Unveiling the Magic Money Tree: The Truth About Our Banking System

1. “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning” Henry Ford Yes, there is a Magic Money Tree! Peter Verity 10th July 2017

2. 3% • Created by Bank of England • Debt-free and interest-free • ‘Seigniorage’ = spending power a government gets when the money that is created is worth more than it costs to produce • £1-2bn per year public benefit 97% • Created by high street banks • loans → credit → money • “just type the numbers into the computer” • loaned to us at interest • bank profit comes from ‘lending’ something they never had! ?

3. What is Money? (Video)

4. “Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.” What the Bank of England says “Where the stock of bank deposits comes from is often misunderstood. One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them … saving does not by itself increase the deposits or ‘funds available’ for banks to lend.” Bank of England “Money Creation in the Modern Economy”

5. “Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.” What the Bank of England says “Where the stock of bank deposits comes from is often misunderstood. One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them … saving does not by itself increase the deposits or ‘funds available’ for banks to lend.” Bank of England “Money Creation in the Modern Economy”

6. Money supplyOfficial Bank of England measure (M4) Money is created when banks make loans Money disappears when loans are repaid “The economy grows where money flows”

7. How do they do it? • Positive Money website > Videos • Balance sheets • Assets and Liabilities • www.positivemoney.org

8. “The process by which banks create money is so simple that the mind is repelled” J K Galbraith, economist, 1975 “of all the ways to organise banking, the worst is the one we have today” Mervyn King, Governor of the Bank of England

9. Summary : Physical cash is less than 3% of the total stock of money in the economy Commercial bank money (credit) makes up the remaining 97% When a bank makes a loan, it creates a ‘deposit’, creating new money When the loan is repaid, money disappears Banks do not “take money from savers and lend it to borrowers” loans money savings Questions so far?

10. What’s wrong with that? • Instability, lack of accountability, inequality • Reforming the system – Positive Money • Beyond Positive Money – public sector

11. Bank debt Asset Liability Debt £2.16 trillion (“M4 lending” 2015) Money £2.11 trillion (“M4 supply” 2015) Liability Asset Money is only created when people borrow from banks My money is someone else’s debt There is never enough money to pay off our bank debt

12. “…pay off the credit card and store card bills” Inescapable debt • More money = more debt • Less debt = less money • unless we change the system • Catch 22 - too much debt and not enough money! “UK banks need to increase their lending levels”

13. Inequality • Entire money supply (£2.2trn) ‘on loan’ from the banks • £192 million in interest to the banks every day • Transfers wealth : • from the poor to the rich • from the ‘real’ economy to the financial sector • including business borrowing • from the rest of the UK to the City of London

14. Accountability In 10 years 1997-2007, banks created £1trn additional money boosts asset values drives “real economy”

15. What’s wrong with that? • Instability, lack of accountability, inequality • Banks and Debt • Banks and Inequality • Reforming the system – Positive Money • Beyond Positive Money – public sector

16. “The issuing power [to create money] should be taken from the banks and restored to the people, to whom it properly belongs”(attr. Thom. Jefferson) Video – “3 simple changes”

17. Positive Money reforms • Our public (digital) money supply should be • Created debt free (free of interest and repayment) • Created in sustainable and stable quantities • By an independent, publically accountable body • Used as a public benefit • Sovereign Money £40-50 billion/year? Is this so radical? £1-2 billion/year seigniorage

18. Beyond Positive Money • Primary debt (£2.2 trillion) • New money • Our debt to the Banks (and Building Societies) • Currently the source of virtually all our money • Bad and avoidable! : focus of Positive Money campaign • Secondary debt (£?) • Lending existing money • Our debt to each other • Credit unions, Peer-to-peer, Wonga, Loan sharks • Good? (some) • National debt (£1.7 trillion) • Also secondary debt • Existing money, borrowed by govt to fill the tax gap • Focus of politicians and media • Good or bad?

19. National debt – some basics • Deficit is £52bn per year • Accumulated debt is £1.7trn [93% of GDP] • Deficit is going down, debt is going up • Interest payments = £48bn [2.6% of GDP] • Household comparison • Income £20,000 per year [NB GDP is a turnover] • Debt £18,500 • Deficit £556 per year • Interest £513 per year • The nation is not a household!

20. National debt – some basics • Who was the money borrowed from? • 30% overseas investors • 25% from Bank of England (QE) • 30% insurance and pension funds • balance (15%) others, including banks, local authorities, households (eg. NS&I pensioner bonds, premium bonds) etc. • Who receives the interest? • all of the above! • eg. used to pay out on private pensions • recycled back into the economy (70%) • Think of it as a safe savings account 70%

21. National debt – some basics • It’s not a burden on our children and grandchildren • Accumulated since 1694 • It never needs repaying • Rolling debt • as pensioners draw on their savings, next generation is saving up • Borrowing is cheap • Interest on gilts 1.2% [NB inflation 2.9%] • National account is not like a household • Borrow from ‘ourselves’, interest recycled into the economy • Government can create its own money

22. Boom during periods of high national debt Recession during periods of low national debt Keynesism in action!

24. Richard Murphy – www.taxresearch.org.uk

25. Richard Murphy – www.taxresearch.org.uk Reframing the narrative (8 July 2017)

26. So, is there a Magic Money Tree? “We have to stop thinking there’s a magic money tree” Theresa May – to a nurse who has had no pay rise for 9 years – “there isn’t a magic money tree we can shake…” est. £20 trillion in offshore tax havens around half are UK crown dependencies or overseas territories

27. only £2.2 trillion House price inflation Debt June 27th 2017 - Bank of England gave ‘amber warning’ on excessive consumer credit £445 billion QE Financial asset inflation – gilts, stock market “Sovereign Money” or “People’s Quantitative Easing” £40-50 billion each year?

28. we How are they going to pay for it all? Taxation £730bn Borrowing £52bn Seigniorage £1-2bn Public Spending £784bn £40-50bn Estimates for FY 2016-17, from ukpublicspending.co.uk Labour manifesto pledges £49bn current spending £250bn (over 10 years) on infrastructure

29. Tax / Tax Evasion Spending priorities (Trident etc) £34-102bn £30-50bn per year Deficit spending Public money creation £40-50bn per year

30. Positive Money – monetary reform • How do we achieve it? • Education • Understanding and support from : • Opinion makers (academics / press) • Public • Politicians Oh dear!

31. Vested interests? Ignorance?

32. Green Party 2015 policy document (p47)

33. Martin Wolf, associate editor and chief economic commentator Financial Times April 2014

34. Positive Money … a campaign to create a money and banking system that works FOR society and not AGAINST it • UK-wide campaign, part of a global movement • 28 local supporters’ groups in UK • Join us – mailing list / facebook / meetings • www.facebook.com/PositiveMoneySheffield • positivemoneysheffield@gmail.com • Find out more www.positivemoney.org

35. Discussion – “what would you change?” (2-3 minutes) • share your thoughts with your neighbours • Questions • Contributions from floor • Finish by 9:00