21 Oct 2014

Why the entire planet should be pushing for an Unconditional Basic Income for all

What's the biggest threat to humanity? Given my obsession with fixing the economy, you might be forgiven for thinking I believe that our biggest priority should be fixing the way our monetary system works.

Well, sure - the economy  is really important. But even more important is the fact that we are destroying our planet, in part because the numbers of humans on the planet is increasing in an almost totally uncontrolled manner. I'm old enough to remember when the population of the world was 3 billion. But it's now well over 7 billion. And  if things go on at the same rate, we will exceed 10 billion humans by around 2060. Surely, it must be obvious to everyone that this is not viable.

I've just seen Neil Young's new song "We're gonna stand up" (and save the earth). Good to see a real protest song for once. It's not as if there isn't enough to protest about.

So, Neil, here's one suggesiton about how we might save the earth.

Why is the world's population increasing out of control? It's clearly a complex issue. But I suspect that for many people in third world countries, the need to have a guarantee of support into old age is a major factor. In a system where there are no pensions, and no system of social protection, is it surprising that people will try and have large numbers of children, simply to be sure that there will be someone around to look after them in old age? Isn't that a perfectly understandable justification for people in African countires having 8 children or more?? If you had no pension, and no way of saving money for your retirement, wouldn't you do the same?

So, how might that be changed?

Well, believe it or not, I think that the solution could lie in - taxing financial transactions and using the revenue to pay a direct Unconditional Basic Income to people in third world countries.

I've already argued that a minuscule tax on financial transactions could provide enough money to provide a very considerable Unconditional Basic Income to people in western countries. For example, given that transactions in the Eurozone are running at well over €2 quadrillion a year,  a tax of just 0.1% could generate enough money to provide a Basic Income of around €6000 to every man, woman and child in the Eurozone countries (there are 330 million of them).

Add another fraction of a percent, and it would be possible for the Eurozone countries to provide a very substantial amount of money to people in third world countries - money that could be provided directly to citizens in those countries. You wouldn't need to provide much to make a huge difference to someone living in Burkina Faso - €20 a month would certainly transform their lives, but even €20 a year would make a huge difference.

The critical point is that if you could convince people that they could rely on receiving these modest sums throughout their lives, the argument for producing large numbers of offspring simply to feel confident that they would have someway to survive in old age would disappear. Of course, you would have to be convincing. It wouldn't be enough to say that we are going to make the payments this year or next year. People in Burkina Faso would need to be convinced that that paymenst would still be coming in 30 or even 50 years later.

Can you think of any other way of reducing the rate of population increase in third world countries? I'm assuming that compulsory sterilization is something that we would rather avoid.

Providing a guaranteed flow of money to third world countries would make extremely good sense for a number of other reasons. For example, if you provide these countries with some Euros (or sterling or dollars), that would allow them to purchase goods and services from those countries - thus providing a boost to those economies. It's clearly a win-win situation.  This would be infinitely more intelligent than the current system in which organisations like the World Bank lend "money" to third world countires, thus getting them massively in debt and requiring them to spend decades devoting all of their acitivities to paying off those debts. Importantly, the direct payments to third world Citizens would be entirely debt-free. Like the Unconditional Basic Income paid to citizens in the Eurozone, the money paid to citizens in third world countries would be entirely without conditions. That's the way it should be.

Seriously, I think that this proposal could really change the future of our planet. I believe that the rate of increase of the world's population could be brought under control - without the need for any restrictive rules.

To make the system work even more efficiently, you could arrange things so that the Unconditional Basic Income payments are only paid to adults. That would reduce any temptation to have children simply to increase the level of payments. Note that this would be a different strategy to the one used in the Eurozone (for example) where there would be not need to directly discourage people from having children, since many couples will only have around 2 offspring each.

Another useful trick would be to arrange things so that people would only receive the payments if they stayed in their home countries. Thus, people would know that if they moved from their original countries, they would no longer be eligable for the payments - thus reducing the incentive to attempt to migrate to places like Western Europe. If they do, they would only recieve the payment if they are accepted as a legitimate refugee.

So, yes, I do think that an intelligent use of a universal Unconditional Basic Income could provide a powerful way to improve the lot of people in third world countries.

There might even be an additional indirect and unexpected payoff of such a move. If overpopulation is clearly one very serious threat to everyone liviing on the planet, another is the spread of Islamic Extremism. What on earth can motivate people to sign up with fanatical groups like ISIS? I can only think that one factor could be an extreme rejection of the morals of current neo-liberal capitalism. Maybe, if people in the west were to demonstrate that they weren't only interested in maximising profits, it may go some way to defusing the currently explosive situation.

But in any case, I am becoming increasingly convinced that a few simple ideas may provide the keys for a truly ground-breaking revolution - one that could transform all of our lives, and the lives of future generations.

19 Oct 2014

Why Mario Draghi and Mark Carney should be pushing for an Unconditional Basic Income for all

Yes... even the heads of the European Central Bank and the Bank of England should be pushing to introduce an Unconditional Basic Income for all their citizens. It's not just every single entrepreneur, and all the right wing anti-immigration parties like UKIP and the Front National, who should be campaigning.

Currently, Mario Draghi (who is the head of the European Central Bank) and Mark Carney (governer of the Bank of England) are supposed to try and maintain monetary stability, and yet they have very few levers with which they can work. They can set the interest rates at which commercial banks can borrow from the Central Bank, but that is not money that can be put directly into the economy. And the fact is that, most of the time,  a commercial bank doesn't need to go to the Central Bank at all - it can quite happily create new money in the form of bank deposits for its customers with no help from Draghi and Carney.

On the other hand, the Lisbon treaty makes it impossible for Central Banks to provide money directly to governments (a brilliant move by the Commercial Banking lobbyists - who have arranged things so that our governments are forced to borrow from the Commercial Banking sector - who will be quite happy to create huge amounts of debt on demand - and then sit back and collect the roughly 3% of GDP that taxpayers have to spend to keep the banking sector happy - and that's just public sector debt).

I've already pointed out that the Lisbon Treaty actually leaves open another option, since Central Banks could lend to "Publicly Owned Credit Institutions" which could lend on to governments.

But I really do think that there is an even better solution for the Central Banks. If they were to make direct payments into Citizen's banks accounts, this would be a very straight forward way to get money into the system where it is needed. Much better than conventional Quantitative Easing, which essentially involves throwing money at the financial sector and praying.

You may argue that if Central Banks were really to start creating money to pay Citizen's a Basic Income, that this could cause inflation. But I have the solution. It would be to remove the same amount of money from the economy in the form of a flat rate financial transaction tax on all Euro-denominated transactions (in the case of the ECB) or sterling-denominated ones (in the case of the Bank of England).

There's one very nice feature of this convertion process. The Central Bank would effectively be sucking in debt based money from the system (money that has been created as debt by banks when they make loans) and turning it into debt free money in the accounts of citizens. It's a form of money (or rather debt) laundering process.

Currently, something between 95% and 97% of the "money" in the system is in the form of interest bearing debt. M3 money supply (which includes not just notes and coins, but also all the electronically generated debt-based money) stands at just over €10 trillion. At the same time, transactions in the Eurozone are running at well over €2 quadrillion a year. Taxing those transactions at 0.1% and injecting the revenue directly into citizens' bank accounts could allow as much as €2 trillion of the €10 trillion M3 to be converted into debt free money per year - without any real increase in the actual amount of money in circulation.

If I have understood the mechanism, it can be expected that within a few years, it might be possible to eliminate virtually the entire debt mountain.  Surely, that has to be excellent news for everyone (except, perhaps, the people who currently benefit by being paid the interest payments on that debt).

All that would be possible without the Central Banks having to change the actual amount of money in the economy at all. It would simply be a case of moving the money from one place (the financial sector), to another (the real economy), and converting it from debt-based to debt-free money.

Once the mechanisms of the FTT based money removal, and the Unconditional Basic Income for reinjection have been set up, Central Bankers like Draghi and Carney could do even more. They would have all the levers they need to directly control the amount of money in circulation - something that they could only dream of today. If they decide to increase the level of the financial tax on transactions without increasing the amount of money being reinjecting into Citizen's bank accounts, this would have the effect of decreasing the amount of money in the system. Alternatively, the Central Bank could, if necessary, make direct payments to citizens that exceed the amount of money raised by the tax - thus increasing the total amount of money in circulation.

So,  Mario Draghi and Mark Carney, wouldn't you love to get your hands on those two levers? Isn't that really what you need to be able to do your jobs??

If you agree, you could start campaigning with the politicians to allow you to (i) tax electronic transactions in your respective currencies (wherever those transactions occur in the world), and (ii) have the right to create accounts for all the citizens in your jurisdiction, and to have the power to transfer money to those accounts.

Why Marine Le Pen and Nigel Farage should be pushing for an Unconditional Basic Income for all

I'm again following on from my open letter to Jean Tirole yesterday. I am arguing that an intelligent alternative to the current recipe of neoliberal reforms and austerity would be to pay every citizen an Unconditional Basic Income, financed by a minuscule tax on all electronically mediated financial transactions in a given currency - wherever they occur in the world. In the case of the Eurozone, I claim that a tax of just 0.1% on all Euro-denominated transactions could provide a €6000 a year Unconditional Basic Income for everyone of the 330 million citizens of the Eurozone.

In this post, I want to argue that in addition to abolishing poverty at a stroke (hardly a trivial consequence), and being a fantastic deal for business (by providing complete employment flexibility and drastically reducing wage costs - see my last post), it is also a solution for the problem of illegal immigration - one of the major arguments that has been fueling the rise of anti-immigration parties such as  Nigel Farage's UKIP party in the UK, and Marine Le Pen's Front National in France.

So, here's how it works.

Currently, the citizens of a country like the UK are competing for jobs with clandestine immigrants, prepared to work for below minimum wages and with incomplete or non -existent job protection. With the current UK government committed to reducing their involvement in the job markets, they are quite happy to allow employers to use cheap and often illegal labour, on the grounds that it is good for the UK economy to be able to produce goods and provide services more cheaply.

The result is that while the UK economy is apparently booming in that there has been a large expansion in the number of jobs in the economy, those jobs are providing wages that are not even keeping up with inflation. There have been recent reports that the recent squeeze on incomes within the general population is the worst since the 1860s.

When politicians like Nigel Farage point to the hundreds of illegal immigrants swarming through the ferries in Dover every day, and claim that those illegal immigrants are undercutting the native work force and making it harder and harder to get decent paid work, it has to be admitted that they do have a point.

Of course, one option would be to clamp down on employees that employ clandestine workers. But this would be extremely expensive to do properly, possibly requiring thousands of police and other inspectors going round every factory and shop in the country searching for people trying to get round the employment legislation. And, of course, it would turn every non-white person in the country into a potential illegal immigrant that has to be denounced. We could rapidly find ourselves in the equivalent of 1930s Germany.

Why is a Unconditional Basic Income for citizens a way to solve this problem? Well, if you are a legitimate citizen of a country, and are receiving a basic montly payment of (say) €500 for each member of the household, an employer who wanted to get you to work for him would only need to offer enough money to top up your salary. Potentially, this might be a relatively modest sum - and it could be for a relatively small number of hours. There would be no need to work for a minimum 35 or 40 hour week as is currently the case if you are to have a chance of managing to feed, house and clothe a family. Staff could choose the amount of work they want to do.  In contrast, an illegal immigrant who was trying to survive on just the paid employment with no Basic Income, would have a very hard time. It would simply not be worth trying to get through immigration, because you would not be able to survive on just that salary. As a consequence, the UK would no longer be the eldorado for cladestine workers that it currently is.

Likewise, in Eurozone countries like Italy, currently the target for tens of thousands of desperate would-be immigrants from Africa and the Middle East, the existence of a Basic Unconditional Income for legitimate citizens would again prevent local workers from being undercut by clandestine workers prepared to work of substandard wages and with no protection.  And all this without the need for increased police surveillance! Isn't that a much more intelligent was to deal with the problem?  Illegal immigrants would simply not want to come and try and work in a country where they were not able to undercut legitimate citizens.

Let me stress that I would not want to reject legitimate refugees. If someone is under threat of persecution in their home country, I for one would be happy to see their name added to the list of Eurozone (or UK) citizens, and hence be eligable for the same Unconditional Basic Income payments that other citizens receive. But that would be a controllable process - new refugees would be added to the list if and only irf they gain refugee status (and hence citizenship).

But then there are all the economic migrants - the ones who are currently convinced that they will have a better life in the UK or in the Eurozone than they could possibly have back home. It's likely that the vast majority of migrants are in fact in this group. What would happen to them? Well, it's clear that if they are forced to compete with local citizens who already have €6000 a year in Basic Income, it will be a lot harder for them to compete... and that might be enough to stem the flow.

But there is an even better solution. Suppose that the Eurozone countries were to decide that, of the €2 trillion in revenue that the tax on Euro denominated transactions, a substantial percentage should be allocated to pay people in third world counties a Basic Unconditional Income of their own. Obviously, it would not be €6000 a year. But how about €100 a year? I'm convinced that if people in African countries were given €100 a year of Basic Revenue, but that those payments were conditional on just one thing - their residence in their country of origin, wouldn't that fix the current dilemma?

€100 would buy one hell of a lot in Niger or Burkino Faso. It would stimulate the local economy and really make it so that people can stay close to their families. Isn't that what the vast majority of people would choose to do?? Other countries such as the US and the UK could provide similar sums to help support developing countries. Importantly, these payments would not be loans - they would not increase the level of debt in third world countires. It would be real money that could be used to make the local economy work, but also to pay for much needed western technology and services if needed.

I am personally convinced that, given the choice, most migrants would normally prefer to stay close to their own families and in their own cultures rather than risking life and limb to reach the mythical eldorado of Western Europe where they would be like fish out of water. The current situation is just a demonstration of the stupidity of the present system.

And of course, a similar solution would almost certainly fix the immigration crisis faced by the US. Give a reasonably generous Unconditional Basic Income to all US Citizens at home, and give a smaller amount to anyone who stays at home in Mexico or the other Latin American countries and who is currently tempted to try and reach the US as an economic migrant.

So, there you have it. It seems that anyone who could be tempted to vote for a right-wing anti-immigration party like the FN and UKIP would logically be tempted to vote for a party that put the idea of an Unconditional Basic Income into their program. Let's do it.

Why every entrepreneur should be pushing for an Unconditional Basic Income for all

In my open letter to Jean Tirole yesterday, I argued that Central Banks should introduce a tiny financial transaction tax on all electronic transactions denominated in their currency, and inject the revenues directly at the level of citizens using an Unconditional Basic Income. I suspect that, globally, Euro denominated transactions are running at something like €2 quadrillion a year - that's also the volume of transactions in just 5 Eurozone countries in 2013.  If the ECB taxed those transactions at 0.1%, that should generate €2 trillion in revenue, which, spread between the Eurozone's 330 million citizens would mean around €6000 a year for every man woman and child - €24,000 a year for a family of four.

Similarly mechanisms could be introduced by every single Central Bank on the planet. The Bank of England could impose a tiny tax on transactions in sterling, the Federal Reserve (or the US Treasury?) could tax transactions in dollars, the Swedish Central Bank could tax transactions in Krone, and so forth. 

To some, this suggestion may appear like some insane left-wing plot designed to make businesses inoperable - why would anyone work if they were not forced to. But it's quite the opposite. In this post, I would like to argue that every entrepreneur, and every "Pro-business" government (like Manual Valls here in France) should be pushing hard to introduce such a scheme. Why?

Well, if you are running a business, be it in manufacturing or services, you have to keep costs down to a minimum if you want to be competitive. If you are the head of a car company like Renault, it will be very difficult for you to sell cars across the world, if your manufacturing costs are twice those in other countries. The result is that you may be tempted to delocalize your manufacturing plant to other places where conditions are better.

It also means that you will want to keep wage costs down, by paying people just enough to get them to work for you, but not too much, and only employing people when you need them to do the work. We often hear employers saying that they dream of having a "flexible" work force - one that can be called on to work when needed, but that can be laid off easily in the case of a downturn in demand.

Is that true at the present time? I don't think so - at least not in France, where the employment regulations are particularly difficult to deal with for companies and where the costs of employing people are notoriously high.

Now, let's think what would happen if citizens started receiving an Unconditional Basic Income, and let's  assume about €500 per person per month (€6000 a year). For a family of four, this would mean that they could count on  €24000 every year, even if noone was working. (For simplicity, I'm assuming that the rate is the same irrespective of age, although some would argue for smaller incomes for children). Depending on where you live in the Eurozone, this could be enough to live reasonably, although probably not if you wanted to live in a big city like Paris of course.

How much would you, as an employer, now need to offer to get someone to work for you? It would all depend on what sort of work they were required to do, and what sort of hours. You would obviously need to pay more to get people to do unpleasant jobs (like cleaning out sewers), or ones that are dangerous or with health risks.

But sppose that you only need someone to work for 10 hours a week. Currently, this would be very difficult to organise because you would almost certainly have to offer full-time work to make it possible for them to earn enough to survive. The only other option for them currently would be to have multiple jobs, but that would be a nightmare to organize - both for them and for you. And of course, what you would really like is to have staff who can come in at a moment's notice and do the 10 hours that you want them to do whenever you want.  That would not be possible if someone was combining multiple jobs because you would end up in competition with the other employers.

Ensuring that people already have an Unconditional Basic Income that is enough to cover their basic requirements means that they will be probably quite happy to come in to work for 10 hours, 20 hours, 40 hours or 60 hours a week, whenever you need them. They would be free to come in because they are not juggling with some other job at the same time. And earning some extra money to buy that new car, or pay for some holidays, or change the living room suite would be perfectly satisfactory as a way to motivate them. Believe it or not, you don't really need to starve workers to motivate them to take on employment.

And for those weeks when you don't have any work? No problem. You can just tell your staff that they don't need to come in at all... and they can go off and do something else instead, safe in the knowledge that their basic needs are covered by their guaranteed Unconditional Basic Income. It's literally the same thing as the so-called "zero-hours contracts" that have become so popular in the UK. But under the UK system, when the employer doesn't have any work, and their staff has no more income, its the social security that is forced to take over - and the UK taxpayer who ends up paying the bill. This inevitably fuels the idea that people forced to depend on benefits are "scroungers".

The net result of switching to a system with an Unconditional Basic Income is that you will have a happy and contented workforce, prepared to come in and help whenever you need it. And when then have done all the work that they have to do, you can tell them, like Richard Branson just did, that they are entitled to take unlimited vacation time.

But it doesn't stop with flexibility. You will almost certainly also end up with a situation where it will cost you far less to have staff working for you. Since they will already have a reasonable guaranteed income, you will probably be able to get them to work for less that you currently have to pay. It might even be possible to abolish any minimum wage rates. If people are OK to come in and work for a few hours on less than the minimum wage, then that's OK too. Difficult to be better for business than that.

Under the current system, you are really obliged to pay enough so that someone who is the breadwinner with a family can afford to live on the amount you pay. It's pretty stupid that you are legally required to pay the same amount to someone who is single, and living with their parents... but that's the way it is. You're not allowed to discriminate. The result is that your young single employee with no family responsabilities gets paid so much that they will be tempted to go out and blow half of it getting drunk at the weekend, or wasting their income partying in Ibiza. Is that sensible?

And, of course, since the amount that you pay the breadwinner with a family of four is not actually enough to live on (I think we can probably agree on that), the taxpayer then has to step in and top-up your inadequate pay with housing subsidies, free school meals for the children, etc etc. Is that sensible? 

Now, what about pensions, health care and unemployment costs? Currently, you know very well that when you take on staff, you are not only forced to pay them a salary. You also have to fork out large amounts of hard earned company profits to make contributions to pension schemes and to provide for unemployment protection and health care. But if your staff knew that they would be guanteed to get €6000 a year even if they become unemployed, or when they retire, they probably wouldn't insist of getting those sorts of payments in addition.

In other words, having a guaranteed Unconditional Basic Income for all would be fantastic news for all those people running businesses. You would get all the flexibility you could have dreamed of, plus a massive reduction in those additional charges that you currently have to pay, and which discourages you from taking on staff.

So, please, tell the politicians that you want everyone (including yourselves!) to have an Unconditional Basic Income. And tell them that you won't mind at all having to pay around 0.1% on all your financial transactions to pay for it!

One final point. Would you agree that, in any case, employers simply do not have enough jobs to keep everyone busy? If you own a supermarket, you are probably in the process of replacing cashiers at the check out with automatic machines. Even if you are running a hamburger chain, you can now get machines that will flip handburgers more efficiently that a human. If you are running a refuse collection agency, you probably know that you can now buy machines that can collect the trash cans? Google will soon be able to replace taxi drivers with automatic cars. Paid jobs are simply disappearing at a faster and faster rate every year.

So, isn't it about time that we woke up to the fact that you, the entrepreneurial class, are simply not going to be able to provide paid employment  for all our citizens? Isn't it about time to say that, no, it would be more sensible for people to do the things that they are personally motivated to do, without them having to fight for the few jobs that are left.  Giving people the liberty to choose to do other non-paid work would be great for everyone.  Don't you agree that people should be free to do all those other things - like looking after their children, their eldery relatives, the sick and disabled, running charities, looking after sports clubs, studying at university, setting up their own businesses, performing music, creating art, writing books, educating people, looking after the countryside etc etc even if there is no immediate way of justifying such activities as a way of making money?

Yes, there are a lot of things that only business can get done sensibly. And we need those businesses to be able to find well-trained highly motivated staff who are prepared to work flexibly. An Unconditional Basic Income is the way to get there.

18 Oct 2014

An open letter to my colleague Jean Tirole - the new nobel prize winner in Economics

Mon Cher Jean,

First, can I congratulate you on your Nobel prize in Economics. We are all very proud in France, and particularly in Toulouse, that you have received this most prestigious of honours.

As a colleague, and the director of another lab in Toulouse (the Brain and Cognition Research Centre, or CerCo) we have already met on a number of occasions, and I would be very happy to met up again in the near future. I know that you are a very pleasant person, very affable, and clearly one of France's most brilliant minds.

I've just listened to you on the Saturday morning Economics program on  France Inter "On n'arrête pas l'eco". You were asked what would be your four highest priorities to help the French government overcome the current debt crisis and to get the French economy back on track. Your recommendations were (i) reforming the "marché du travail" - the regulations controlling employment (presumably making it easier to hire and fire workers), (ii) reforming the pensions systems (by increasing the duration that people are forced to work in order to cover the costs of the system),  and (iii) reforming government to simplify and reduce the role of the state.  (You apparently didn't have a fourth proposition - it would seem that those three should be enough).

Sorry Jean. Much as I respect your contributions to Economic Theory, there is not much that is new there. It's the same neoliberal story that we all hear day in, day out. Remove restrictions on employment, force people to work longer, and reduce the role of the public sector, and everything will turn out fine. If I was to believe you, it will be possible to solve the debt crisis by a combination of austerity and liberalisation. Sorry, I'm afraid I don't believe you. Is that really the best that one of the most brilliant minds in economics can come up with? Isn't that just pure 100% orthodoxy??

So, how about trying something truly innovative? Can you be sure that we have exhausted all the options?

I would be very happy if you could tell me what is wrong with the following proposal.

For some time I've been pushing the idea that Central Banks such as the European Central Bank could introduce a small flat rate transaction tax on all electronic financial transactions in their currency, wherever they occur in the world. Anyone, anywhere in the world, who wanted to make transactions using Euros, would be legally obliged to pay the transaction tax. I would pay it when my salary from the CNRS arrives on my account. You would pay it when you receive your Nobel prize (if it was paid in Euros). I would pay it when I pay my electricity bill, when I use a credit card - indeed, whenever I or anyone else uses the Euro money system.

If I choose to use Sterling, I would make a payment to the Bank of England at the rate specified by the Bank of England. If I use Swiss Francs, I would pay a small fee to the Swiss Central Bank, and so forth.

Critically, everyone would pay. Citizens like you and me. But also businesses. And, of course, the transaction fee would also be paid by the financial markets who are using our money for literally millions (billions?) of transactions every day. 

The sort of fee that I'm talking about could be absolutely tiny - literally  a fraction of a percent. Perhaps one hundreth of the transaction fees currently charged by Credit Card companies such as Visa, MasterCard and American Express every time you and I use their services. Remember that while you may think that it costs you the same to pay with your credit card as when you pay cash, the merchant will often have been forced to pay between 2 and 4%. And obviously, we all end up paying more because of those charges, whether you use your credit card or cash.

And don't forget that, in addition to a 4% merchant fee, the vast majority of credit cards will also slap on an additional 2.5% or even 2.99% "International charge" when you use your credit card abroad. That fee is simply for multiplying the amount in the local currency by the current exchange rate. So, we all currently pay up to 7% in "Financial Transaction Taxes" to the banking system - everytime you or I go to London and buy a meal in a restaurant. I'm proposing something that could well be less than 0.1% - an amount that is almost insignficant when compared with the sorts of fees that the banking system currently imposes on every one of us.

The only difference is that instead of the transaction tax going to pay the bonuses for those in the financial sector, the transaction tax could be used to finance other more useful projects.

With a minimum of $10 quadrillion in global transactions every year, a tax of just 0.1% could logically generate as much as $10 trillion in revenue. As I pointed out a couple of weeks ago, the correct value for transactions is certainly a lot higher than $10 quadrillion, because major players like the Options Clearing Corportation ($12-16 quadrillion?), the Chicago Mercantile Exchange (also doing roughly a quadrillion per year), and LCH ClearNet Ltd are not even mentioned in the current "official" BIS figures.

So, let's conservatively assume that the tax  could raise at least $10 trillion globally. What could you do with that?

Well, my favorite  proposition is that the money should be directly handed out to citizens in the form of a basic unconditional income. Each Central Bank could simply create an account for all the citizens living in their region, and simply add some amount to that account every month, depending on the amount that has been raised. There would be no conditions attached. You would be paid whether you are working or not, employed or retired.

Note that I'm not proposing the that Central Bank would provide any real banking services, because the only thing that a citizen could do with the money on their account would be to transfer it to a normal high street account. Indeed, they would have to transfer the money to be able to use it. The Central Bank would also not be in the business of making loans - and you could never be negative on your Central Bank account - it would simply be impossible.  In passing, let's note that this would be an absolutely guaranteed place to leave your money - thus removing any need for government guarantees on bank deposits.  It would not earn any interest (you would need to move it to a commercial bank) - providing a useful risk free place for people to keep their savings if they wanted. By definition, a Central Bank could never go bust. People who decide to move their savings to an interest bearing commercial bank account would be forced to acknowledge that they were taking a risk.

Let's assume that the Euros contribution to world trading is 20% (this is guess work, since the actual numbers are unknown, although transactions in just five of the Eurozone countries in 2013 exceeded €2 quadrillion  (that's a 2 with fifteen zeros after it). I would guess that the ECB could reasonably raise close to €2 trillion a year by imposing an extremely modest 0.1% fee on Euro denominated transactions. With a total population within the Eurozone of 330 million, this would mean direct payments of around €6000 per person for every man, woman and child within the Eurozone. That's €24,000 for a family of four. Not bad...

What! I hear you say. You can't give people money for doing nothing! That would be unfair. Why would they bother going out to work?

Well, there are lots of reasons. There are large numbers of people in our current societies that receive millions for doing nothing in the form of inherited wealth. That doesn't seem to upset the neoliberals who claim that only people who work hard should get any money.

Furthermore, the €24000 that a family of four could be given per year might be just enough to get by on, for families living modestly, and in a part of the eurozone that was not too expensive. It would provide a decent minimum lifestyle - no frills. And would eliminate poverty at a stroke.

It would also remove the need for endless means tested state aids for housing, transport and so forth. Currently, those benefits are often only paid to people who are unemployed, making them less interested in going out to work. And it literally costs a fortune to employ an army of civil servants to check that the people on benefits are actively seeking work. All that waste of resources could be ended overnight.

These are all arguments that have been well documented by those people who have been lobbying for a Basic Income for years.

But there are a couple of arguments for such a scheme that I have not heard, and which ought to convince even the most ardant admirers of the free markets (like yourself?)

First of all, consider what would happen if a family of four really did have an guaranteed income of €24,000  a year. How much would an employer have to pay the head of the family for him (or her) to want to go out and work? Well, it would certainly have to be worth their while. They would have no obligation to work just to put food on the table. But they might well be highly motivated to work a bit to increase that €24,000 to (say) €30,000. In other words, even €6000 might be enough to make a difference. And yet €6000 is a mere €500 a month - a pittence compared with the full cost of housing and feeding a family of four.

It seems obvious that providing an unconditional basic income would mean that businesses could actually reduce wages considerably. It would even act as an indirect subsidy for businesses, because they could provide an attractive salary for far less than is currently needed. Today, businesses are effectively obliged to pay salaries that would be attractive for a breadwinner trying to cater for a family of four. They cannot decide to pay people more because they have a family than they would to a single 21-year old living at home with their parents. The result is that governments are required to make endless top-up payments and tax breaks to bias the system in favour of families.

Recently, the French government decided to give something like €40 billion in tax breaks and subsidies to industry - "la pacte de responsablité". Businesses are supposed to reciprocate by taking on more workers. But there is no requirement for them to do anything. And many people in France are thoroughly depressed by the current governments desire to "aimer l'entreprise" with no strings attached.

Likewise, the French government hands out billions in "Credit Impot Recherche" annually - again with virtually no controls whatsover. Why not provide the same boost to industry, but do it by simply making it cheaper to employ people - i.e. via an unconditional basic income?

Under the current system, our governments pump billions into the social security and benefits system. But that expenditure does absolutely nothing to help productivity of French industry. It merely prevents unemployed people from starving to death. Provide the same money in the form of an unconditional basic income and Renault would be able to produce cars cheaper in France than they could elsewhere. Surely, that has to be good news?

Providing a basic unconditional income would thus make it far cheaper to employ people - thus reducing costs, and making industry more competitive. The same thing would happen if the state provided free public transport - it would mean that workers could get to work more cheaply, again meaning that wage costs could be reduced without making workers lives miserable. But the use of an unconditional basic income financed by a microscopic financial transaction tax would be so much simpler.

But there is a second massive advantage. And it's one that would probably appeal to even the most extreme right wing groups, obsessed with the need to kerb illegal immigration. In the UK, the numbers of jobs in the economy has been increasing, and yet the actual earnings of workers has been declining with respect to inflation. What's going on? Well, one explanation is that with large scale illegal immigration in the UK, workers can easily be undercut by some illegal immigrant who would be prepared to work for next to nothing and with little or no job security. And the increasing numbers of people who are prepared to vote UKIP (in the UK) or Front National (in France) is clear evidence that this is becoming a serious problem.

Consider what would happen if a legitimate family of four really did get €24,000 a year of unconditional basic income directly from the ECB (or the Bank of England in the case of hte UK) - it would simply be their fair share of the money raised by the FTT imposed by the Bank on Euro-denominated transactions across the globe. The bread-winner of such a family might indeed be prepared to work to earn an extra €500 a month in order to increase the family's income to €30,000 a year. But an illegal immigrant, with no unconditional income, would have to work for less than €500 a month to undercut the local worker. It simply would not be doable, because whereas the illegal immigrant on €500 could not afford to live - whereas the family of four on €24,000 plus €6000 could live decently.

Hopefully you can see that the idea of giving all bonafida citizens an unconditional income would not only give a major boost to industry, but it would, at a stroke, also make it virtually impossible for local workers to be forced out of employment by being undercut by illegal clandistine immigrants.  Of course, the country would still have the option of giving real refugees citizen status, thus allowing them to also obtain the unconditional basic income.  But the hundreds of illegal immigrants trying to hide on lorries crossing the channel to the UK in the hope of being able to earn a living wage would be a thing of the past. Without the official status of a citizen, it would no longer be possible to survive reasonably - thus eliminating much of the pressure from illegal immigrants.

Exactly the same thing would apply to the thousands of Africans that risk their lives to cross over to the European mainland in the home of being able to scratch a better living than they could at home.

Of course, theres a even better way of convincing all those desperate migrant workers to stay at home. And that would be to give them a (very modest) unconditional basic income in their home countries. A few dollars a month would allow many Africans to live far better in their home countries than they could by joining the ranks of illegal clandestine workers in some other country where they would  not only lose their unconditional income, but  be forced to compete with locals who were being paid their local basic income and could survive on far less.

Now, don't get me wrong. I'm far from sharing the anti-immigrant positions proned by extreme right wing parties across Europe. But my solution would indeed take the wind out their sails.

So, Jean. Sorry, it's been a rather long message. But I just wanted to sketch one of a large number of alternatives that simply never gets discussed - either in the media, or among professional economists like yourself (and there are plenty more non conventional ideas on the 770 plus pages of my blog if you ever find yourself with time on your hands!). Don't you think that there would be a good case for having a look at some of the more interesting alternatives to the sort of neoliberal austerity based economics that you currentlu seem to favour?

If you have a few spare hours in the coming months, I would be very happy to come and talk with you about some of these ideas. I'm convinced that we might well be able to come up with something that could literally change the world.

With very best wishes

Simon Thorpe
Directeur de Recherches CNRS
Director of the Brain and Cognition Research Center
Amateur Economist

5 Oct 2014

BIS Transaction Figures for 2013 : Over €2 quadrillion in just 5 Eurozone Countries

If you download the BIS's excel sheet for the 23 individual countries in their dataset, you can get all the details for each country in the local currency.

I've compiled all the data for the five countries in the dataset that belong to the Eurozone - France, Germany, Belgium, Italy and the Netherlands.  Here's the result, together with the details of where the numbers come from for each country.

As you can see, Germany has really taken off in the last year, to reach a total of over €1.1 quadrillion euros - up roughly 35% on the previous year. They are followed by Belgium at €374 trillion, France at €259 trillion, Italy at €209 trillion and the Netherlands at €84.5 trillion.

Together, those five countries within the Eurozone generated a total of over €2 quadrillion in transactions (€2088 trillion to be precise) - up 16.8% on the previous year, and completely demolishing all previous records.

So, message to Mario Draghi. Why not just impose a modest Financial Transaction Tax on all those transactions? It would be very nice to know just what proportion of the €2 quadrillion are denominated in euros, but I guess that sort of information is currently "nav" (Not Available - like so much that happens in the financial markets). But, in any case, there is clearly massive potential here for generating much needed revenue for Eurozone governments, or - even better? - an unconditional basic income for the Eurozone's 330 million citizens.

BIS Transaction Figures for 2013 : The 50 biggest players

Here's another take on the latest set of figures from the Bank for International Settlements, that came out on the 30th September. I've gone through the various tables in the Comparative Tables. As I just showed in my previous post, the total is close to $10 quadrillion for 2013.

But just for fun, I sorted the various players to get a picture of the 50 largest players - according to BIS. Here's the result - including the place in the BIS file where I got the numbers. All those references to Tables refer to sections of the BIS's Excel spreadsheet.
As you can see, the list is topped by the Fixed Income Clearing Corportation (FICC) in the US, a subsiduary of the Depository Trust and Clearing Corporation  (DTCC), which managed to process well over $1 quadrillion last year, followed by the EUs Target system ($743 trillion), Fedwire in the States, ($713 trillion), Eurex in Germany ($710 trillion), Euroclear Bank in Belgium ($454 trillion, Crest in the UK ($437 trillion) and CHIPS in the USA ($380 trillion).

In fact, I've just read an announcement of a joint venture between DTCC and Euroclear  where you can read that "In 2013, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.6 quadrillion", and that Euroclear group "settles the equivalent of $782 trillion (€572 trillion) in securities transactions annually representing 170 million domestic and cross-border transactions." It therefore looks like the numbers in the BIS data sheets may need to be increased somewhat.

But, as I was lamenting in my last post, there are plenty of players who for some reason are not included. I've already mentioned LCH.Clearnet - which handled nearly $1.6 quadrillion in 2008 (according to the BIS's own figures), but has mysteriously dropped off the BIS's radar since. Then there are outfits like CME Group and the Options Clearing Corporation - who have apparently never registered with BIS at all, but opening profess to handling quadrillions of trades every year.

Can any one help compile the true figures? I'm happy to offer a prize for the person who can find the biggest "invisible" player in the world's financial markets....

BIS Financial Transaction Data for 2013 - Nearly $10 quadrillion, but hopelessly underestimated

The Bank for International Settlements has just published its prelminary release for "Statistics on payment, clearing and settlement systems" for the 23 countries that they cover. You can download the full publication as a 588 page pdf file, or you download Excel files for the Comparative Tables where everything is presented in dollars, or you can get the details for each country, in which case the numbers are given in local currency units.

I've done the hard work of putting everything together to get a picture of the total volume of transactions for the 23 countries. Here's the result.

As you can see, the total has increased by over $700 trillion since 2012. It's still not back to the $10.6 quadrillion seen in 2008, but it's getting there. Interestingly, Germany has moved right up the table, and now accounts for $1.46 quadrillion of the total on its own.

As usual, the numbers for the UK are hopelessly underestimated - which is why I have marked them in red in the table. Just look at table 18 (on page 412 of the document). Apparently there is still no way of the BIS getting any numbers for the London Stock Exchange - it's been nav (Not available) since 2009.

And have a look at table 21 for the UK. As usual, BIS has been unable to get any information about LCH.Clearnet. This is despite the fact that they only have to look at LCH.Clearnet's website to know that they have already processed $512,256,443,251,081 since the start of 2014 (as of the 3rd October). Maybe the guys at BIS who compile this stuff don't know how to use the internet?

The last time I complained to BIS about this, I was told that they relied on data provided by the Bank of England. And, according to page 581 of the BIS document, the guy at the BoE responsible for providing the numbers is someone called David Norcross. David, if you listening, can you try and be a bit more thorough? Please?

One good thing is that the data for the UK now includes a new entry for ICE Clear Europe - which has cleared  £84.3 trillions worth of contracts and transactions in 2013.

So you see, it can be done! Well done David! Keep up the good work!

And of course, in the figures for the USA, it would appear that the BIS has only ever heard about the NSCC, CHIPS and Fedwire.  Here's their Table 21.

There's not even a mention of players like the Options Clearing Corporation, "the the world's largest equity derivatives clearing organization" which handled over 4 billion contracts in 2013, and which might well be doing $12-$16 quadrillion in trades on its own - completely dwarfing ALL the transactions in the rest of the world put together.

They also don't appear to have heard of the Chicago Merchantile Exchange Group (CME). BIS would only have to look at their website to read that "CME Group is the world's leading and most diverse derivatives marketplace, handling 3 billion contracts worth approximately $1 quadrillion annually (on average)."

The BIS document (page 581) says that the two people at the Board of Governers of the Federal Reserve System responsible for compiling the numbers for the US are called Matthew Chen and David Mills. So, Matthew and David, you know what you have to do. For me, so far, it's a C-.

Oh, and while I'm at it, could Darren Flood and Jane Yates at the Reserve Bank of Australia try and get some numbers for ASX Clear and ASX 24? According to you, the numbers are "nav" since 2009. Is it really that difficult to get those figures? Come on... make an effort.

Maybe one day, somebody other that me, who is doing all this in my limited spare time, will get round to compiling the real numbers.

In the meantime, I suppose that we have to be grateful to the BIS for providing at least some fairly reliable numbers. $10 quadrillion is already a pretty large number. And a 0.1% flat rate transaction tax on all of that would indeed provide a lot a revenue ($1 trillion to be precise). Enough to scrap much of the current hopelessly inefficient and unfair taxes such as Income Tax, Corporation Tax, VAT and other sales taxes. Oh, and can I have a basic unconditional income for all at the same time?

28 Sep 2014

Yet another solution to public sector debt - use the Magic Money Tree

I'm surprised that I didn't think about it before. After all, I originally suggested the idea of a sort of public bank that would get the government out of debt back in May 2012 - see my post on "How to cancel all government debt in 10 easy stages".  There the idea was to use the fact that banks have the right to lend out around 10 times as much money as they have in capital to make loans. They could therefore make loans  to people who would reinvest the money in the bank via another person. Do that around ten times, and you can create collosal amounts of "money" out of thin air.

Later on,  I realized that the Basel Banking regulations mean that when banks lend to sovereign governments with a credit rating between AAA and AA-, those loans have a risk weighting of zero, which means that they don't have to have any capital at all - they can effectively loan infinite amounts of "money" to governments with no capital to back it up. I explained that one in my post back in March 2014 called "The biggest Bank scam of them all - Banks lending non-existent money to governments and charging interest". I had even realized that this wonderful system was almost certainly the reason why, despite the Basel banking regulations, the 50 largest banks in the world have $67.6 trillion in assets, but only $772 billion in capital so that, on average, they have around 87 times more assets than capital. Indeed, several banks have assets to capital ratios of over 1000 to one - with one bank - the Wells Fargo Bank having succeeded in reaching an assets to capital ratio of 2647 to 1. Impressive.

But for some reason I didn't put 2 and 2 together to make 4.... trillion.

Why don't we just start a citizen's bank, and use that bank to lend unlimited amounts of interest free money to our governments?

For example, the French government was in debt to the tune of €1,925 billion at the end of 2013 - a figure that has certainly increased substantially. Interest payments on all that debt cost French taxpayers €47.3 billion last year.

Suppose that we start a new citizens Bank that would have French citizens as shareholders. We could sell shares in the Bank for say €100 and get millions of French citizens to sign up. This would give the bank a respectable capital base. France is currently rated AA and so that means that banks that lend money to the French government don't have to include those loans when calculating their exposure - the loans have a risk weighting of 0%. As a consequence, whenever the French government needs to borrow money on the markets, it could go to the French citizen's bank and get as much money as it wants - with no interest to pay. Indeed the Bank could sign a loan deal where the money only needs to be repaid after 1000 years.

In principal, our friendly bank could lend the French governemnt the roughly €2 trillion needed to pay off ALL its debts. But actually, I think that it would be better just to pay off the Banks who have been purchasing French government debt with non existant money. When those sorts of loans are repaid, the money simply disappears into thin air, thus eliminating any risk of inflation.

So, there you have it. A way to achieve "debt forgiveness" without running the risk of triggering a massive revolt from the financial sector. After all, they could not complain. The citizens bank would be doing no more that what commercial banks do all the time - creating massive amounts of government debt by making loans with non existent money. The only difference is that the citizen's bank will not be requiring tax payers to pay the interest charges.

18 Sep 2014

My TEDx presentation is now on line - In French

It's been quite a wait since I gave my TEDx talk in Toulouse at the beginning of May. I'm happy to say that you can now watch the video of my presentation here. It's called "Vers un monde (pratiquement) sans taxes" ("Towards a virtually tax-free world").

It's a bit disappointing, because there's a lot of stuff that I show on the screen that you can't see because of the camera angles. But, if you can understand (my) French, you should be able to follow my talk anyway.

As soon as I have a moment, I'll try and do my own version that combines the video with the contents of my KeyNote file.

And, of course, if anyone wants me to do a TED or TEDx talk in English on this, or any related topics, do let me know. I'll be very happy to oblige!

There's also a presentation by my friend Carole Fabre at the same TEDx event that includes the idea of introducing a basic income. You can find that here.

In fact, you can find nearly all the TEDx talks from that day here.

Actually, if you combine my proposal for introducing a flat rate financial transaction tax with redistribution as a basic unconditional income, and I believe that we have a real solution to many of the worlds problems.

7 Sep 2014

The pitchforks are coming

My thanks to Gerard Foucher for pointing me to a fascinating article by a hugely succesful multibillionaire called Nick Hanauer, who openly admits to being a member of the 0.01% of the super rich. Published a couple of months ago, it is a warning message to his fellow zillionaires saying that unless they react soon, the Pitchforks will be coming. In other words, things are getting so bad for the vast majority of the population, that there is a serious risk of a revolution. I think he is quite right.

Hanauer argues that business leaders should be forced to pay better wages. He points out that businesses need customers, but if the general population is so short of money, they can't buy anything, then businesses cannot flourish.

In a comment on his paper, I note that you don't even have to pay workers to work to give them the money they need to be customers. Central banks could simply pay money directly to citizens on their back accounts in the form of an unconditional basic income. This would actually reduce costs for employers, because they woudn't even have to pay $15 an hour. They could thus be even more competitive.

And you want to know where the money could come from to make these payments? Well, sure, the central banks can just create the money out of thin air. After all, that's what commercial banks do when they make loans - they invent it, and then charge interest.

But as you probably know if you have been reading my blog, there's an even neater solution. Just impose a tiny financial transaction tax on all electronic transactions. BIS figures show that last year there were more than $3 quadrillion in transactions in the US - 0.01% on that would generate $300 billion to be redistributed. But the BIS numbers are almost certainly underestmimated. I suspect that the Options Clearing Corporation (not recorded in the BIS figures) may be doing between $12 and $16 quadrillion in trades per year - off the radar. Their webpage shows that they handled over 4 billion transactions last year, generating $1.3 trillion in premiums. Scaling up existing figures for NYSE Liffe (113 million transactions, and $46 billion in premiums for $474 trillion in transactions), implies that OCC really could be doing $12-16 quadrillion every year.

Put a 0.01% tax on that, and you could pump trillions of cash into customers pockets without even having to employ them. Best of all, no inflation, because the total money supply would be unchanged. It would simply move existing money from where it is mainly being used for pointless High Frequency Trading by computers (who will never buy anything of value) to citizens who would be able to go out and buy matresses, cars, books, CDs, meals, cinema tickets.... you name it.

In fact, this idea of simply getting Central Banks to pay money direct to citizens instead of trying to stimulate banks to lend more, is catching on.  Incredibly, the Council on Foreign Releations in the US has just published a tribune by two economists, Mark Blyth and Eric Lonergan, titled "Print Less but Transmit More - Why Central Banks Should Give Money Directly to the People".

The paper has been picked up by Ellen Brown and  Positive Money, and was translated into French in a piece in Liberation on the 27th of August.

Things really do seem to be moving.

31 Aug 2014

Simon Thorpe's Ideas on the Economy - Get the pdf!

I see that my blog has had more than 100,000 hits and is averaging between 3-400 hits a day! I'm honoured!

To make life easier for readers, I've just used Blog to Book to generate a pdf file of the entire contents of my blog since its start in October 2010.  If you are feeling (very) courageous, feel free to download all 771 pages of it (gulp!) from here.

OK, I formated it so that each entry is on a separate page, which means that there is quite a bit of empty space in there. But, it's impressive anyway.

Looking back, I'm amazed at just how much I have learned in the last four years. There are a lot of ideas in there, and although some of them may be pretty unrealistic, there are some that I sincerely believe are not to be found elsewhere and would be worth thinking about.

And if you feel like commenting on anything, please do. Thanks to the wonders of modern technology, I do get to hear when people make comments, and I really will try and do my best to reply.

30 Aug 2014

Let's switch interest payments on Public sector debt from the markets to small savers

I've just discovered a way of presenting European Public Sector debt and Interest payments that I really think should force people to think hard, and could provide a real way out of the current debt crisis.

I've already made a big thing about how the size of interest payments on public sector debt is a massive drain on taxpayers across the European Community. My first analysis of the figures for 2010, already showed that 2.7% of total GDP in 2010 went to pay interest charges. When I had another look when the figures for 2011 came out I was able to show that those interest payments had cost €370.8 billion - 2.9% of GDP - and that for the period 1995-2011, interest payments had cost over €5.6 trillion. The figures for 2012 were even worse, because the interest payments had increased by another €10 billion a year to €380.3 billion.  And finally, when I looked at the latest official figures - those for 2013 - the interest payments since 1995 had reached the impressive total of €6,244 billion - 54.8% of all the public sector debt.

What has been even more nauseating about this whole sorry story has been the realisation that when commercial banks make loans to governments, they don't actually need to have the money they lend. They can simply create the "money" out of thin air. We are supposed to believe that somehow the amount of money that the Banks can create in this way is controlled - that they can only create roughly 10 times as much credit as they have capital. This is a MYTH! Look at the ratios of Assets to Capital for the 50 biggest banks in the world,  and you will see that many banks have hundreds or even thousands of times more assets than they have capital. Société Générale, for example, has 1238 times more assets than it has capital. How do they get away with it? Well, I think this is because the wonderful Basel Banking Regulations (concocted by the Bank for International Settlements) gives a risk weighting of 0% when Commercial Banks create money to lend to AAA to AA- rated governments. There is literally no limit to the amount of "money" that can be loaned to a cooperative government. And of course, the politicians who are sufficiently ignorant to be conned by this trick end up paying vast amounts of tax payers money to a bunch of sharks who have set up the worlds biggest con trick.

To get a clearer idea of just how much the system of public sector debts and interest payments sucks out of the economy, I did a simple thing with the data that anyone can download from the Eurostat website. I downloaded all the data for all European countries since 1995 for two things - Gross Government Consolidated Debt, and Interest payments. By looking at the ratio between the two, you can get a number which is the effective interest rate that is being paid to the markets. And here, dear reader, is the result.
Let me stress that, to obtain this table, I'm really just taking the raw data off from Eurostat. I have sorted the countries to be alphabetical order, but that's about it. As you can see, the current interest rate being paid on public sector debt averages about 3.2% - 3.14% if we just take the Eurozone. But the rate varies between countries. Hungary paid most last year, with a rate of 5.58%, while Estonians got the best rate of 1.37%.

When I looked at these numbers, it suddenly dawned on me that there is a simple solution to the current crisis! The return rates being paid by governments to the Financial Markets and Commercial Banks who can make loans with non-existent money are much higher than are typically offered to real savers who are trying to get a reasonable return from their savings. Take France, for example. Since 1995, the French government has been paying an average return of 4.42%. Sure, it has dropped from the peak of 6.31% in 1995, and is now 2.46% - its lowest rate. But that number is still much better than the dismal rate of just 1.0% offered by the Livret A - a government savings scheme used by around 46 million people - around three quaters of the entire French population.

So, isn't there an obvious solution here?  Instead of offering to take loans from Banks who are allowed to make loans using non-existent money, Governments across Europe should be forced to only borrow money from their own citizens - citizens who are desperately trying to get a decent return on their savings, but are typically offered a pittence, because quite simply, the commercial banks don't even need their savings to make loans.  After all, if you are a Bank, why pay a decent interest rate on savings when you can just invent some money out of thin air?

In France, government borrowing is handled by the Agence France Tresor. The AFT provides limited information about who holds French debt. For example,  the provide a graph showing the percentage of the debt that is held by Non-residents. Here it is, and it shows that the latest figures were 64.5% and rising.

They also have a pie-chart for what are called OATs (Obligations Assimilables au Trésor), one of the three main instruments used by the French government (the others are BTFs, and BTANs), showing that 59% are held by non-resident investors, 23% by French Insurance Companies, 11% by French Credit Institutions (I presume that means banks), 2% by French UCITS (Undertakings for the Collective Investments in Transferable Securities) and 5% in French "Other".

For me, the fact that 59-64% of French taxpayers money used to pay interest payments leaves France is obviously a bad idea.  But it looks like the percentage of the debt held by Small investors in France may be tiny.

So, here's my proposal. It's one that might be taken seriously by François Hollande's government, clearly lacking any real ideas for changing the rules of the game.

Firstly, I would make it illegal for Governments to sell bonds to Banks that cannot prove that they actually have the money they use.  Only preexisting assets should be used to buy government bonds.

Second, I would introduce measures that would mean that the Governments debt should be shifted progressively to small savers, rather than institutional investors. Essentially, if a small saver is not getting the same rate as his or her government is paying to the financial markets - i.e. the numbers in my table - then something is very wrong.

My vote is that the system should be set up rather like the current Livret A system in France, which limits the amount of savings that each person can deposit to €22,950.  That would ensure that the money generated by the interest payments would be spread as widely as possible.

I read that France is known as a country where people have a lot of money in savings. In 2011, the INSEE calculated that the French public had accumulated just over €10,300 billion - equivalent to 8 years of total revenue. While 2/3 of this is invested in "non-financial" investments - essentially property, about 1/3 - namely about €3,400 billion is invested in financial products like the Livret A, Savings accounts, Bonds, Insurance contracts.  It follows that if the French government wanted to, it might be able to shift virtually the entire public sector debt (around €1,925 billion) to its citizens, and pay them the same sorts of interest rates that they currently pay to "non-resident investors" and the financial markets.  I'm sure that would make a lot of French savers very happy, and it would keep the money within the French economy.

Of course, exactly the same sort of proposal could be made for every country in Europe and beyond.

I can imagine that this proposal won't go down well with the Financial Markets. After all, they have been used to being able to create unlimited amounts of "money" to buy up goverenment debt, and then pass on the resulting "products" to other actors like pension funds and so forth, raking in massive amounts of tax-payers money in the process. Clearly, they won't be very cooperative in any attempt to kill off the goose that has been laying them golden eggs for decades.

But maybe one day, François Hollande may realise that one of the reasons that he got elected was his famous speech at Le Bourget in january 2012 when he said:
"I will tell who is my adversary... my true adversary
My adversary has no name.
Has no face.
No history.
He will never be a candidate in an election.
He will thus never be elected.
Nevertheless - he governs.
My adversary is .... the world of finance."
Well said.

25 Aug 2014

Message to François Hollande and Mario Draghi - here's a simple solution to the Eurozone's problems

Here's a suggestion for something that the French government could campaign for at the European level as a way to break the current stalemate.

1. Force the European Central Bank to impose a flat-rate Financial Transaction Tax on all Euro-denominated electronic transactions, wherever they occur in the world.

2. Redistribute the revenue from the tax in two ways
  • Some of the money should be redistibuted to the 18 Eurozone governments according to each country's population size
  • The rest should be provided diretly to Eurozone citizen's in the form of a basic unconditional income, paid directly to their bank accounts.
This is a simple scheme, but it has a number of interesting features.

First, note that I don't make any specific suggestions for the initial amounts. The important thing to start with is to get the mechanism in place.

Obviously, once the mechanism is in place, it would then become easy to gradually increase the FTT rate and thus allow more money to be transfered from the financial sector (which currently creates the money that we use) to the Eurozone's citizens and governments. I suspect that, once people can see that the mechanism works, there will be a lot of public pressure on the ECB to increase the rate of transfer.

Second, the proposal leaves some leeway to the ECB to choose the best ratio between payments to governments and direct unconditional payments to citizens. Obviously, making payments to governments leaves a lot more options in the hands of politicians. As Positive Money has pointed out, it would be up to the elected government in each country to decide what to do with the extra resources. They can (a) reduce taxes, (b) increase spending on infrastructure and public services, (c) provide money directly to citizens, or (d) pay off debt. The difference between option c) and the option of making direct payments from the ECB is that in the second case, it is guaranteed that the money will end up in the real economy. It might be that an intelligently managed ECB might choose to push a substantial amount of funds directly into the economy via citizen's payments.

Arnaud Montebourg is right - austerity is not the solution

The French government led by prime-minister Manuel Valls resigned this morning following the split provoked by the Minister for the Economy - Arnaud Montebourg - who said that he couldn't sanction the government's belief that the solution to France's economic woes lay in simply getting the public sector deficit down to the 3% level imposed by the Lisbon Treaty.

Montebourg was right. There is absolutely no reason to believe that austerity could fix things. The Germans and the ECB are putting pressure on governments to respect the limit on public sector deficit imposed by the Lisbon treaty. This sets the upper limit at 3% of GDP.

Have you ever wondered why the number is 3% of GDP?  Shouldn't it be 0%? Surely, governments should be encouraged  to run a balanced budget, right? They shouldn't be spending more than they can raise from taxation. So why 3%?

Well, if you look at the amount of taxpayers money that gets spent paying the interest payments on public sector debt (see my blog entry here), you will note that the Eurozone governments spent 2.9% of GDP in interest payments in 2013. Coincidence? No, I don't think so. I think that the 3% figure was specifically chosen to be a value where the total amount of public sector debt need not increase, but where it allows the banking sector to extract as much taxpayers money as possible. Indeed, I have argued that the 3% value was quite possibly suggested on the grounds that this was the amount that the UK's banking system has been extracting from UK taxpayers at least since the early 1950s.

Specifically, those interest payments cost the 18 Eurozone countries  €279 billion in 2013, and that brought the total since 1995 to €5.16 trillion - which is over 57% of all Eurozone public sector debt, which just went over €9 trillion at the end of 2013.

Now, don't forget that the Banks who lend the "money" to our governments, don't actually have any money to lend. As the Bank of England admitted a few months ago, they just create the money used to make loans out of thin air - a point that was also stated with breathtaking clarity by Bernard Maris, a member of the government body of the Banque de France.

And, according to the Basel II and III banking regulations, Banks can create infinite amounts of this "money" when they lend to AAA to AA- rated governments, because they don't even need any capital to back up the loans. That's because such loans are considered to have a risk weighting of 0% - they simply don't count.

This surely has to be the biggest scam ever. Commerical banks can create infinite amounts of money out of thin air, with absolutely no capital to back up the loans. They then use this "money" to lend to our governments, who then agree to pay up to 3% of their nation's GDP to the bankers for service provided.  They also manage to get the governments to sign a treaty that obliges them to find any such money by borrowing from the markets - otherwise they might borrow directly from Central Banks.

About the only thing that you can say is that the 3% GDP limit is designed so that the system can be run indefinitely without necessarilly leading to increases in the overall level of public sector debt.

Unfortunately, now the European economy has been hit by a massive recession, the only way to maintain the totally unjustifiable interest payments to the banking sector is to cut back on public sector services and government spending. All that is just to keep the parasites well fed.

It's all amazingly well planned. Any good parasite knows that it is not a good idea to take too much - otherwise you might kill your host. But, I for one have seen the enormous tapeworm that is feeding off the European economy.  It's time to come up with a drastic cure to rid us of these parasites....

18 Aug 2014

The 50 Biggest Banks - $67.6 trillion in assets but only $772 billion in capital

I've just had another look at one of the most interesting websites around. It's a list of the 50 largest banks in the world by total assets, which you can find on the Accuity.com website. The list provides not just the assets of each bank, but also its capital. As you can see from the table below, there are some remarkable features.

Firstly, the picture is changing rapidly, with Chinese banks now occupying 4 of the top 5 slots - a big change from last year. Quite a few western banks have clearly been trying to reduce their assets, with banks like RBS, Deutsche Bank AG and UBS all shrinking their assets by around 20%.

The capital figures are also fascinating. It shows that while the 50 largest banks have assets totalling $67.6 trillion, their total capital is only $772.4 billion. That's an average Assets to Capital ratio of 87.6:1.

As I noted last year, this doesn't fit with the widely accepted view that banks can only create about 10 times more credit than they have deposits. The principal reason, I believe, is that the Basel rules mean that certain types of loans don't count. Specifically, loans to governments that are AAA to AA- rated are not included in the banks assets - they have a zero risk weighting. That means that banks can create as much debt/credit/money as they want when they lend to governments - with absolutely nothing to back it up.  They just have to find some politicians who are either too dumb to know what is going on, or who are happy to play for their chums in the Banking sector (or both).

Let's have another look at the table, but this time ranking the banks according to their Assets to Capital ratio.
And the winner is ...... Welle Fargo Bank which has a ratio of 2647:1.  But Citibank, ING Bank, KfW, Société Générale, JPMorgan and HSBC all have more than 1000 times more assets than they have capital. It's interesting to compare the table with the same table last year. The list is fairly similar, except that UBS, which was top of the list last year (with a ratio of 3279:1) has now dropped back to 13th position - partly because it dumped  20% of its assets, but also because its capital increased from $419 million to $2.5 billion.

Isn't banking wonderful! Wouldn't it be amazing if we all had the right to buy assets with money that we don't have?

Isn't it about time that we got rid of this insane system where banks are permitted to lend money they don't have to individuals, businesses and governments, and then charge us all interest?

11 Aug 2014

More on IOU based systems - would it be open to fraud?

Since I have been arguing for an IOU based system like OWE'M as an alternative to conventional money based systems in which commercial banks lend out money that they don't have and charge us all (individuals, businesses and governments) compound interest, a number of people have tried to argue that my proposals would be too open to fraud to be usable.  Some have argued that they would prefer to stick with the current arrangement, because at least that way, when they have a €100 note in their hand, it is in some way guaranteed. It's true that you can't buy things directly with an IOU- whereas you can with a €100 note (at least until the current system collapses! - which it might do sometime in the not too distant future).

It's true that some people might be tempted to make themselves look "rich" by awarding themselves a whole pile of fictitious IOUs. The fact it that there is nothing in the current OWE'M system that would prevent someone creating a whole series of different identities using different email addresses, and then instructing those different characters to send IOUs to one particular person, making them look incredibly rich.

For example, lets suppose that, in addition to my main account under the name of Simon Thorpe, I create 10 other accounts using gmail accounts that I created myself
  • Bob the Builder (b.builder@gmail.com)
  • Barbara the Baker
  • Chris the Carpenter
  • Colin the Cleaner
  • Eric the Electrician
  • Fanny the Farmer
  • Glenda the Gardener
  • Harry the Hairdresser
  • Naomi the Nurse
  • Terry the Teacher
Since, I created them all, I could then decide that they could all send IOUs to Simon Thorpe for €1000 each. Simon Thorpe would thus end up with €10,000 and the other 10 fictitious characters would all be at -€1000 each.  Simon Thorpe would then be able to go off and "spend" his €10,000 worth of IOUs. (In case you hadn't already noticed, I have actually already created 10 fictitious characters like this in OWE'M - and it's true that I could get them all to send me IOUs for €1000 if I wanted to).

On the face of this, this could look like a fatal flaw in the system. What is to stop someone generating arbitrarilly large amounts of "wealth" in this way?

However, with a bit of thinking, I can see a way out of the problem. The fact is that it would be fairly trivial to examine the structure of the underlying database to determine that none of the 10 fictitious people in my system has ever themselves received an IOU from anyone else. That's hardly surprising because Bob the Builder can't actually build anything for anyone.

Thus, it would be relatively trivial to flag Simon Thorpe as a dubious bet, because all the "people" who "owe" him money, have never exchanged with anyone except Simon Thorpe. Under those conditions, you would be foolish to accept an IOU from Simon Thorpe, essentially because there would be next to no chance of every generating a loop that would allow the debt to be cancelled. Only if Bob the Builder (or one of the other characters in the plot) actually did some things for other people would it be a reasonable bet to take an IOU from Simon Thorpe.

It would thus simply be a question of using the transaction database to rate members by the number of bilateral transactions in which they have been involved to weed out the real players from risky bets. It's not been implemented yet within OWE'M, but I see no reason why we couldn't do that.

This brings out an interesting feature of an IOU based system relative to the money system that we are all used to. Confidence in members comes not from how positive they are, but rather from whether or not they have been actively participating in the past, and whether they are worthy of trust. That's a major change from our current system where power and influence just follows the people that have accumulated the largest amounts of "money" - irrespective of how they got their wealth. A crook who cheated people to get €10,000 has just the same "wealth" as someone who worked hard to earn the same sum.

Let me know if you think that there is still a major risk that the system could be easy to cheat. I'm trying to make sure that we can make such a system reliable, so your feedback will be very useful.