It follows then that what enables banks to create credit and hence money is their exemption from the Client Money Rules. Thanks to this exemption they are allowed to keep customer deposits on their own balance sheet. This means that depositors who deposit their money with a bank are no longer the legal owners of this money. Instead, they are just one of the general creditors of the bank whom it owes money to. It also means that the bank is able to access the records of the customer deposits held with it and invent a new ‘customer deposit’ that had not actually been paid in, but instead is a re-classified accounts payable liability of the bank arising from a loan contract.
Whether the Client Money Rules were designed for this purpose, and whether it is indeed lawful for banks to reclassify general ‘accounts payable’ items as specific liabilities defined as ‘customer deposits’, without the act of depositing having been undertaken by anyone, is a matter that requires further legal scrutiny, beyond the scope of this paper.
The Homes Association of Iceland, announced the filing of a charge to local police against all executives of all banks in Iceland:The motivation for this charge is a recent report about the monetary system by member of parliament Frosti Sigurjónsson, commissioned by the Prime Minister’s Office. The report states very clearly that banks have in fact been creating new money when they issue loans in the form of new deposits which add to the supply of money already in circulation.
At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (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. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.
“Because under the Chicago Plan banks have to borrow reserves from the treasury to fully back liabilities, the government acquires a very large asset vis-à-vis banks. Our analysis finds that the government is left with a much lower, in fact negative, net debt burden.”
The IMF paper says total liabilities of the US financial system – including shadow banking – are about 200pc of GDP. The new reserve rule would create a windfall. This would be used for a “potentially a very large, buy-back of private debt”, perhaps 100pc of GDP.
First: It incorporate the Federal Reserve banks into the U.S. Treasury where money will be created by the government as money, not as private interest-bearing debt; and will be spent into circulation to promote the general welfare and monitored to be neither inflationary nor deflationary.
Second: It removes the banks privilege to create purchasing media through the fractional reserve system. Fractional reserves are elegantly ended by the U.S. government initially loaning banks enough money at interest to bring reserves to 100%, converting all the past monetized credit, into U.S. government money. Banks then act as intermediaries accepting deposits and loaning them out to borrowers, what people think they do now. Some variations of the plan had the U.S. Government lending banks all or part of newly printed cash needed to achieve 100% reserves. This was a crucial part of the plan, because depositors were going to the banks and withdrawing their accounts, deflating the system.
Third: It Spends newly created money into circulation on infrastructure, including education and healthcare needed for a growing society, starting with the $1.5 trillion that the American Society of Civil Engineers estimate is needed for infrastructure repair; creating good jobs across our nation, re-invigorating local economies and re-funding all levels of government.
While The American Monetary Institute is responsible for its present form, the Act is based on Aristotelian monetary concepts in existence since at least the 4th century BC and employed successfully in a variety of monetary systems since then, ranging from democratic Athens to republican Rome. It is not merely a theory – its main elements have a long history of successful implementation in major societies around the world, including the American Colonies and the United States. These concepts enabled us to first establish the U.S. and then to maintain it as one nation.
The following brief summary: The Need for Monetary Reform serves as a preface to the American Monetary Act. (It was written before the banks brought down the world economy!)
A steady state economy is an economy with stable or mildly fluctuating size. The term typically refers to a national economy, but it can also be applied to a local, regional, or global economy. An economy can reach a steady state after a period of growth or after a period of downsizing or degrowth. To be sustainable, a steady state economy may not exceed ecological limits.
Watch a short film: Enough is Enough
or read more: Center for the Advancement of the Steady State Economy
The same banks that caused the financial crisis currently have the power to create 97% of the UK’s money. They’ve used this power recklessly, putting most of the money they create into property bubbles and financial markets. And now they’re back to their old ways.
We need a change. The power to create money should only be used in the public interest, in a democratic, transparent and accountable way. The 1844 law that makes it illegal for anyone other than the Bank of England to create paper money should be updated to apply to the electronic money currently created by banks.
When new money is created, it should be used to fund vital public services or provide finance to businesses, creating jobs where they’re needed, instead of being used to push up house prices or speculate on the financial markets.
Having in mind that:
i. Despite of the increasing number of national and international financial institutions, the increasing amount of the available statistical data and computing power, economic crises are not predicted by governments, central banks and the academic community.
ii. The effectiveness of fiscal and monetary policy tools in an economy decreases over time. Just like in the human body, over time the same dose of a medicine or a drug has a diminishing effect.
iii. The complexity of the economic environment (of the theoretical models, of the institutions, of the financial products and of the attempts to regulate them) has led to an increasing level of national and private debt in almost every country and in increasing the concentration of wealth of the top 1% of the population.
iv. To simplify economic environment would be of great value to the society and the policy maker.
It is proposed that a sovereign currency*, public debt repayment with sovereign currency** and full reserve banking***, followed by balanced budgets in the public sector would be beneficial to the Greek, the European and the world economy.