The Inequality of Debt-Based Money and the Need for Banking Reform

Sheffield Equality Group 2nd Oct 2013 Peter Verity “The difficulty lies, not in the new ideas, but in escaping from the old ones” (John Maynard Keynes)

97% of money • is created by private banks • out of thin air • and ‘loaned’ to us at interest

Video – “what is money”

Banking facts • The money in your bank account is bank credit ie. numbers on a computer representing how much they owe you (liability) • When banks make loans, they create new money • When loans are repaid, money disappears • Banks don’t need ‘savings’ before they make ‘loans’ • Banks make profits from lending something they never had; they will create as much credit as we are willing to borrow and can be trusted to repay • The Bank of England has little or no power either to increase or decrease the supply of bank credit • (discussion)

Debt-based money £57bn £2,100bn 2.6% 97.4% Private companies (banks) have created 97% of our money supply as debt-based money

Debt-based money “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” “When banks extend loans to their customers, they create money by crediting their customers’ accounts” Mervyn King, Governor of the Bank of England

Why is that so bad? • inescapable debt • boom/bust • inequality • Handout

Why is that so bad? • inescapable debt • boom/bust • inequality

Liabilities Assets Mortgage Liability Asset Inescapable debt Money £2.1 trillion (“M4 supply”) Debt £2.4 trillion (“M4 lending”) Bank money (credit) has to be borrowed into existence Money and debt are created simultaneously My money is someone else’s debt There is never enough money to pay off our bank debt

“…pay off the credit card and store card bills” Inescapable debt • More money = more debt • Less debt = less money • Forever growing economy ≡ forever growing debt • The problem is - too much debt and not enough money! “UK banks need to increase their lending levels”

£ Billions Annual change in “M4” money supply (source Bank of England stats) Boom / bust • When new loans are created faster than old ones are repaid, money supply grows • When old loans are repaid faster than new ones are created, money supply shrinks • When banks make loans they create money • When loans are repaid money disappears

Boom / bust • Banks create as much as we are willing to borrow and can be trusted to repay • The system is inherently unstable • Two modes • Self-reinforcing upward spiral (boom) • Self-reinforcing downward spiral (bust) • “Steady-state” economy almost impossible

Inequality • The rich get richer… • Video

Banking sector in context “recycling” dividends fees commission Non-banking Finance Sector Govt tax Banks interest, wages, dividends benefits, wages tax interest Households

Inequality << consumer debt … mortgage debt >> NB – includes direct transfers to/from households – interest, salaries, dividends excludes transfers to govt (tax), financial sector (eg. Pension funds), and overseas

Inequality • £100M - £200M in net interest payments to banks every day • (excluding to payday loan companies) • Redistribution of wealth • from the bottom 90% to the top 10% • from the real economy to the banking sector • from the rest of the UK to the City of London • Mainly from middle/upper-income households, measured by value (as a matter of choice?) • Lowest 10% pay most, as a percentage of income • Large-scale redistribution by govt needed to (partially) offset the damage

Why is that so bad? • inescapable debt • boom/bust • inequality • Short discussion?

The Positive Money campaign • objectives • reforms • who we are

Positive Moneyobjectives • To create a stable money supply based on the needs of the economy • £40-80bn new money each year • To reduce the burden of personal, household and government debt • debt-free money • created by a public body • spent into the economy rather than lent • To align risk and reward • currently, banks take the upside of risk, taxpayer takes the downside • no bail-outs • To provide a structure of banking that allows banks to fail • without jeopardising the payments system

Positive Money demands … ALL money (physical and digital) should be • Created debt-free • free of interest and repayment • in sustainable and stable quantities • by a publically accountable organisation • as a public benefit • instead of for the benefit of private profit-oriented banks BANKS should do what most people think they already do! • Keep our money safe • Only lend money that has been deposited by savers

Banking the way most people think it already works • Transactions (current accounts) • Electronic transfers, ATMs • It’s legally mine! Don’t spend it, don’t lend it, keep it safe • Lending/borrowing (“savings” accounts) • Lend my money where I choose (risk, ethics) • Pay interest depending on risk and term • Banks can’t create new money, they can only lend money already saved in savings accounts

Who are Positive Money? • National organisation • 12,500+ internet supporters, plus Facebook etc • website – publications, downloads & videos • target: “influencers” – economists, academics, media • www.positivemoney.org.uk • sign up to support (and donate?) • local groups (17 including Sheffield) • raising public awareness • monthly get-togethers, last Monday in month • street stalls • www.positivemoneysheffield.pbworks.com • join our email list; 120+ contacts

Next Sheffield events Mon Oct 28th • Member’s talk – “from Aristotle to Positive Money – a short history of monetary reform ideas” • Quaker Meeting House – 7:15 meet, 7:30 start

The Inequality of Debt-Based Money and the Need for Banking Reform