paid work to allow everyone to earn enough to live decently. But, on the other hand, it is clear that there is no shortage of wealth.

Let us now turn to the third fundamental reform – the need to completely change the nature of money. The parliamentary debate in November2014 on "Money Creation and Society" demonstrated that there is a vital need for open public debate.  But the arguments are now clear. 

We currently have a system in which 97% of the money in circulation has been created by privately owned commercial Banks. Those banks effectively have a monopoly on money creation – a monopoly that they have enjoyed since the creation of the Bank of England in 1694. That ability to effectively lend out non-existent money and charge interest is the real reason why our entire system is biased towards making the rich even richer and the poor even poorer.

It is already outrageous that a Bank can lend money that it doesn't have, and dupe borrowers into believing that they are being lent money that has been deposited by someone else. But the insanity of the system becomes even more apparent when you consider the situation where Commercial Banks lend the UK government money that they don't have. In the five years that Osborne and Cameron have been in power, public sector debt has increased a staggering£625 billion, from roughly £975 billion at the end of 2009 to over £1600 at theend of 2014. That's roughly £10 000 of extra debt for every man, woman and child in the UK. And this, at a time when the UK government has been claiming that they have been handling the economy wisely. 

No, they have been running bills and putting it all on the slate for the coming generations. Who benefits from this? It is the Banks who create the "money" that they lend.  The historical record shows that interest payments on public sector debthas averaged 4.4% of GDP since the creation of the Bank of England in 1694. Servicingthis debt has robbed UK taxpayers of  £654billion of hard earned cash since 1995, and over £49 billion in just 2014alone

This insanity has to stop. The problem is that the City and the Bankers have the government in their claws. Osborne and Cameron know that if ever they were to challenge the status quo and threaten to kill the goose that has been laying golden eggs for the Bankers and their friends, then they could be squeezed hard by an increase in interest rates. With UK public sector debt at over £1600 billion, it is clear that any increase in the interest rates would totally cripple the government. 

How can this situation be changed? While it would be nice to simply pass an act of parliament making it illegal for Banks to lend money they don't have, there will certainly be massive resistance to such a move. I suspect that the simplest strategy would be to introduce the first two measures – namely a tax on financial transactions, and a Basic Unconditional Income for all  citizens and use them to provide  a form of Quantitative Easing for the People. The Unconditional Basic Income would be true debt free money – it doesn't have to be paid back, and there would be no interest to pay. Thus, progressively it would be possible to use the mechanism to allow the economy to recover from the massive amounts of debt that are currently crippling it. 

Some would argue that injecting debt free money directly into citizens' pockets could result in inflation. There's a simple solution. If the amount of money in circulation starts to increase too much, the Financial Transaction Tax could be used to remove any excess. With those two levers in place, the Bank of England would be able to adjust the amount of money in circulation, and at the same time gradually phase out our dependence on debt based money produced by Commercial Banks. 

So, there you have it. Three very radical suggestions that could easily be part of a future Labour program. 

Interestingly, those three proposals were already in themanifesto of the UK Green Party. Why not team up with them? Combine your ideas, and you would be able to provide a very real alternative to another 5 years of Tory austerity.

10 May 2015

An open letter to David Cameron, UK primeminister for another 5 years

Mr Cameron,

First, my congratulations on a truly stunning victory. You certainly surprised just about everyone - including, I imagine, yourself.

The question is - what now?  You may think that the British electorate has voted to continue with 5 more years like the ones that they have just had to live through. And it is true that nearly 37% of them really did vote for your policies and candidates. But, of course, that means that 63% voted for other policies.

I imagine that you are convinced that your policy of rolling back the state, and letting the private sector take charge is the right one for the nation. I suppose that you believe that cutting back on public expenditure, and reducing taxes as much as possible, is the best recipe.

Before you make a final decision to continue business as usual, I would dearly like you to reflect on a number of proposals that I suspect that you have never thought about, and yet which could well be exactly what the UK needs.

Suppose I said that there was a way to massively reduce taxes on company profits and and kick start the economy that would cost virtually nothing. Would you be interested? You should be....

So, what are my proposals? (see also here).

My first suggestion involves introducing a modest transaction tax on all financial transactions. Financial transactions in the UK are currently running at about £2 quadrillion a year (that's £2,000,000,000,000,000). Total UK tax revenue from all sources for 2014-15 was £513.6 billion.
That number is roughly 4000 times smaller, meaning that you could actually replace all the current sources of taxation (Income tax, VAT, Corporation Tax, National Insurance contributions) with a single tax on financial transactions of around 0.025%.

To make things clear for you, I've compiled a table showing the current revenue generated by all the taxes levied by your government during fiscal year 2014-2015, together with the level of FTT that would be sufficient to ABOLISH each tax.

You could ABOLISH Income tax with an FTT of just over 0.008%.
You could SCRAP VAT with an FTT of just over 0.005%
You could ABOLISH National Insurance Contributions for a similar amount
You could ABOLISH Corporation Tax with an FTT of just over 0.002%

Of course, there may be some of the current range of taxes that you would want to keep.  After all, taxing tobacco, alcohol and petrol can be good for people. It's up to you to keep some of those taxes if you want. But the simple fact is that you have the choice. Don't assume that your friends in the City necessarilly know what is best for Britain. Consider the possibility that their total opposition to any form of financial transaction tax might just be more to do with a desire of the UK Financial Services industry to keep the massive levels of transactions out of the spotlight.

By taxing ALL transactions you would have a totally fair, simple system that would be virtually impregnable to fraud. It would cost virtually nothing to run, and would allow the size of Her Majesties Customs and Excise to be dramatically reduced. Surely that must appeal to someone like yourself, keen to see State interference in business and private life reduced?

And imagine the boost for UK manufacturing if Corporation Tax was at 0%, if National Insurance Contributions were eliminated, and if members of the public were not forced to pay 20% VAT everytime they need to buy something.

My second suggestion would be to scrap the entire benefits system. That's right, scrap it completely. Replace the whole thing with an Unconditional Basic Income that would be paid to all UK citizens from birth to death. You might prefer to have the payments higher for the under 18s, and for pensioners - which is effectively what the UK already has via the system of Child Benefits and the Guaranteed State Pension.

But before you reject the option of keeping those payments going throughout the entire life each and every citizen, consider the following points.

Firstly, if you gave everyone such an Unconditional Basic Income and included the payments as taxable income, you could enormously simplify the tax and benefits system. Even Iain Duncan-Smith should approve. No need to have an arbitrary threshold for starting to pay income tax. People would simply add up all their income (including the Basic Income) and pay a certain percentage in tax on the combined revenue. In the end it's actually effectively the same thing as having a negative income tax for people on very low pay - an idea defended by none other than Milton Friedman back in 1968.

Secondly, by giving even working people the basic income payments, this is actually effectively a subsidy for UK business. Currently, a large proportion of the UK governments benefits payments go to people who are not working. You must surely see that if, instead, the same payments were made to people in work, it would mean that UK businesses could provide their employees with a living wage without paying as much. This would mean that UK business would be more competitive than manufacturers elsewhere because their production costs would be lower.  Surely, that has to be a good idea?

There's a third important reason why an Unconditional Basic Income for all UK citizens would be a particularly good idea at the present time - given the massive increase in immigration and the threat from UKIP. Suppose that the payments were only made to UK Citizens, or people who had been resident for a certain fixed period (say 3 years). This would mean that bona fide UK citizens would be able to live decently on salaries that would not be sufficient for someone arriving from elsewhere in the European Union or from further afield. Importantly, this would avoid the need to impose quotas on immigration - if people wanted to come, they would be entitled to do so. But it would no longer be so easy for clandestine immigrants to undercut UK residents by accepting payment at abnormally low rates.

The third main suggestion that I would like you to consider concerns the possiblity of reforming the way money is created in the UK. I note that you were not present in the Commons back in November 2014 when Conservative MP Steven Baker opened a debate on the question of "Money Creation and Society". And given the total absence of any coverage in the press, it is extremely probable that you still have no clue about the true nature of money. Indeed, you famously said that there 'is no money tree". Sorry Mr Cameron. There is. There is one in every commercial bank because when they make loans they create the "money" out of thin air. This fact has now been stated very clearly by the Bank of England, so there is no excuse for the British Premier not knowing this vital fact.

So, if you can understand that the £625 billion increase in public sector debt that your government took on between the end of 2009 and the end of 2014 involved borrowing money from banks that didn't even have the money that they lent you, can you not understand that there is a fundmental need to completely rethink the entire basis of our monetary system.

Please can you read the book on Modernising Money, produced by the Positive Money group  in the UK? If you did, I cannot believe that you could ignore that many of the UK's problems are directly the result of a dysfunctional monetary system. You could fix that.

OK. I think that I have already gone on for long enough. I realize that you are going to be very busy in the coming months and years. But, I sincerely believe that the three main proposals that I have made here should not be rejected as the product of some bunch of Marxist loonies.  They are, quite simply, very sensible workable suggestions that could allow your Conservative government to really allow Britain to move forward.

Please think about them. Here they are again:
  1. Replace most existing taxes with a 0.025% tax on all Financial Transactions
  2. Replace most of the existing benefits system with an Unconditional Basic Income
  3. Replace the current system where 97% of the Nation's Money Supply is produced by Commercial Banks in the form of interest-bearing debt
As it happens, it turns out that the three proposals were actually in the UK Green Party's manifesto... and 1,156,149 voted for them.  It's not because the UK's first past the post system only gave those voters one MP that they were misguided. The Green party's proposals for reforming money creation even got mentioned on the BBC.

8 May 2015

The UK General Election - Victory for the 1%

There will be some extremely happy people in the UK today following the incredible and totally unexpected victory by the Conservatives that means that they can look forward to 5 years of Osborne and Cameron looking after their chums in the City, without even the slight moderating effect of Lib Dem coalition members like Vince Cable, the ex-Business Secretary, who lost his seat last night.

Those people are the 1% at the top.

How on earth did they manage it?

Well, one reason is the ability of the megarich to control much of the nation's press. With highly deformed reporting now standard in newspapers like the Sun and the Mail, it's hardly surprising that few Brits have a clue about what is really going on. And even the BBC and Guardian failed completely to report on the historic debate in Parliament last year that finally discussed the vital issue of Money Creation and Society.

Another reason is the ludicrous first past the post system for elections that they have in the UK.  The following table says it all.

Take the Scottish National Party that won 56 of the 59 parliametary seats in Scotland. They got those 56 seats in parliament with a total of 1 454 436 votes. That means that there is one MP for every 25 972 people who voted SNP.  The Conservatives got one seat in Parliament for every 34 244 voters. For Labour, there's one MP for every 40 290 voters.  That's not too bad.

Things already look much less favorable for people who voted Lib Dem. Each of the 8 remaining Lib Dem MPs has to represent over 300 000 voters.

But look at the representation of the UK Green Party. The 1.16  million people who voted for their policies only have 1 MP. And, Nigel Farage has even more grounds for being furious, because the 1 UKIP MP is supposed to rerpresent nearly 3.9 million people.

Indeed, if we compare the best represented voters (those who voted for Ulster's Democratic Unionist Party) with the worst represented ones (those who voted for UKIP), there is a ratio of 168:1. Can anyone really claim that this is a sensible and fair way to do things?  It is quite simply a travesty of democracy.

But the British voters really only have themselves to blame. They had a chance in 2011 to change the first past the post system, but blew it - 68% voted to keep the old system - thanks largely to a massive media campaign from the media, backed up by politicians from the main parties.

But for me, the other reason why the UK can look forward to 5 more years of slashing public services and privitisation of anything that moves is that Ed Miliband's Labour party had almost no interesting ideas in their program. Effectively, all they seemed to propose was a slightly watered down version of Osborne's austerity program. Sure, they would maybe do a little more to protect the National Health Service. But there was nothing in their program that could have challenged the status quo. They had none of the innovative ideas that the UK Green Party have been proposing, such as:
  • taxing financial transactions
  • removing the monopoly of commercial banks on creating money
  • introducing a Universal Basic Income
Now that Ed Miliband and Ed Balls are gone, would it be too much to hope that maybe the next generation of Labour leaders could actually wake up to the fact that the economic woes of the nation will never go away unless there are truly radical changes to the ways things work?

I certainly hope so. I haven't done the detailed maths, but I wouldn't be at all surprised if it turned out that a single candidate in each constituency that could combine votes from Green Party and Labour would have allowed the UK to avoid the curse of 5 more years of Cameron and Osborne. They would have already had over 10.4 million votes between them, to which you could reasonably add the 1.45 million who voted SNP.  And that would have been possible without even reforming the first past the post system.

Maybe there is hope. Unfortunately, the next window of opportunity has just got a lot further off. It's all very depressing.

1 May 2015

What I would do if I was UK prime minister

Listening to the main party leaders in the UK general election (which takes place on the 7th of May 2015), I get the distinct impression that they are literally clueless. Virtually everyone seems to assume that it will be enough to do some combination of (a) cutting back on public spending, and (b) increasing taxes to get out of the mess. Wrong... it won't work. It can't work.

So, just in case there are some politicians somewhere who are open to fresh ideas,  here is what I would do if I was Primeminister of the UK.
  1. Impose a modest Financial Transaction Tax on all electronically mediated financial transactions in the UK (currently running at around £2 quadrillion a year). 
  2. Negotiate the imposition of a modest Financial Transaction Tax on all electronically mediated financial transactions denominated in sterling, wherever they occur in the world. Offer to do the same in the UK for trading in other currencies, and offer to transfer the proceeds to other Central Banks.
  3. Use the revenue generated by the FTTs to replace existing taxes such as Corporation tax, but also National Insurance Contributions and VAT.  
  4. Move to replace Income Tax with the Universal FTT
  5. Introduce a Land Tax
  6. Scrap the vast majority of Benefits, and replace them with a Universal Unconditional Basic Income that would be paid to people of all ages, whether working or not.
  7. Set up a National Bank that uses a parallel money system, and provide accounts for all UK citizens and businesses that allows them to use an electronic Citizens Pound - pegged to the value of sterling.
  8. Allow citizens to choose to recieve some proportion of benefits, pensions and salaries (in the case of public sector workers) in the form of the Citizens Pounds rather than conventional money, 97% of which is created out of thin air by Commercial Banks when they make loans.
  9. Give the alternative currency guaranteed value by allowing them to be used to pay tax bills.
I sincerely believe that this set of proposals will go a long way to help with many of the problems that preoccupy the current generation of politicians.

For example, many politicians see the need to radically reform the benefits system. Well, what would be more radical than scrapping the current system? It's horrendously complex, and rife with inequity. By giving everyone enough to live modestly, you could largely remove the need for means tested benefits. It would mean an end to the horror of Food Banks, and payday loans - two of the most tragic manifestations of the state of UK society.

Secondly, that sort of Unconditional Basic Income it would provide a solution to the problems posed by excessive immigration. If UK citizens were entitled to the Unconditional Basic Income, but not recently arrived immigrants, it would mean that UK citizens would be able to earn a decent living on lower wages than immigrants, thus immediately making it much harder for an illegal immigrant to undercut resident workers. This would not restrict the right of EU citizens to work in the UK, but it would certainly make it less tempting for people to come unless they were assured of a good job.

Thirdly, the Unconditional Basic Income would give a massive boost to UK industry. Essentially, the Universal Basic Income would constitute a direct subsidy for UK manufacturing and services, because it would mean that businesses would be able to employ people on lower wages than are needed currrently. It would be cheaper to manufacture goods in the UK, because part of the employment costs would effectively be covered by the levy on the financial sector that results from the Financial Transation Tax. And, since citizens would be able to cumulate their Basic Income and any additional pay that they get for working, they would not be forced to take menial badly paid jobs simply because it was the only way to earn enough to feed their families.

Fourth, scrapping VAT and National Insurance Contributions would also mean that it would be much cheaper to employ people in the UK - again given an enormous competitive advantage to UK businesses. 

Fifth, the Unconditional Basic Income would provide enormous flexibility in the job market. It would mean that many jobs could be effectively zero hour contracts in which people would only come in to work if their presence was really required.  When the need for workers was less, employers could say that they didn't need the extra hands, freeing people up to do other useful work. It would also radically change the job market with the result that the toughest jobs would get paid better than easier and less challenging work.

Sixth, it would deal with the obvious fact, obvious to anyone who thinks about it for one minute, that paid jobs are getting rarer and rarer. Supermarket cashiers are already becoming a thing of the past. But, in the not too distant future, technologies like driverless cars will mean that many jobs for taxi, lorry and bus drivers will be a thing of the past. And even skilled jobs like examining x-rays for signs of tumours, or airport security, will soon disappear when it becomes clear that they are more efficiently done by machines. But the progressive elimination of such jobs  shouldn't mean that there is nothing useful for people to do in society. There are millions of useful things that citizens can do - caring for children, the elderly and the disabled for example - which people will do volontarilly if they have the opportunity. The same applies to many other activities in the arts and culture, as well as associations and charity work. Why should people wait to be retired before starting to do such emminently useful actitivies?

Importantly, this combination of measures, while not directly challenging the current monopoly on money creation that is in the hands of commercial banks, would effectively  allow the current debt-based money creation system to be replaced with a debt-free money system. Over time, this would allow debts to be paid off progressively - removing the ability of the financial sector to dominate. People would no longer spend their lives trying to get out of debt. And the horrific inequality that blights our societies will gradually be reduced. Currently, the system is guaranteed to result in a net transfer of wealth from people who have debts (most of us) to the lucky few who constitue the 1% (or even the 0.01%) at the top.

I could go on. But I think that these proposals demonstrate that the standard boring proposals made by 99% of politicians are not the only options. There are alternatives. They just never get discussed.

For the time being, about the only political party prepared to think out of the box in the UK is the Green Party. If you have the opportunity to vote in next Thursday's election, please take that option seriously.

30 Apr 2015

Why does no-one challenge Cameron on the increase in UK Public Sector debt?

With one week to go before the Elections in the UK, I'm amazed that David Cameron can still get up and tell people that they have cut the deficit. As the figures from Eurostat show, in the five years that Cameron has been in power,  Public Sector Debt increased from £975 billion to over £1601 billion. That's an increase of over £625 billion. With a population of 64 million, that means that Cameron has effectively added around £10 000 of debt for every man, woman and child in the country. That's £40,000 for a family of four.

The following table shows how the amount of  UK public sector debt changed every year since 1995. 
As you can see, Blair's Labour government actually got debt levels to decrease from 1998 to 2001. Obviously, the financial crash in 2008-9 caused a huge in crease in debt levels. But frankly, can David Cameron really say that the increase of £105 billion between the end of 2013 and 2014 is evidence that they did a good job? Debt increases have been much higher under Cameron and Osborne than for any years except during the financial crisis itself.

So, how does he get away with it?  And why does nobody challenge him on this? Well, I suspect that he's got away with it because, so far, the interest rates paid when the UK government borrows are relatively low - currently about 1.59%. That still means that UK taxpayers paid over £49 billion last year on interest payments. But just imagine what would happen if those rates increased to, say, 3%. How could  a second Cameron government handle that given that, in addition, Cameron has said he will pass a law to prevent increases in taxation?  I can only assume that he would simply have to slash public services even more.

People of Britain, please can you note that there is only one party that has even mentioned the need to fix the insane system where commercial banks lend non-existent money to governments. It's the UK Green Party who have a commitment to reforming the Banking system. Indeed, they are proposing something pretty close to the ideas presented by Positive Money.  For me, it's the only way that there can ever be a real solution to the debt crisis that is plaguing the entire planet, and which has meant that Total World Debt has now soared to an incredible $199 trillion at the end of 2014 - a number 2.5 larger than the total global money supply.  If you don't fix the system, there is no way out.

26 Apr 2015

Per Capita Interest Payments on European Public Sector Debt - around €700 in 2014, €13 000 over 20 years

Yesterday, my two posts looked at the latest set of figures from Eurostat on Public Sector Debt and Interest Payments across the European Union. The headline figures were that European Public Sector Debt at the end of 2014 had reached a staggering €12 trillion, and that the total interest payments over the last 20 years (i.e. the years for which Eurostat provides tables) exceed €6.66 trillion - i.e. over 55% of all public sector debt.

It was also clear from the data that the amount that taxpayers have been forking out to pay those interest payments varies a lot from country to country.

So, I thought it would be "amusing" to calculate the Per Capita interest payments for each country separately, using the population sizes of each country. The following table shows the results, with numbers for the per capita payments for both 2014, and also for the total period for which data is available - usually 1995-2014. I've ranked the Euro values by the 2014 payments, and also provided numbers in national currencies for countries that don't use Euros at the bottom.
And the winners for 2014 are ..... the Irish! Every man, woman and child in Ireland paid the equivalent of €1 629 to the Banking Sector in interest payments on their public sector debt. They are closely followed by the Italians (€1 237 each), the Belgians (€1 104), and the Brits (€947, or £764 if you want the number in pounds sterling). Even the crisis striken Greeks were able to contribute €641 each.

If we take the total interest payments in 2014 (over €356 billion) and divide by the total population (512 million) you get the figure of €696 per man, woman and child - let's call that a round €700.

If instead of just looking at 2014, we add up the numbers for the full 20 period to get the full €6.66 trillion, we discover that every man, woman and child has effectively paid over €13 000 each to the banking sector.

Of course, there again there are big variations between countries. Interestingly, the most generous nation have been the Belgians, who have each coughed up €26 208 over the 20 year period, followed very closely by the Italians who managed to hand over  €26 120 of their hard earned cash.

None of the next nations on the list could manage more than €20 000 each, but nevertheless the Danes contributed €19 573 each, followed by the Austrians (€18 575), the Germans (€15 911) and the Dutch (€15 555).

The Brits only contributed €13 574 each (over £10 000 in sterling), but the real mizers are nations like Luxembourg who only managed to pay just over €4000 over the 20 year period. And there are even countries like Romania, Bulgaria and Latvia who only forked out just over €1400 over the full 20 year period. But I suppose you have to take into account that wages are a lot lower in those countries.

People of Europe! Wake up! These interest payments on your governments debt that we have all been paying are nothing other than a well-oiled racket that allows the financial sector to siphon off trillions of euros in unjustifiable interest payments. Remember that the banks who lend your governments the money don't even have the money they lend - they just invent it out of thin air and sit back and claim the interest.  It means that we are all essentially working for the financial sector who only get away with the scam because nobody seems to see why this is all wrong.

25 Apr 2015

European Public Sector Interest Payments - €354 billion in 2014 - €6.66 trillion over 20 years

The other fascinating set data that has just been published on the Eurostat website concerns the Interest payments that were paid on the €12 trillion of public sector debt that had accumulated by the end of 2014. You may have read that interest rates are really good at the moment, and that Governments can borrow cheaply. But even if they are low, when you owe €12 trillion it still adds up.

Just how much can be seen from the following table that provides all the numbers provided by Eurostat (just click on the image to get a high-resolution version). The top half of the table provides figures for all the European Union countries, whereas at the bottom you can find the figures in millions of the national currencies for countries like the UK, Norway, Sweden and Denmark that have their own currencies.

Here are some of the key things to note.

In 2014, European Union Taxpayers paid a total of nearly €354 billion in interest charges on public sector debt, bringing the total to nearly €1.5 trillion in just the four year period from 2011 through 2014.

The Eurostat table doesn't add up the interest payments for the full 20 year period from 1996-2015, so I did it for you. The numbers are not quite complete, because the complete set of figures are missing for Poland, Greece, Norway, Croatia and Estonia. But the total is nearly €6.66 trillion anyway (the number in red in the table). That's a whopping 55.1% of all the €12 trillion of European Union public sector debt.

Italian tax-payers were the most generous, paying out €75.2 billion in 2014 alone, and bringing their total for interest payments for the 20 year period from 1995-2014 to €1.59 trillion - which means that 74.4% of their total public sector debt (see my last post) is entirely due to interest payments. It also means that they paid nearly 24% of all the interest payments for the entire European Union over that 20 year period.  I imagine that Mario Draghi's ex-bosses at Goldman Sachs must be rubbing their hands together in glee. I think that they should give a personal vote of thanks to the Italian population.

The next most generous tax-payers are those in the United Kingdom. They forked out nearly €61 billion in interest payments in 2014 - that's over £49 billion sterling. And it brings the total amount of interest paid out by UK  taxpayers over 20 years to an impressive €873 billion - or nearly £654 billion. Not as generous as the Italians, but nevertheless around 42.5% of all the UK's public sector debt. Again, George Osborne's chums in the City must be smiling all their way to the bank (and all the way from the bank!). Remind me George - what is the reason for the size of UK public sector debt? Too much public spending, right? Indeed - too much public spending on interest charges!

Number 3 on the list is, would you believe Germany. They may be great at business and industry, but they are also very good at handing over taxpayers' money to bankers - over €50.5 billion in 2014 to be precise. That brings the total over the last 20 years to €1285 billion - over 59% of Germany's record beating €2170 billion in public sector debt, and over 19% of the European Community's total over the 20 year period.

As a French taxpayer, I've been doing my bit too. Along with all the other taxpayers in France, we paid a total of over €47 billion in interest last year, bringing the 20 year total to over €931 billion - 42.8% of the entire French public sector debt.

And so it goes on. I think that the bankers should give a special vote of thanks to tax-payers in Hungary and Denmark. In those two countries,  tax-payers made interest payments over the 20 year period that account for respectively 93.5% and 94.5% of all their public sector debts. At least in their case, it is clear where there taxes have been going.

It's maybe not the time to labour the point but, in case you didn't know, the banks that lend money to our governments don't actually have the money they lend. They just create it out of thin air, and then sit back and collect the interest. It's a truly remarkable system, and extremely lucrative for the commercial banks that have the monopoly on money creation. Sure, the European Central Bank has also started creating money out of thin air too - there will be over €1 trillion of quantitative easing over the next 18 months or so. But thanks to the remarkable well-constructed Article 123 of the Lisbon Treaty, Central Banks can't lend directly to governments. Instead, those governments are legally obliged to go and borrow from the commercial banks who, as I just said, all have money trees that they can use to generate unlimited amounts of debt for gullible, stupid or complicit politicians.

And there is no-one better to lend fictitious money to than complicit governments. If a bank lends to a business or to a consumer, there is a real chance that they might not get all their "money" back. In contrast, when a bank lends it "money" to a government like the Greek government, they can force that Government to extract the money needed to pay off those debts by taxing their citizens. It's virtually zero risk, and yet extremely lucrative. With the IMF and the ECB working in tandem, they have enormous power to oblige even reluctant governments (like the one in Greece) to pay their pound of flesh to the bankers - using their taxpayers money.

As I say, the fact that European Union's taxpayers have been extremely generous, providing €6.66 trillion of interest payments to the banking system. No doubt quite a lot of that money has been recycled back into the economy via the Maserati dealers and Lear jets. But is it really the best way to do things?

European Public Sector debt in 2014 - Over €12 trillion

The Eurostat website has just updated all the figures for European Government debt for 2014. The gory details can be downloaded from their website. But be warned, it's not trivial to find the numbers.  So hopefully you will be happy to know that I have done the work for you. 

I've been providing these numbers every year since I started my blog back in 2010 - and you can have a look at my previous posts that provided the numbers for 2010, 2011, 2012 and 2013.

But this year, I have decided to just give you the data in a relatively raw form so that you can look at the complete Eurostat figures for all European Union countries. By clicking on the image below you can download a large table that gives all the public sector debt figures since 1995 - the first year for which Eurostat provides the numbers.  The top part of the table provides debt levels for all countries and groups of countries in Millions of Euros, whereas the bottom part provides the numbers for European Countries like the UK  that use their own currencies.


The key facts are as follows.

First, overall Government Consolidated Gross Debt for the 28 European Union countries is up 4.6% on 2013 and now exceed €12 trillion. The increase for the 18 Eurozone countries was a bit smaller - just 2.9% - bringing the total to around €9.3 trillion.

Four European countries now have over €2 trillion of public sector debt.

Top of the list is Germany whose debt has now reach €2.17 trillion. So despite Germany's tendency to lecture everyone else about public sector debt, they are actually the worst culprits.

Next comes Italy with €2.13 trillion, followed by the UK with €2.05 trillion (over £1.6 trillion), and then France with €2.04 trillion.

The figures for the UK are particular impressive. Despite Osborne and Cameron claims to have managed the economy intelligently by imposing massive cuts in public spending and "balancing the books", public sector has actually increased 14.6% over the figures for 2013 (€1.79 trillion,  or £1.6 trillion). Indeed, the Conservative LibDem coaltion has managed to increase public sector debt by an incredible 64 % since taking power in 2010 because  the figure for 2009 was a mere £975 billion. That's an increase of £625 billion in just 5 years. Any claim that they make concerning the intelligence of their economic policies is, in my humble opinion, completely refuted by these catastrophic results.

To further demonstrate just how useless George Osborne is, I've compiled the following table that shows the numbers for Government Gross Debt in  2013 and 2014 together with the percentage changes. So, yes, Bulgaria and Slovenia both did worse that Osborne and co - racking up increases of 54% and 18.5% respectively, but Osborne's 14.6% in one year is nevertheless very impressive.
Full marks to Greece, the Czech Republic, Ireland, Poland and Norway who all succeeded in actually reducing Public Sector Debt between 2013 and 2014.

What did I hear? The IMF and ECB are refusing to allow Greece any leeway? Greece is being pressurized to follow the excellent example provided by the UK?? It's very unfair.



16 Apr 2015

3 key ideas in the UK Green Party Manifesto

I am delighted to see that the UK Green Party's Manifesto includes commitments to three of my favorite reforms:
  • Stop commercial banks creating money and use a central authority to handle money creation
  • Introduce a tax on Financial Transactions
  • Introduce a Basic Income
Are there any other political parties around the world that have all three ideas in their programs?

I would certainly vote Green if I was able to. Unfortunately, I've been living in France for too long to be able to vote in the UK.  Why can't the Greens in France follow the example set in the UK?

Here are some extracts from the manifesto.

Regaining control of our money (page 47)
One of the most fundamental tasks of government is maintenance of the currency. Without stable money accepted by all we can’t buy and sell things or plan for the future. Inflation in particular makes it hard to take the long-term view that the environmental crisis demands.
 

Most people believe that our money is currently created by the nationalised Bank of England. It isn’t. A pound in your bank account is no more than a promise by the bank to pay you that pound; you don’t actually own any publicly created money. In fact, commercial banks create new money (in the sense of money in bank accounts) whenever they make loans, and that money disappears when the loan is paid back.

The fact that the size of our money supply – the total amount of money in circulation – is dependent upon millions of separate commercial lending decisions by banks makes it hard to maintain economic stability. During the great recession of the past few years, the unwillingness of banks to make new loans and the desire of people to pay down their debts has meant that the money supply has shrunk, and the government has had to resort to the emergency policy of printing money (called ‘quantitative easing’) to prevent an even worse slump.


We believe that the time has come to recognise that the creation of currency and the control of the money supply is far too important to be left to profit-seeking private sector banks and should be brought back under the democratic control of the state. Quantitative easing was but a first step. Commercial banks should be no more than the custodians of publicly created money in current accounts, and the creation of that money should become the function of a new monetary authority, independent of day-today government control. This policy would protect ordinary bank accounts, and

  • allow banks to fail safely
  • separate ordinary and investment business
  • provide some control on overall lending and debt

Tax Financial Transactions (page 51)
Introduce a Robin Hood tax of 0.1% on transactions in bonds and equities and 0.01% on derivatives, replacing the existing stamp duty on share transactions. This would raise up to £20 billion a year later in the Parliament and would help stabilise financial markets.

Introduce a Basic Income (page 54)
Scrap most of the existing benefits apart from disability benefits and Housing Benefit. Abolish the income tax personal allowance. Then pay every woman, man and child legally resident in the UK a guaranteed, non-means-tested income, sufficient to cover basic needs – a Basic Income. For those who earn, the Basic Income compensates for the loss of the personal allowance.
Children will receive a reduced Basic Income, Child Benefit. Pensioners will receive their Basic Income at a higher level, as a Citizen’s Pension.
 

The advantages are many and we support the principle of a Universal Basic Income because it has the potential to:
• Act as a springboard rather than a safety net; people can take jobs without fear of prosecution for working while on benefits;
• Prevent people falling into absolute poverty rather than trying to help them when they are already there;
• Reward people for all the work that’s done outside the formal economy, and most of this work is done by women;
• Encourage more of this unpaid activity, much of which – such as food growing, fixing things that have gone wrong, converting older buildings, protecting the natural environment – is a vital part of a transition to a more sustainable economy;
• Avoid the poverty trap in which an increase in wages leads to a massive loss of benefits;
• Make everyone who earns, however little, a citizen who contributes to society by paying taxes, giving almost everyone a stake – raising the personal allowance takes us in precisely the wrong direction;
• Be simple to administer and easy to understand.

11 Apr 2015

Lord Turner agrees with me! The ECB should both pump debt free money into the economy and remove the excess with an FTT!

Fantastic! There is at least one well placed person who is now saying what I have been arguing for a couple of years now (see for example my blog here, or my Youtube presentation from 2013). Central Banks should have two levers to control the amount of money in circulation. 1) They should be able to push debt free money into the economy either by providing direct funding for Eurozone governments (or simply giving money to Eurozone citizens), and (2) use a financial transaction tax to remove money if needed, thus eliminating any risk of inflation.

 In a recent interview with the German magazine Deutsch Welle with the title "ECB could solve eurozone crisis, leading economist says", Lord Adair Turner, the former chief of the UK Financial Services Authority, and the new chairman of INET - the Insitute for New Economic Thinking, told the magazine that calibrated use of the ECB's balance sheet could end the eurozone crisis. The short article is full of gems. Adair Turner notes that
Banks create the circulating money supply when they grant credit to borrowers. Bank debt and bank credit - the latter is what we commonly call "money"– are two sides of the same coin, mirror images on banks' balance sheets. When bank debts are paid off, both the debt and the money used to pay it off disappear.
If more bank debt is repaid than is created in a given time period, the result is a reduction in the circulating money supply, and that means a reduction in purchasing power. The result is a recession, or even a depression."
At last! An economist who really knows what he's talking about. Debt based money creation is guaranteed to be unstable. Money creation MUST be debt free! He goes on to say that
You have to allow the central bank to give carefully calibrated amounts of debt-free money to governments to spend into circulation."
Hooray!! Another victory for Positive Money! The journalist points out that "eurozone rules prohibit central bank funding of governments." But Adair Turner has a neat reply:
The prohibition was put in place at the Bundesbank's insistence, because of a fear that if any monetary financing of deficits were allowed, governments would get carried away, print far too much money and create hyperinflation. Now, a medicine can be a cure in small doses, yet be a dangerous poison in high doses. But does it therefore make sense to forbid that medicine from being used at all? No. What you need is sensible rules about dosages and procedures for carefully monitoring how the patient responds to them - and a qualified doctor who administers and adjusts dosages based on the observed results. The ECB's balance sheet could be used to end the eurozone crisis.
The way forward is to set clear rules in advance, defining under what conditions, how and to what extent financing of eurozone government deficits with sovereign ECB money would be allowed. The rules should leave decisions about how much monetary stimulus the ECB provides entirely up to the ECB. The central bank would retain its policy independence. We'd merely be giving it a new tool to improve its ability to manage monetary aggregates and prevent depressions.
The journalist then offers a comment that maybe there should be "an instrument to get rid of too much money ..." to which Adair Turner says:
You'd also give it tools for removing money from the system again when it deems it appropriate. For example, we could set up an adjustable financial transaction tax that flows money to the ECB. Whenever it thinks the economy is at risk of overheating, the ECB could stop passing the tax revenue along to governments for spending. It could put the money on ice or destroy it.
Is it possible that Adair Turner has been reading my blog?? In any case, this is the first time, to my knowledge that anyone well placed has argued that we could fix the system by equiping Central Banks like the ECB with a push-pull mechanism for accurately controling the amount of money in circulation. Even better, the article has appeared in the German Press! Is the Bundesbank listening??

In case Adair Turner ever reads this, can I just point out that although paragraph 1 of article 123 of the Lisbon Treaty does indeed prevent Central Banks lending to Governments, paragraph 2 says that they can lend to "publicly owned credit institutions". Those publicly owned credit institutions could then lend to the governments. The problem would be solved without even having to change the rules.

Alternatively, the ECB could simply hand debt free money to Citizens via a Unconditional Basic Income - again eliminating any problems with the Lisbon Treaty.

All of a sudden there are reasons to be optimistic.

 And, of course, all these ideas could fix the Greek Debt Crisis with a stroke of a pen....