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 that 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....

29 Mar 2015

19 economists call for QE for citizens in the Financial Times

I'm delighted to hear that I am not the only person who thinks that Mario Draghi could use  €60 billion a month of money creation more intelligently. Back in January I wrote to him to propose that he should simply give every man, woman and child in the Eurozone €186 a month as a sort of Unconditional Basic Income. Far better than throwing the money at the financial sector and praying...

Thanks in part to lobbying from Positive Money, a group of 19 economists signed a letter in the Financial Times on March the 26th asking for exactly the same thing - except that they are only proposing €175. Great minds think alike ;-)

Screenshot 2015-03-27 12.40.00

The letter is signed by the following 19 notable names.  

Victoria Chick, University College London
Frances Coppola, Associate Editor, Piera
Nigel Dodd, London School of Economics
Jean Gadrey, University of Lille
David Graeber, London School of Economics
Constantin Gurdgiev, Trinity College Dublin
Joseph Huber, Martin Luther University of Halle-Wittenberg
Steve Keen, Kingston University
Christian Marazzi, University of Applied Sciences and Arts of Southern Switzerland
Bill Mitchell, University of Newcastle
Ann Pettifor, Prime Economics
Helge Peukert, University of Erfurt
Lord Skidelsky, Emeritus Professor, Warwick University
Guy Standing, School of Oriental and African Studies, University of London
Kees Van Der Pijl, University of Sussex
Johann Walter, Westfälische Hochschule, Gelsenkirchen Bocholt Recklinghausen, University of Applied Sciences
John Weeks, School of Oriental and African Studies, University of London
Richard Werner, University of Southampton
Simon Wren-Lewis,University of Oxford

Let me add my own.

Simon Thorpe, CerCo (Brain and Cognition Research Centre), Toulouse, France

If you want to join the list, just add a comment.

11 Mar 2015

David Graeber's "Debt : The First 5,000 Years"

I have finally found the time to read David Graeber's excellent and epic book on the history of Debt. You can download the book as a pdf file.

One of the major points he makes is to demonstrate that the story that money was invented as a way to simplify barter - an idea present in the vast majority of textbooks on economy - is a total myth. For thousands of years, humans societies functioned using bookkeeping systems  that kept a log of who owed what to whom. Money, in the sense that we currently use the term, only came into being with the appearance of the first coins in about 600 BC. There was a second period with very little money from around 600AD till about 1450AD, when banking in its current format appeared. During that period, nearly all business was done using systems based on various forms of IOUs, including tally sticks.

I wonder what David Graeber would think of the sort of IOU based system that I have been proposing with OWE'M. It seems to me that it may indeed be possible to come up with a new form of IOU based economy for the third millenium.  Could it be that we are on the verge of a new form of civilisation, where the power of the money makers can be handed to individual citizens?

9 Mar 2015

Saving the world - by fixing the economic system - the full pdf

Now that my blog has had over 167,000 visits, it's possible that some of you might like to have the entire contents of my blog as a fully clickable pdf file. Thanks to BlogBooker, I have been able to generate a Word file document that have edited to remove (a large number of) typos, and generally clean up. Using Word for Windows (but not Word for Mac :-( ), you can generate a pdf file with all the different posts indexed.

You can download the result here, and since I have used Bit.ly to shorten the Dropbox link, I will even be able to find out how many people have downloaded it, and (roughly) where you live - well, which country you live in.

But be warned. My blog now runs to over 300,000 words. It takes up over 600 pages of single spaced A4 text, using a font size of 10 (!). And it will use up 31 Mbytes of disk space! Even I'm impressed, and I wrote it all!

One nice thing that I noted when reading rapidly through the whole thing is that there is hardly a word that I would now reject - even though my ideas have evolved enormously over the 4 and a half years that have elapsed since I started this blog in October 2010.

28 Feb 2015

Fixing the Economic System - a new Youtube presentation

Last Tuesday, I gave a lunchtime seminar at the prestigious Toulouse School of Economics.  I'd already invited myself to give a talk there back in March 2012, but on that occasion only four people turned up to hear me present my ideas on replacing the current tax system by a Flat Rate Universal Financial Transaction Tax.

This time, the turn out was much better, and there were about 20 people present. This was the title and abstract for my talk:

“Can a cognitive neuroscientist and amateur economist say anything of interest to real economists?”

Since the summer of 2010, I have become increasingly interested (some would say obsessed) with the economy. I have devoted thousands of hours to reading up on the subject, I’ve posted 480 pieces on my blog, which has had over 165,000 visits, produced 24 Youtube videos, given a TEDx talk on Tax reform, set up an association called “Monnaie Honnête” which is a member of the International Movement for Monetary Reform, and created an online exchange system called “OWE’M’ that allows credit creation by Citizens using an IOU based system. But, so far, I have had very little opportunity to get feedback from real economists. This talk could be the chance for the economists to prove to me that I have been talking garbage. Alternatively, there might be some useful ideas in there somewhere…. who knows? As a firm believer in the power of biological evolution, my personal belief is that the best strategy is to generate lots of variations, and let natural selection do the rest. I would claim that I have been generating lots of options, and that some of those ideas may be of interest.

You may well be wondering how things went. Well, not badly, I think. I was prettty pleased with what I had prepared. Indeed I had put a lot of effort into getting my key ideas into the talk, since I realized that it was fairly unlikely that I would get another chance in the near future.

I've now had time to generate a Youtube presentation of the same talk and so you will be able to find out what I said - if you have 60 minutes to spare.

Here's a link to the Youtube site

As you can see, I decided not to use the same title as I used at the Toulouse School of Economics seminar - I called it simply "Fixing the Economic System", although in fact the content is just about identical.  Do feel free to make comments, either here, or on the Youtube site.

21 Feb 2015

US taxpayers have now paid $9.6 trillion in interest payments on Government debt since 1988

Back in June 2012, I had a post showing that US taxpayers had paid $8.5 trillion in interest payments on goverenment debt since 1988.

I thought it might be amusing to update the figures, using the official US Treasury information that you can find here. I've included the numbers on the US public sector debt too - you can easily download the official numbers for years before 2000, for 2000-2014, and for the latest figures to the nearest cent.

Here are the results.

 As you can see, government debt has continued to soar, and has reached  $18.1 trillion at the end of january 2015. But the remarkable fact is that $9.6 trillion of that (roughly 53%) is entirely due to the interest payments on that debt since 1988 - the US treasury site doesn't provide number before then.

In fiscal year 2014, the total interest payments totalled $431 billion - a number that is second only to the peak value of $454 billion achieved in 2011.

I've also calculated the effective interest rate. That number has effectively been dropping virtually continuously since a peak of 8.43% in 1989, and now stands at 2.42%.

Does that mean that US taxpayers are getting a good deal?

NO WAY! Yes, the markets are charging a lower rate than before, but they don't have to charge much when the Debt level is so high. $430 trillion is still 2.43% of the US GDP for 2014 (it was $17.7 trillion). That fits with the general rule of thumb that Banks will typically adjust their interest rates to try and suck money out of taxpayers' pockets at an optimal rate of not more than about 3% of GDP. If they tried siphoning off more money, taxpayers might notice what was going on.

And remember that Banks can lend the US government non-existant money and still charge interest. It's a truly amazing arrangement that is a fantastic deal - for the Banks who have the monopoly on money creation.

As I have pointed out, since the US government's credit rating is AAA (according to the rating agency Fitch), the Basel Banking regulations mean that such loans have a 0% risk weighting.  And that means that Banks don't even have to have any capital at all to make loans. They can create infinite quantities of "money" to lend to the US government, who will then happily pay out $430 billion in interest using tax payers money.

Remember, that there is no reason why the US government could not create the nation's money supply itself. 

If anyone can explain why this insane system is allowed to continue, do let me know.

15 Feb 2015

Global Debt is now 2.5 times the total Money Supply - the system is clearly unworkable

In april 2013, I published a post in which I compared the total amount of debt in the world economy with the total money supply. That post, called "Total Global Debt and Money Supply : Twice as much debt as there is money" is by far my most popular post, and has been visited well over 6000 times. The numbers I provided gave serious cause for concern, because I calculated that while there was $137 trillion in debt, there was only $68 trillion of money. So, even if you took every single cent there was in existence, you would never be able to pay off all the debt.

Following the two recent reports showing that, since the financial crisis in 2007-8, debt levels had soared even more, I thought it would be interesting to recalculate the total about of money relative to debt. Earlier today, I published a post on the remarkly detailed report from the McKinsey Global Institute that showed that Global debt has now reached a staggering $199 trillion.

What about the Global Money supply? To find out, I have extracted all the numbers provided by a remarkable website called Trading Economics. There you can find tables with Money supply figures corresponding to M0, M1, M2 and M3  for most countries. Unfortunately, the tables are not complete because quite a few countries don't report M3. For example, the Federal Reserve in the US decided not to bother reporting M3 in 2006. But I simply took the largest value for each country, and multiplied the number by the current US dollar exchange rate to calculate each country's money supply in dollars.

The complete dataset is shown in the following table.

Compared with the numbers that I gave back in 2013, there have been a number of marked changes. For example, the Chinese money supply has soared from $15.7 trillion to $20.2 trillion. The other big players, namely the Eurozone Area, the USA and Japan have stayed fairly stable, but the UK's money supply has increased from $3.19 trillion to over $3.6 trillion.

But the bottom line is that the total money supply for the entire planet now stands at about $78.8 trillion, up from the previous number that I quoted back in april 2013 ($68.3 trillion). The problem is that while this has increased, that increase is completely swamped by the increase in debt.

We are now in the situation where we collectively have $199 trillion of debt, and only $78.8 trillion to pay it off. There is therefore 2.5 times more debt than money!

You surely don't need to be a rocket scientist to see that this situation is completely untenable. Anyone telling us that we can get out of this debt trap by simply being frugal and paying our taxes like good citizens clearly hasn't got a clue.

How on earth did we get into this situation?

For me, the answer is pretty simple. Commercial banks create money when then make loans to individuals, businesses and governments. But when they do this, they create enough money to make the loan, but don't create the money that will be needed to pay the interest. Thus, if a bank creates $1 trillion in loans with interest at 2% and waits for 20 years, the total amount of debt  in the system will have increased to nearly $1.5 trillion. This is what has been happening for centuries, but the effects of that compound interest have now become totally out of control.

It is clearly time for us to change the system. All money should be created interest free. Full stop.

Soaring Global Debt Levels - time for a complete rethink of the system

My thanks to the McKinsey Global Institute for a truly remarkable 123-page report called "Debt and (not much) Deleveraging" that came out on the 5th of Febuary. It hammers home a point that was made last year in another report called "Deleveraging? What Deleveraging?" that I mentioned last month. Both reports demonstrate clearly that there is not even a glimmer of light at the end of the tunnel. Debt is going through the roof. When are economists going to admit that the current is unworkable?

The McKinsey Institute is stuffed full of detailed information showing how the debt crisis is just getting worse and worse. Here are some of the most striking findings.

First, here is a graph showing how total global debt has now soared to $199 trillion, up $57 trillion from 2007, and has now reached 286% of GDP.

Clearly, I'm going to have to update my claim in April 2013 that global debt is about twice the total money supply. That calculation was based on a value for total debt of $138 trillion. The debt levels are actually nearly 50% higher than that, meaning that it is even more impossible to pay off the debt than I had thought.

The next graph shows that the total debt to GDP ratio has increased almost everywhere since 2007, with some countries like Ireland showing an incredible increase of over 170%.
Then we have a detailed breakdown of where the debt is located, with separate numbers for Government, Corporate, Household and Financial Sector debt. The countries are ranked in terms of overall Debt-to-GDP ratio.

This makes particularly sobering reading,  but is full of interesting information.
There's another graph showing that, overall, it is governments that have been picking up the tab.

In contrast, you can see from the following graph that the Financial sector has been getting its debt levels down substantially - especially in the USA. Good for them, I suppose.

What can we conclude from this? Well, it looks to me that there is absolutely no reason to believe that things have improved since the crisis. Those responsible for the crisis - namely the banks, have been getting out of the hole that they created. But the overall picture is worse than ever. And above all, it is our governments who have been taken on debt. And that means that taxpayers like you and me are even worse off that ever.

Doesn't all this mean that what we really need is a complete change in the model? We have to completely rethink the way money works. We need a money system that isn't built on debt.

26 Jan 2015

A plan for Greece - and the rest of us!

The Greek people have just voted overwhelmingly to reject austerity. They handed power to Alexis Tsipras, the charismatic 40-year-old former communist who leads the umbrella coalition of assorted leftists known as Syriza. They now have hope.

What they now need is some clear solutions to their problems. I'm not sure that Tsipras has all the answers. So, here are my suggestions.

1) Set up a Greek Citizens' Bank. The bank would get its capital from Greek citizens who would inject enough capital into the bank to get it off the ground and allow it to meet international banking regulations such as the Basel III regulations. Citizens would have to realize that they would not get their money back, but I believe that they would see why it would be in their interest.

2) Offer special Greek Government Citizens bonds that pay 0% interest and have the longest duration permissible under standard banking regulations. This is at least 10 years, but could perhaps be extended to 20, 50, 100 or even a 1000 years.

3) Everytime the new Greek government needs to pay the "investors" who had bought the conventional Greek government bonds, it would emit the equivalent value in Citizens bonds that would be bought by the Greek Citizens' Bank. There would be no effective limit to the amount of "money" that could be generated in this way, but since the money would only be used to pay off debt, it could not be accused of being inflationary.

4) When the Bond markets ask for their money back with interest, they should only be paid interest at the rate paid by the Germans - not the extortionate usury rates that Greece was forced to pay at the height of the crisis. As the graph below from the ECB shows, Greece was paying roughly the same rates as Germany from its entry to the Euro in 2001 until 2008, but then ended up paying 29.24% to Germany's 1.85% in Feburary 2012 - that's 15.8 times more.  For me, those excessive interest payments are totally unjustifiable. It is now clear that this totally unjust difference was entirely due to the failure of the ECB and the European Union to treat the Greek people fairly. Indeed, those extortionate interest rates account for much of the increase in Greek Public Sector debt which, thanks to Troika imposed austerity, soared from 105% of GDP in 2008, to 175% of GDP today.

5) The Greek people should insist that instead of pumping €60 billion a month into the financial markets for the forseeable future, Mario Draghi and the ECB should simply provide the same amount of money directly to the 330 Million Eurozone citizens in the form of an Unconditional Basic Income. This would mean 182€ for every man, woman and child in the Eurozone, an amount that for a family of four would be nearly 25% more than the current minimum wage in Greece (€585.78).

6) Greece should insist that the ECB introduces a universal transaction tax on all Euro-denominated financial transactions - wherever they occur in the world. The revenue generated by the tax should be divided between the 17 Eurozone countries according to population size. Half the money should be given to each country's government, and the other half provided directly to Citizens in the form of an Unconditional Basic Income.  Given that much of the trading in places like the City of London are in Euros, this would provide substantial sums. As an example, London-based LCH.Clearnet processed €238,447,455,975,386 in Euro-denominated products in 2014. A tax of 0.1% on that could generate up to €200 billion in revenue - and that is just one of the players.

7) The Greek government should create accounts in N-Euros for each Greek citizen. These electronic accounts, which cannot go negative, could be used to pay taxes and other payments. Citizens could choose to receive a variable percentage of any salaries or benefits in N-Euros rather than standard Euros. This would allow the government to pay its workers and provide social security payments, without the need to borrow "money" from the financial markets and from the ECB and IMF. For more information about the N-Euro solution, see my previous posts from September 2012 and October 2012 as well as my Youtube presentation on the subject.

8) In parallel, the Greek government should set up a Citizens' Credit system, along the lines of the OWE'M system that I set up last year using the publicly available Cyclos 4 banking system. It's a system that needs no actual money at all to run. Users can simply pay for goods and services by sending the equivalent of an IOU in Euros. If the person providing the goods and services is prepared trust the other person, then the entire economy can potentially operate without the need for any Bank generated money at all. Conventional Euros would just be the measuring stick.

And, once those demands have been met, we will be able to apply the same principles to all the countries in the Eurozone and beyond.

Hey, 2015 might turn out to be a good year after all! Thank you Greece!

24 Jan 2015

Another Open Letter to Mario Draghi, president of the European Central Bank

Dear Sir,

Last thursday, you announced that the ECB will create €1.1 trillion and use the money to try and breath some life into the moribund Eurozone economy.

It's clear that being the president of the ECB gives you phenomenal power - power that you had already used back in December 2011 and Februay 2012 when you also created over €1 trillion that you provided to the Banking sector in the hope that it would have a positive effect. I presume that, given the current situation, we can all agree that your previous injection of €1 trillion didn't really fix the problem.

I have many questions for you.

The most important one asks whether your proposal is really the best way to use €1.1 trillion of money creation.

The Eurozone has 330 million inhabitants. That means that you could have used the same amount of ECB money to put 3300€ into the pockets of every man, woman and child in the Eurozone.  That's 15,200 euros for a family of four. Just imagine how much stimulus to the Eurozone's economy would be provided by giving households a direct cash injection of that amount! And the amount of debt reduction that you could have allowed.

I imagine that you will say that putting that much money in peoples' pockets would produce Zimbabwe style hyperinflation, although as I presume you know perfectly well, when people pay off their debts to banks, the "money" just disappears. It could not cause inflation, and will have the effect of reducing the amount of assets held by the banks. That is good news for everyone - including the Banks.

But lets assume that you are being told what to do by the Germans who remain obsessed with the need to avoid a repeat of the Weimer republic. And it's true that pumping €1 trillion in one step could be a bit risky.

So, why not do it gradually. You have specifically said that you will be injecting €60 billion every month until at least September 2016. Divided by 330 million, that is 182€ per person per month - 728€ for a family of four. That is significantly more that the current minimum wage in several Eurozone countries, as you can see from the following table that I compiled using publicly available data.
Just imagine. With the same amount of money that you are propopsing to create every month, you could provide a guaranteed basic income for a family of four that was above the wages paid in austerity-crippled counties like Greece, Portugal and Spain.

Are you still sure that your way is the best way to use all that money?? Where are the arguments showing that your method would be better than directly putting money in peoples' pockets?

OK. So you don't like the idea of giving citizens money directly. So let's look in more detail at what you propose to do.

At least some of the €60 billion you will be pumping into the economy is supposed to be used to buy up bonds on the secondary market. I suppose that is not completely useless. It would mean that you should be able to stop interest rates on public sector debt going through the roof like they did in January 2012 when the Greek government ended up having to pay 25.91%. They would have done as well paying for everything with a credit card.

But the fact is that the real problem is that Eurozone governments are all massively in debt. At the  end of 2013, public sector debt in the Eurozone was over €9 trillion. And the interest payments on that debt totalled €278 billion - a massive drain on public resources because these interest payments have to be paid with tax-payers money. Indeed, if you add up those interest payments for the 18 years from 1995 to 2013, the total reaches a colossal €5.16 trillion - over 57% of all public sector debt.

From this, it follows that allowing governments to pay less interest on public sector debt would indeed be a good thing. But, if I understand correctly, your proposal to pump €60 billion of newly minted ECB money into the financial markets isn't restricted to buying up bonds. I believe that you have set things up so that you can buy just about anything that the financial sector wants to get rid of. A bank that had a whole pile of not very good assets, could potentially swap them for some real ECB money. Does that make sense?

Who gets to decide what to spend the €60 billion on? And with what criteria?

Personally, I would recommend the following simple and clear proposition. The €60 billion should ONLY be used for buying bonds of the different Eurozone countries. We don't want your money going to buy up any old rubbish - however much the Banks would like to get rid of it.

Secondly, I propose that you should buy up bonds for each country simply on the basis of population size. Germany  has roughly 25% of the population of the Eurozone. So 25% of the €60 billion should be used for buying German bonds, 19.6% for French bonds and so on. This was a suggestion that I originally made in a Youtube video calle "How Eurozone countries could fix the global economic crisis" published in August 2012, and which has been seen by over 600 people.

Anything else would mean that you would be able to use the bond buying process to put pressure on governments to implement austerity - either they comply with your directives, or you don't buy their bonds. I suspect that many Eurozone citizens are prepared to put up with more intereference from the Troika in their governments' decisions. No doubt we will see just how strong this resentment is when the Greeks vote this weekend.

19 Jan 2015

UK Green Party goes for an Unconditional Basic Income!

Now, here is some good news.

On the BBC's Andrew Marr program yesterday morning, the leader of the UK Green Party, Nathalie Bennett, announced that the party would include the introduction of an Unconditional Citizen's Income in its manifesto. Well done! You can see the interview on Youtube here, and the interesting bit starts after 4:30m.

The party is also famous for including reform of the money creation process in its program, using ideas very similar to the ones proposed by Positive Money.

I understand that the proposals for a Basic Income are similar to those proposed by organisations like the Citizen's Income Trust and Basic Income UK. According to an earlier report in the Guardian , both organisations argue "that the scheme would actually cost less than our means-tested benefits system. It would be paid for by the withdrawal of income-contingent benefits and lowering the threshold at which people people in work start to pay income tax. Some supporters also call for a land value tax. This would mean every citizen could benefit from a basic income of £7,000 (more for pensioners, and those with severe disabilities)."

And in an article in the New Statesman last summer, which talked about the Citizen's Income Trust, suggested that the  "annual spend on benefits should be distributed equally among all citizens, regardless of their income or employment status. Under their proposals, 0-24 year olds would receive £56.25 per week, 25-64 year olds would receive £71 per week and those 65 and over would receive £142.70 per week.

Analysing figures from the 2012-13 financial year, the cost of such a scheme is projected at around £276bn per year – just £1bn more than the annual welfare budget that year –making the implementation of a citizen’s income close to revenue and cost neutral.
Disability and housing benefits would remain intact, but the scheme would replace all other benefits including child benefits, income support and jobseeker’s allowance, national insurance and state pensions. Included in the current annual spend figures is £8bn in Department of Work and Pensions (DWP) administration and £2bn in HMRC tax credit administration and write-offs."

There had been earlier reports that the UK's Green Party were thinking about this. For instance, a report on buzzfeed said that "the exact level of the income has not been set, pending manifesto costing, but a Green party source said it would likely be higher than existing social security payments. Jobseeker’s Allowance is currently £72.40 a week for adults, or £3,765 a year."

This  is all very encouraging. I just wish that the Green Parties in France could be so inspired.

11 Jan 2015

Charlie Hebdo - What now?

It is one thing to say that we want to defend the 17 principles of the Declaration of the Rights of Man, principles that can be summarized in the three basic ideas of Liberty, Equality and Fraternity. But we have a real problem. Hundreds, even thousands, of young French men and women have been convinced that they should join the Jihadist terrorists - that they should devote their lives to destroying the model of society that lies at the heart of the western society.

What can we do?

While I will never defend the outrageous and inhuman behavior that led to the carnage this week in Paris, I have to admit that there is a problem. The principles of justice and equality that are at the heart of the French Nation, and which, in principle, we in the west should all share, are so clearly so far from the reality in which we all live, it is no wonder that a few Islamists can find perfectly good arguments that prove that western society is not the model that we should be aiming for.

When 85 individuals have the same wealth as half the population of the planet, is it surprising that you can convince people that our society is fundamentally unjust?

When 0.01% of the US population has the wealth of the bottom 2/3 of American society, can we honestly say that we have got it right? 

When our entire monetary system is based on the principle that Bankers are allowed to lend money that they do not have, and charge us interest to rent us  their money, can it be surprising that Islamic models that regard usuary as a heinous sin could be attractive to disenfranchised youth?

When the simple fact of being born a Muslim of immigrant parents means that your chances of getting a job and being able to play a useful role in society are slashed, can we really be surprised that so many such people are attracted by the Jihadist extremists?

So, what do we do?  How can we reduce the attraction of jihadist extremism?

Do we answer the problem by increasing the number of police so that there are 25-30 people working full-time to control the activity of every potential terrrorist? With thousands of people in France that already need to be monitored, we could end up with half the population forced to devote their lives to preventing the desparate members of our society resorting to terror to get their own back?

I say no. The only real solution is to  change our society. We need to change things to show that our model is the best one there is. That we have the solutions. To put it mildly, there is clearly some room for improvement....

I believe that if there is one thing that would change things more than anything else, it is the introduction of an Unconditional Basic Income for all. Yes, if every man, woman and child had, by right, enough to live decently, then many of the recriminations that can justifiably be projected at our society, would collapse.

As I have argued elsewhere, a tiny sum paid to people in third world countries in Africa and elsewhere could transform our world. 

For a fraction of the cost required to set up the police state that would be required to maintain law and order, we could have a fair and just society. A society that would implement the basic principles that were already there in 1789. Principles that were taken even further when Thomas Paine proposed the idea of a Citizen's Income in his document "Agrarian Justice" in 1795-6.

Isn't it time for people to take this idea seriously?

Liberté, Egalité, Fraternité

In december 2013, I was made a French citizen, in an official ceremony that moved me. There were hundreds of us, from all parts of the world, who were given the honour of French citizenship.

One of the reasons that I am proud to be French (I have kept my British nationality too) lies in the truly remarkable set of principles that were written in stone in 1789 in the Declaration of the Rights of Man and of the Citzen - principles  that are the cornerstone of the French Nation. During the ceremony, we were all given a document which listed the 17 articles of the declaration. For me, there is not a single word in those 17 articles that are not absolutely vital even today.

The original texts are here. But here is a translation into English:

  1. Men are born and remain free and equal in rights. Social distinctions may be founded only upon the general good.
  2. The aim of all political association is the preservation of the natural and imprescriptible rights of man. These rights are liberty, property, security, and resistance to oppression.
  3. The principle of all sovereignty resides essentially in the nation. No body nor individual may exercise any authority which does not proceed directly from the nation.
  4. Liberty consists in the freedom to do everything which injures no one else; hence the exercise of the natural rights of each man has no limits except those which assure to the other members of the society the enjoyment of the same rights. These limits can only be determined by law.
  5. Law can only prohibit such actions as are hurtful to society. Nothing may be prevented which is not forbidden by law, and no one may be forced to do anything not provided for by law.
  6. Law is the expression of the general will. Every citizen has a right to participate personally, or through his representative, in its foundation. It must be the same for all, whether it protects or punishes. All citizens, being equal in the eyes of the law, are equally eligible to all dignities and to all public positions and occupations, according to their abilities, and without distinction except that of their virtues and talents.
  7. No person shall be accused, arrested, or imprisoned except in the cases and according to the forms prescribed by law. Any one soliciting, transmitting, executing, or causing to be executed, any arbitrary order, shall be punished. But any citizen summoned or arrested in virtue of the law shall submit without delay, as resistance constitutes an offense.
  8. The law shall provide for such punishments only as are strictly and obviously necessary, and no one shall suffer punishment except it be legally inflicted in virtue of a law passed and promulgated before the commission of the offense.
  9. As all persons are held innocent until they shall have been declared guilty, if arrest shall be deemed indispensable, all harshness not essential to the securing of the prisoner's person shall be severely repressed by law.
  10. No one shall be disquieted on account of his opinions, including his religious views, provided their manifestation does not disturb the public order established by law.
  11. The free communication of ideas and opinions is one of the most precious of the rights of man. Every citizen may, accordingly, speak, write, and print with freedom, but shall be responsible for such abuses of this freedom as shall be defined by law.
  12. The security of the rights of man and of the citizen requires public military forces. These forces are, therefore, established for the good of all and not for the personal advantage of those to whom they shall be entrusted.
  13. A general tax is indispensable for the maintenance of the public force and for the expenses of administration; it ought to be equally apportioned among all citizens according to their means.
  14. All the citizens have a right to decide, either personally or by their representatives, as to the necessity of the public contribution; to grant this freely; to know to what uses it is put; and to fix the proportion, the mode of assessment and of collection and the duration of the taxes.
  15. Society has the right to require of every public agent an account of his administration.
  16. A society in which the observance of the law is not assured, nor the separation of powers defined, has no constitution at all.
  17. Property being an inviolable and sacred right, no one can be deprived of it, unless demanded by public necessity, legally constituted, explicitly demands it, and under the condition of a just and prior indemnity.
I'm proud to be a citizen of the country that established this list. Is there one word in that Declaration that any reasonable person could contest?

And I was proud yesterday, to have been among the 120,000 people in Toulouse who marched together to say "Je suis Charlie".  I have posted a video that I took from the very centre of the Place Jean Jaurés - I was truly moved to be part of such a collective demonstration of support for the very principles of our society.

Today, we expect to see more than a million people marching in Paris in defense of our basic shared principles. And the fact that so many heads of state will be there as well gives me a real sense that people have realized that there are some basic principles that we have to defend. Those principles are in the foundations of the French Nation.

Deleveraging? What Deleveraging? We need to fix the system...

In my open letter to Mario Draghi, president of the ECB, I mentioned a remarkable report that was published last September called "Deleveraging? What deleveraging?"

It was published by the International Center for Monetary and Banking Studies in Geneva and the Centre for Economic Policy Research in London - both highly respectable authorities - following a conference that was attended by about 70 experts.

The main point of the report is to argue that, since the global financial crisis in 2008-9, although there have been attempts by governments to reduce their debt levels, overall debt has continued to soar. This is obvious from the first graph shown in the report.

It shows that total world debt had reached nearly 215% of total GDP, with absolutely no sign whatsoever that things were improving at all.

They follow up this sobering graph with other graphs showing the breakdown of where the debt is, with separate plots for the developed and emerging markets.

Debt in the developed markets is still increasing, and is currently around $190 trillion. In contrast, for emerging markets, the total is increasing rapidly, with over $45 trillion of debt in 2013.

If you want gory details, they provide a table with the Debt to GDP ratios as a percentage for individual countries and regions. As you can see, no-one seems to be able to avoid the debt trap. NOt even the Chinese, whose debt levels total 217% of GDP, not including the Banking sector.

Table 2.2 provides an even more detailed breakdown for developed countries.

You can see how all those numbers are calculated. Total debt is equal to Domestic plus External debt. But it is also equal to the sum of Financial (d), Public (f), Household (h) and Non-financial company (i.e. business) debt (i).

To make the figures clearer, I took that table and compiled my own table and ranked the countries by total debt.
Clearly, Ireland is in a particularly bad way - everyone seems to be heavily in debt. But a lot of that is due to Financial Sector debt. The Netherlands is also seriously compromised by its Banking sector, as is the UK. For some reason, Germany gets away well, despite having a very large banking sector, with major players like Deutch Bank.

There's also some detailed analysis of debt structure in the US, illustrated in the following graph. You can see that if there has been a slight decrease in overall debt to the current value of 362% of GDP, that decrease is essentially due to decreased leverage in the financial sector, with a slight decrease in household debt. But that has been offset to a large extend by the increase in GSE debt - Government Sponsored Enterprises. I guess that is tax payer bailouts for things like Automobile manufacturers.

And finally, there's a specific analysis of debt levels in the Eurozone. It doesn't have the detailed breakdown provided for the

The latest value - 385% of GDP -  has indeed involved a slight drop compared with 2012. But it's hardly anything to really reassure anyone.

For me, the conclusions from this are clear. You can try austerity as a way to decrease government debt. But that will do nothing to fix the overall problem - namely, the fact that there is simply far too much debt in the system.

As I pointed out some time ago, in a global economy in which there is twice as much debt as there is money, there is really no way that you can hope to get out of the mess. You can't pay off debt by borrowing more. Any idiot should know that.

And yet, none of the "experts" at the Conference that generated this report seemed to have any real proposals about how to stop this insane debt explosion.

It seems to me that there are only a very limited range of options. Some people think that we could fix things by just cancelling debt. European governments could just tell the banks to get stuffed. And that may happen, especially if the forthcoming elections in Greece go the way people expect them to go.

But there is a much better way. A way that will fix the system for good. It involves replacing the current insane debt-based money creation process where essentially all the money in the system is created out of thin air by commercial banks when they make loans.

What we need is for our Central Banks to create the money debt free. It's what Positive Money have been arguing for with their Sovereign Money Creation proposal. But it could also be done by simple creating money at the level of Central Banks and putting the money directly into citizens' bank accounts.

That's essentially what would happen if we introduced an Unconditional Basic Income, financed by a minute Financial Transaction Tax. Within a few years, the mountain of debt revealed by this report could be paid off with debt-free money. 

Is anyone listening??

An open letter to Mario Draghi - President of the European Central Bank

Dear Sir,

Inflation in the Eurozone is now negative - specifically -0.2% in December.  About the only thing that the European Central Bank is formally required to do is keep inflation at around the so-called optimal value of 2%. So, clearly, you are not doing a very good job.

I won't go into the question of why 2% is the "perfect" number. I'll just note that in a system where 97% of money is created as debt by commercial banks when they make loans, you probabably need inflation in order to pay the interest. But there can be no doubt that you will currently be under a lot of pressure to start pumping money into the economy to try and get the Eurozone economy working again.

Unfortunately, as you know perfectly well, the conventional method, which involves throwing huge amounts of money at commercial banks and praying, doesn't work. You tried that within a few weeks of taking office back in 2011 when you threw 1 trillion euros of very cheap money at hundreds of banks at December 2011 and February 2012. You provided 3-year loans at 1% interest, and of course, the banks will now have to pay the money back.

So, I suppose that you could throw another trillion at them, and do a bit more praying. Their lobbyists will certainly be pushing for that.

But the simple fact is that nobody wants more debt. Citizens don't want more debt. Businesses don't want more debt. Governments don't want more debt. And even Banks don't want more debt. As the 16th Geneva Report on the World Economy pointed out last september "the world has not yet begun to deleverage its crisis-linked borrowing. Global debt-to-GDP is breaking new highs in ways that hinder recovery in mature economies and threaten new crisis in emerging nations – especially China."

What we all need is some real debt free money. And that is where you could do something truly useful. As the head of a central bank, you should have the power to create the Eurozone's money. And you should do that money creation without creating simultaneously another mountain of debt.

How could you do that? 

Well, here's my proposal. The ECB should simply inject money directly into peoples' pockets. 

This could be done by creating ECB accounts for all Eurozone citizens via the Central Banks in each country. It would be essentially a huge excel sheet with 330 million entries - one for each Eurozone citizen. Citizens would be able to connect their ECB account to their normal bank accounts - just like you can currently connect a Paypal account to your bank account.

And then, when money needs injecting into the economy, you would just have to type "Add X euros" on the keyboard of the ECB's computer and bingo - there is X*330 million extra euros in the economy. As simple as that. No need for Quantitative Easing - which is effectively throwing money at Bankers and praying. No need to give money to governments (which you are not allowed to do because of the Lisbon treaty). But I don't think that there is anything that would stop you just putting new money into the economy this way - except of course massive resistance from the Banking sector.

Why would the Banks be so opposed? The reason is that, unlike the current money creation system, in which as much as  97% of the money in circulation is created by commercial banks as debt, this ECB generated money would be debt free, with no interest to pay.

What! No interest to pay! That is why we can expect massive resistance from the Bankers and the politicians that they control. After all, the Banks have been used to charging interest for lending fictitious money to individuals, businesses and governments since the creation of the Bank of England in 1694. For info, since that time, UK taxpayers have paid an average of 4.4% of GDP as interest payments on public sector debt alone. And 57.1% of all Public sector debt in the Eurozone (€5.2 trillion of the €9 trillion at the end of 2013) is entirely explained by the interest payments made on government debt since 1995 - as your own figures show.

Interestingly, this fact that commercial banks simply create our money supply out of thin air when they make loans, was stated with mindblowing clarity in a video last year by Bernard Maris, the French Economist massacred this week in the offices of Charlie Hebdo. His loss is absolutely tragic, but at least the number of people who have watched this important video has increased by 250% in the last few days.....

So, we can certainly expect massive resistance from the Bankers. They will fight like wild-cats to keep their gravy train on the rails. And, since you were previously vice chairman and managing director of Goldman Sachs International (2002-5), it's just possible that you may be more interested in protecting the interests of your friends in the Banking sector than helping European Citizens. Please, please, prove me wrong.

The fact is that there is no justification for allowing the money creation process to be the exclusive priviledge of commercial banks. Indeed, even economists at the IMF demonstrated that taking money creation away from commercial banks and tranferring that responsibility to central banks makes perfect sense. Specifically, they proved all four of Irving Fisher's claims for such a system when he proposed the so-called Chicago plan in the 1930s, namely (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.

Somehow the Banking Lobbies apparently managed to get politicians (and economists) to forget about that one - just possibly because that's how they make nearly all their money. Perhaps you can explain to us what would be so terrible with such a proposition?

Oh, and if anyone wants to claim that this will produce Zimbabwe style hyperinflation, can I suggest that you could introduce an ECB regulated flat-rate Financial Transaction Tax on all Euro-denominated trading - wherever they occur in the world. Last year, LCH Clearnet Ltd, based in London, did €238,447,455,975,386 in Euro-denominated trades. A 0.01% tax on that lot would remove €24 billion from the system. Indeed, if needed, you could use the revenue generated by such a tax to directly finance an Unconditional Basic Income for all Eurozone citizens.

Imagine. With just two simple levers - one that pumps debt-free money into Eurozone citizens pockets, and one that sucks money out of the system in the form of a simple transaction tax - you would be able to do your job properly.

8 Jan 2015

Bernard Maris - A hero

The islamist lunatics that caused the massacre at Charlie Hebdo took the life of Bernard Maris - one of my true heros.

Bernard was one of the very few economists that I have heard who spoke the truth. I very much hope that all his regular contributions to his "Oncle Bernard" column in Charlie Hebdo (he was one of the share-holders in the magazine) will be published in full. I heard him virtually every week on France Inter where his weekly debates with a Dominique Sceu, a journalist at the Echos newspaper were alwas fascinating.

Perhaps one good thing that may come of yesterdays carnage is the fact that since yesterday afternoon, hundreds of people have watched the Youtube clip that I posted last year where Bernard explains the truth about how money is created out of thin air by commercial banks when they make loans. At 4pm yesterday, there had been 7825 people who had looked at it. 12 hours later, the number has jumped to 9219 and rising.

See my earlier post on this for a full translation into English.

Je suis Charlie

When I heard about the carnage in the Charlie Hebdo offices in Paris yesterday, I felt physically sick. It was an act of war against everything I believe in - the right to free speech, the right to riducule the stupid and the ignorant.

Last night, in an attempt to show my solidarity with the heros at Charlie Hebdo, I stuck these images on the windows of our car. I hope that when I go to work today, many of my compatriots (I'm Franco-British) will do similar acts of solidarity.
Mohamed overwhelmed by the Integristes : "It's tough being loved by cretins"
Love : Stronger than Hate

1 Jan 2015

Options Clearing Corporation - Figures for 2014

Following up from my latest post on the amount of trading going on at LCHClearnet, here's the latest info concerning that other key player - the Options Clearing Corporation. I just went and got the latest up to date figures from their website.

I've note been able to get direct numbers for the value of the transactions that they handle, but here are the figures for the numbers of trades, and the amount of premiums that they generated in 2014. I include the figures for 2013 and 2012 for comparison (see my previous posting for more detail).

The number of cleared contracts has increased by about 3.7% since 2013, and led to total premiums of $1.21 trillion. It would appear that contracts typically generate premiums of $140 for ETF options, $220 for equity options, and around $800 for Index options, although the precise amount appears to vary from exchange to exchange.

However, I don't know if there is any way to determine what the total value of the contracts is.  If anyone knows how to estimate that number, please leave a comment.

I have also taken the opportunity to look at the history of OCC, because they provide historical tables about the numbers of different types of trades that they have handled every year since they were created in 1973.
You can see that acivity exploded in the period from 2002 to 2008. There was a slight falter after that, but total transactions peaked at over 4.6 billion in 2011. Since then, activity dropped a bit but is on its way back up again. The vast majority of the trading in in equity (89%), with non-equity trades accounting for just 10%, and futures around 1.5%.

Message to any politician who wants to be elected. Just tax these transactions at some trivial level - say 0.1%. You would make yourself very popular....