Robert Peston Discovers the Root of the Problem

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On Tuesday evening, a major step forward was made. Robert Peston, the famous BBC presenter on everything to do with finance, actually used the words ‘fractional reserve banking’ on national television!

Fractional wotsit?

That’s the system that the banks used to create £1.2 trillion of ‘funny money’ over the last ten years.

It’s the system that is so unstable that taxpayers have to prop it up with a subsidy worth £100bn a year (according to the Bank of England).

It’s the system that has buried ordinary people under a mountain of debt, and which caused the crisis we’re all paying for now.

It’s so poorly understood that in all the millions of words of coverage of the financial crisis, not more than about 5 mainstream journalists actually figured out the root cause.

And now Robert Peston’s talking about it on national television. Finally!

You can watch this documentary on BBC Iplayer until Tuesday 25th January here . (For those outside the UK, there’s currently a version on YouTube here). [Sorry, no longer available. Try a search of YouTube. If you’re desperate to watch it, send us an email – we might know of a copy online somewhere].

Note the contributions from Toby Baxendale, chairman of the Cobden Centre, who also spoke at the Positive Money student conference.

Ignore Paul Tucker’s suggestion that we need fractional reserve banking to allow people to borrow for the long term – that’s a naive misunderstanding for the second in command at the Bank of England.

After you’ve watched it, leave your thoughts below.

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  • Mike Crees

    Hi Ben..we have talked before..well the message is getting across..but is there the political will to change the banking system….Mike Crees

  • Andy

    Hey Ben

    Thanks for the reminder about this. I watched it and agree it was great to hear those words on a national TV broadcast at last and not on some non mainstream YouTube clip!

    However I suspect the people we need to reach simply switched over and it will be this way until the Austerity measures that are to compensate the fraudulent bankers for THEIR mistakes actually start to hit people.

    You need to keep raising awareness via Facebook and try to get the likes of on board. Also if you can somehow tie things into the NUS / fees protest which IMHO are going to end up turning into something more bigger once the pain of these cuts truly bite across the UK then we might be in with a chance of getting proper reform of the fraudulent fractional reserve banking system.

  • PowerLaw

    decentralized digital bank accounts:

  • http://None Bill Clarke

    Our campaign would be strengthened if we could win over people like Robert Peston. Has any approach been made to win him over – and journalists like him?

    • Nick

      I’ve been trying for 2 years via dozens (if not hundreds) of emails to the BBC Radio4 PM and Today programs to get them to understand the growth paradox at the heart of capitalism and its relation to depletion of natural resources. Alas, they continue to ignore this issue, presumably the BBC’s voice is strangled by their political masters?

      • william methven

        No these people are not overtly censored. They don’t need to be. They self-censor. Most of them are clones, products of a system of upbringing, education and a political establishment whose values & attitudes do not allow them to ask certain questions. One of the questions not on their radar would be: In what way is capitalism fatally flawed? The unstated value of this culture is an unquestioning belief that capitalism is the only viable economic system. Its a product of very clever conditioning that maintains the status quo.

  • Alistair Bryson

    I cannot defeat the logic of the “positive money” campaign.
    my problem is as follows
    – given the success of the campaign leading to the changes being advocated, how will this affect things at the international level ?
    could Britain “go it alone” in this matter ?

    kind regards,

    • Ben Dyson

      Hi Alistair,

      Because this is a reform that applies to a particular currency (and therefore needs to be implemented by the central bank than manages that currency eg. the Bank of England, the US Fed, Bank of Japan, or the European Central Bank), it’s possible for any one currency block to ‘go it alone’. So the UK could implement the reform without waiting for international agreement, as could the US or Japan. Germany and Ireland however would have to wait for the whole of the EU to agree.

      This makes the reform quite different from things like splitting up retail and investment banking (which would encourage the banks to ‘pack up and leave’). With our reform, a bank has no way of getting around the rules – if it wants to deal in pound sterling, it would need to implement full-reserve banking for its pound sterling business.

      • Alistair Bryson

        Hi Ben,

        and many thanks for your reply concerning “going it alone”.
        my further question (based on your reply) is – would they (the banks) humbly accept having to have 100% backed reserves when dealing in Sterling – or would they simply “lock-out” GB from international financial dealings ?
        (by way of punishment, that is).
        could they afford to do this ?
        fundamentally, the question posed by a UK-only “POSITIVE MONEY” action would be :
        how would it affect Britain´s trading position ?

        kind regards,

  • steve

    Hi Ben

    Yes I did see the programme and I thought he did a pretty good job of getting the point across. The one thing missing was the relationship between Banks and Government.

    Like it or not but I think Government would quite like to keep things as they are.

    As an aside there seems to be a general thought that we need the city and associated bonuses as they provide tax revenue to the exchequer. What people don’t see is that much of the city’s profits are generated by the debt in the system and reconstituted via derivatives or betting.

    My point is that the City doesn’t really produce anything in the traditional sense. They create money and lots of it from the debt of others. You, me and others throughout the globe are left paying the bill.

    The Government have so far failed to ask the right questions or they won’t ask the questions as this will start to unravel the relationship between Government and banking.

    All the best


    • Ben Dyson

      @Steve – spot on. The City as a whole pays around £50bn a year in tax (the banks themselves just a portion of this). Meanwhile the Bank of England estimated that banks (specifically) in 2009 were subsidised by around £100bn as a result of the government guarantee on bank deposits. So we’re subsidising the banks by far more than they return in taxes.

      Besides, the taxes that they pay are profits on the interest that we have to pay them thanks to their monopoly on the supply on money, so the taxes they pay really come out of our pockets.

  • william methven

    I was pleasantly surprised at the programmes content. OK it didn’t go far as to say that banks have a monopoly to create money out of nothing & charge us for the privelege, but it came close.
    This programme on prime time BBC TV would have been unthinkable a few years ago. Something is shifting.
    I get the distinct impression that there is a rearguard movement within some sections of the elite to get the banks reformed to some extent so they are more publicly acceptable. Hence Mervyn Kings much publicised remarks.
    I think they are afraid that if they don’t either the present system will totally collapse or there will be open rebellion focusing on the banks.
    It remins to be seen whether this section of the elite will win out.

  • John Palmer

    I watched this program with interest and I was surprised to see how openly the banking issues were challenged. Perhaps those who control BIS now realize that some bankers have seriously abused the considerable freedom offered to them, particularly in the United States.

    The system could work for a finite period when those participating acted as members of a gentleman’s club, but like all pyramid schemes, failure is inevitable when increased growth can no longer be achieved.

  • Peter Verity

    It was an excellent programme, but didn’t go far enough. It was mainly about moral hazard.

    It didn’t say (a) that FRB is a driver of boom and bust and (b) that the only way out of the dilemma between increasing debt and stimulating the economy is DEBT FREE MONEY!

    I’ve put a post on Robert Peston’s blog to say this (comment no 180) and given Positive Money a mention. Hope a few new people can be drawn into the campaign through this

  • GrahamFP

    That the BBC has been given the green light to put this out signals to me that the TV viewing populace is being prepared for a system meltdown – and a re-set?

  • John Coates

    A very interesting programme and pleased to see that problems are starting to be acknowledged by senior figures within the financial sector. Comments by the scientist were very interesting indeed and I think he probably has a more unbiased view than those within the industry. It seems to me that Global Banks are so big no one can or is willing to change them. They have become the system in control of the people who invented the system.
    Unfortunately, none of what was said is likely to help millions of people who now face the dole queue. I want to see Government reduce the burden on the low paid and Benefits claimants and shift it to where people can afford it and indeed make the Banks pay more back in terms of the bail out they received. They should not be paying bonuses of any kind until they have paid back all of the bail out money!!

    • Mark-Lee:Giles

      I also was pleasantly surprised at the programmed content, GrahamFP you are quiet right the populace is being prepared for a system meltdown – and a re-set? I know we have yet to have a formal response from Ben or Steve regarding MPE or debate the central Banks Issuance of *OUR* Promissory Notes … I only add the following from the FORMER PRESIDENT OF THE BANK OF ENGLAND SIR JOSIAH STAMP (21 June 1880 – 16 April 1941)

      “Banking was conceived in iniquity, and born in sin. Bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them, and all great fortunes like mine will disappear. And, they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be the slaves of the bankers, and pay the cost of your own slavery, then let bankers continue to create money, and control credit.”

      Around 1999 someone said to me, “You know, debt is the guaranteed result of our use of a private bank’s money.” I never argued with that but just asked, “how can that be.” Knowing just the little about math then I came up with numbers/ formula, and eventually I arrived at the following:
P + I = D

      Principal plus Interest) equals Debt..!!!!

      Your understanding of MPE™ will not come immediately but when it does and the penny drops you will see that MPE™ is the ONLY way forward, see

      P – P = 0

      No Interest equals no debt. Quite simple actually. 

Under the private central bank economy reflected in the formula for debt a £100,000 home will, over time, cost £300,000 to £400,000 and would require payments of about £1,000 to £1,250 per month for at least twenty years.
      Under mathematically perfected economy your payments for a £100,000 home would be £83.33 per month! I’ll use Mike’s words to end this article. What more incentive do you need,

      “There is no other solution. Regulation can only temper an inherently terminal process.”

      • Jake

        I agree, there is NO other solution for inflation, deflation, systemic manipulation of our money and property, and terminal failure due to irreversable multiplying of debts by interest into insoluble debts.

        Anything other then MPE is a poor compromise.

  • Kipper

    Finally we have a British TV programme that exposes part of the truth of the banking system to the country – well done BBC.
    Until the crisis arrived, I understood that the private banks borrowed money from the central bank and lent it out to others at a higher rate of interest – but now I have learned, like everyone, that they lend out money they do not have. Call it Fractional Reserve Banking, but it is countfeiting money made legal by the government – and this is the first thing we must fix: the Bank of England must only be allowed to create pounds sterling and the private banks must only be allowed to borrow at a reasonable rate.
    As for the Derivatives, well this is exposed as betting and gambling which must immediately be made illegal as it will surely bring down the financial system and is currently our biggest national security threat.
    The Shadow Banking and Off Balance Accounting must also be made illegal as this is nothing more criminal activity.
    The government excuses for the current system are the same as those by the big banks – apparently international business can not be done effectively unless their Big. This is double-talk aimed to confuse us. What they really are trying to say is they need the gambling and fraud to make the world business go round – but this is an utter lie. Derivatives have nothing to non-banking business. A business just needs a safe bank to loan it money or store money there.
    As for the rest of us, we also just need banks that came be safe yet make money by borrowing from the central bank and lending to us for a percent or two more. Banks do make money that way – they just want more than a reasonable amount – and this is where people power will shout back NO! Enough is enough – end this racket now.

  • Ant Power

    I have followed Robert Peston for some time and like what he says in the main. (he is not yet “famous”). It seems he was going some way to saying what you are saying, without mentioning ‘Positive Money’ and maybe if we push enough he would.
    My main problem with your whole idea is that it is not in politicians, bankers or even government interests do go down this road. King says the country has the worst scheme, but then changing would be immensely difficult, and very much counterproductive, in a recession, and of course more so when times are booming. Could it be done by the Basel Committee setting a moving rate of Deposit? Say 12% thi year 15% next then 20%, 30% and so on, in ensuing years? Have you already been down these roads?

  • http://n/a Jim McCluskey

    I listened to Peston’s analysis, also that of Vincent Cable and others. As a result the impression I have is that what needs doing is the following:-

    1. the gambling side of banking needs to be separated
    completely from the gambling side,
    2. Banks which are too big to fail must be reduced to an
    appropriate size,
    3. Banks must keep sufficient reserves to cope with a run on
    the bank (very much more than the present
    recommended 11%)
    4. depositors should have the facility of demanding an
    assurance from the bank that their money will be kept
    intact until needed by the depositor.

    If the above is incorrect I would be very interested to know in what regard this is so.
    If it is correct why are these measures not being implemented?


    Jim McCluskey Bsc, MICE. MIStructE, MIHT, ALI
    .(Author of ‘The Nuclear Threat),

    • GrahamFP

      In brief response to Jim McCluskey’s post – the reason the obvious rectifications to the system are not implemented boils down to vested interest. Follow the money (as the governments do).

  • Kay Rowham

    A small step in the right direction but the word needs to be spread wider. Anybody watching Max Keiser report on RT Today news channel (previous episodes on

    We need everyone (unions, students, retired people, et al) to have a national day of protest so that everyone in these banks, the Government and the media, sitting in their ivory towers get it: Let the banks fail; let the bankers go elsewhere – just like Iceland did – they are coming out of it now and their children and grandchilden won’ be saddled with the cost of the obscene bailouts……

  • Chris Cook

    It was remarkable to see this subject at last being aired on the BBC.

    But it’s a shame that the myth of Fractional Reserve Banking – which no longer exists, and has long since been overtaken by modern creditary banking – is being repeated as fact.

    Credit created by credit institutions aka banks gives rise to matching deposits – and not vice versa – and that is the case whether this credit is created as interest-bearing loans or simply spent on suppliers, staff, management shareholder dividends or on the acquisition of assets.

    Credit creation is not constrained by reserves, but by capital requirements set by the Bank of International Settlements in Basel.

    The Positive Money proposal also ignores the fact that an enormous amount of credit is already routinely created interest-free by trade sellers wherever they give buyers time to pay.

    It is quite possible for a credit clearing system – such as VISA and particularly the Swiss WIR or proprietary barter systems – to enable the circulation of goods and services, and the creation of productive assets, with no deposits and no need for fiat currency at all, other than as a unit of account or numeraire.

    Wherever a barter system incorporates credit, the result is a monetary system.

    In Ecuador, the FactoRepo system under development will enable any VAT-registered business to obtain working capital by factoring/discounting its invoices (‘Real Bills’) directly with the Central Bank, and is therefore also a credit clearing system. The reason why they are doing this is that Ecuador – which is dollarised – may therefore minimise the requirement for Fed dollars, and use the $ mainly as a numeraire.

    Finally, I think it is necessary to look again at the way that most money – over two thirds – is in fact based upon the use value of productive assets such as land and the capital embedded in it. ie it is deficit-based and land backed.

    I fear that a first-rate initiative is in danger of going down a blind alley through the use of assumptions which are not actually based upon reality.

    • Ben Dyson

      @Chris – there’s a massive difference between risk-bearing credit between two companies (whenever they give buyers time to pay), and risk-free ‘credit’ in the form of bank deposits that are created by commercial banks and underwritten by the state (via deposit insurance), and therefore perfectly equivalent to physical cash.

      The type of ‘buy now pay later’ ‘credit’ implemented by firms is something completely different, and ultimately irrelevant to discussions of money and banking reform.

      • Chris Cook

        Ben, it is certainly true that credit created by banks is backed by nothing more than a small proprietary default pool of equity.

        The function of banks is in fact as a risk intermediary -a guarantee function or framework of trust – which comes between sellers and buyers on credit terms, and also between borrowers and depositors.

        There is absolutely no difference in terms of economic value between trade credit and bank credit: it is merely the basis which is different, the former being based on value, the latter being based upon the complete opposite.

        The fact is that wherever a barter system incorporates credit – as with the Swiss WIR – the result IS a monetary system, with no fiat currency; and no deposits.

        Similarly VISA is a credit clearing system, owned by banks, which does not operate on a fractional reserve basis, there being no deposits involved.

        With respect, Ben, you should re-examine your assumptions in relation to the nature of money and credit.

        • Ben Dyson

          Chris – these days the ‘credit’ of the bank is underwritten (i.e. made risk-free) by the government’s deposit insurance (whereby they promise to reimburse you up to £85,000 if the bank goes bust). So bank deposits or bank ‘credit’ is risk-free and as good as money, so it’s very different from buy-now-pay-later credit.

          In the full-reserve banking model outlined in our proposals banks really would be risk-intermediaries, and investments made through the bank would bear risk. That’s the way it should happen.

          But in the current system, the risk is passed entirely onto the taxpayer, who takes any significant losses, while the banks themselves cream off the profits in the good time.

          Visa is a payments system, just like BACS, CHAPS and Maestro. Although they ‘clear’ and cancel out some payments, they have to settle the net amount in real money, either cash or – more likely – central bank money.

          With respect Chris, the academic debate about banking, money and credit has been going on for decades and hasn’t helped us in any way avoid the situation we’re in now. What we need now is some practical proposals for improvement. As I mentioned before, credit between companies isn’t relevant for a discussion of how to improve banking and prevent banks causing the damage that they’ve caused over the last few decades.

          • Chris Cook


            I agree with much of the Positive Money analysis, as I have made clear before via a mutual acquaintance.

            But my point re VISA – which I do not advocate – is that it demonstrates, like the WIR etc that deposits are not necessary in relation to credit which is secured only by individual or business obligations.

            With respect, I think that the aim of Positive Money is admirable – to base currency upon value, rather than upon a claim over value issued ex nihilo.

            But IMHO the objective of full reserve banking is as politically impossible as (say) Land Value Tax or Social Credit due fisrtly to the sheer number of vested and privileged interests ranged against it which would not dream of enacting it, and secondly to the obscurity and smoke and mirrors surrounding it.

            My approach is based upon the fact that in a world of direct instantaneous connections, banks as credit intermediaries/ middlemen are simply no longer necessary, whether they come between borrowers and depositors or between trade sellers and trade buyers.

            Such a ‘Peer to Peer’ approach – which is only vaguely related to the Zopa model.

            Peer to peer Finance

            is actually in the interests of banks, since as service providers managing risk and administration, they would no longer need capital to support credit creation.

            Which is just as well.

            ie we would be going with the flow, not against it as you are currently bravely doing.

            What we could therefore see is firstly a return to banking as the honourable value-added profession of merchant and investment banking it once was: rather than the current parasistic if not cancerous outgrowth on the Economy and on Society it has become.

            Secondly, we would see as an outcome the emergence of ‘Positive’ currencies based directly (as opposed to indirectly as now) upon the use value of productive assets like land and energy

    • Graham Hodgson

      I agree with Chris Cook that Fractional Reserve Banking is an obsolete concept, although a useful hook on which to hang further constructive thinking about the future of money and banking. I also agree with Ben Dyson, however, that credit is an inappropriate concept in the context of bank accounts. The conceptual mess surrounding money stems from the view that bank accounts represent promises by the bank to the account holder to make payments to the account holder or to third parties in accordance with the account holder’s instructions. The view was tenable only when payment consisted of the transfer of physical property and the bank’s physical holdings of that property constituted the reserves backing its promises.
      But those days are long past. Banks’ “reserves” these days are promises by governments and other enterprises (bonds and commercial paper) to transfer, to the banks’ own account, balances to be received from the bank accounts of taxpayers, creditors and customers of those enterprises. In other words, the banks’ “promises” to make payments are backed ultimately only by the banks’ promises to make payments. The concept of reserves is devoid of content as is the concept that bank accounts from which payments to third parties are to be made are merely promises by the bank to make those payments. However, credit is itself merely an agreement to accept a promise to make future payments, so credit as a concept also fails to add content.
      In my view, the key to money and banking is payment. Payment is the third means of transferring goods and services. The first is gift, requiring and establishing an ongoing relationship between transferror and transferree, a relationship to be confirmed and perpetuated by reciprocity. Credit is a form of gift. Trade credit is extended in order to secure a long-term trading relationship. The second means of transfer is trade, with the direct exchange of goods for goods, use value, if you will, for use value. No further involvement is required from the parties to the trade. Gift and trade concern only the transferror and transferree, although others may be involved as witnesses. Payment is the third means of transfer. Payment is a convention, not an exchange, a ritual that enables goods or services to be transferred from payee to payer with no obligation for reciprocity on the part of the transferree and no goods or services given in exchange. Payment demands the active but indirect participation of a whole local community via the public display of goods and services which that community demonstrably makes available for acquisition through payment. Payment is effective as a means of transferring goods and services only because the community demonstrates that it will remain effective. Money is the measure of the level of the individual community member’s ability to perform the payment ritual. The accounts maintained by banks are records of those levels of ability, personal data of the account holders, and monitor the transfer of that ability between account holders as payments are made. Because it is banks whose record keeping is relied upon to confirm that payments made have been effective in transferring the ability to make payments from payer to payee, banks can alter those records to confirm a payment in advance of the payer’s having acquired the ability transferred, creating money, and can subsequently alter those records again to revise down the payer’s future ability by the amount of the advance extended, destroying money.
      On Chris’s point about bank spending on suppliers, staff, etc., this only appears to be money creation because the aggregates employed by Central Banks to “measure” money are statistically incompetent, bundling together payments accounts (personal data recording customers’ ability to make payments) and savings accounts (records of obligations of the bank to make future payments to its creditors) and ignoring the internal accounts (which banks don’t publish) into which banks receive their revenue and from which they meet their expenses and finance their investments, which are payments accounts just like those of their customers. These aggregates, because they mix apples and oranges, say nothing useful about the economy, and because they omit a substantial fraction of what they are intended to measure appear to swell with net bank expenditure and diminish with net bank receipts.
      Finally, Chris’s exemplification of VISA as a credit clearing system is not correct. VISA pays traders out of its own payments account and receives repayments from card holders into its own payments account. It is acting as a factor, buying up the traders’ accounts receivables (at a discount) and recovering in full from its card holders (with or without interest). It is not clearing payments between customer accounts.
      In summary, therefore, I disagree totally with Chris’s conclusion that “Wherever a barter system incorporates credit, the result is a monetary system.” Barter is the trade means of transfer of value, credit is the gift means of transfer and money is the payment means of transfer. Once this conceptual structure is in place, it provides a sounder foundation for constructing replacements for the current shambles. Needless to say, I concur wholeheartedly with Chris’s closing sentiment: “I fear that a first-rate initiative is in danger of going down a blind alley through the use of assumptions which are not actually based upon reality.”

      • Chris Cook

        Graham, I think that any disagreement is in large part a matter of categories.

        Except that in relation to bank lending and spending, both activities create demand deposits in the hands of the recipients – although the former creates an asset on the bank’s balance sheet, and the latter a debit to its P & L (reducing its equity).

        Since both result in new deposits, I cannot see why bank spending does not represent the creation of new money.

        Re categories, if B2B ‘trade’ barter and credit is extended to individual customers (B2C) then the result is a general monetary system, as opposed to a business-specific monetary system ike the WIR.

        The monetary system issues are:

        – firstly, what currency – or unit redeemable in exchange for value/ ‘money’s worth’ – could be routinely and generally acceptable in exchange or ‘fungible’ ?

        – secondly – by reference to what unit of account, numeraire, or value standard should exchanges of value and currencies take place?

        – thirdly – who manages the accounting system, risk, and monetary policies?

        – fourthly – what is, and what backs, the framework of trust within which the monetary system operates?

        In my view, natural candidates as a basis for fungible currency are:

        (a) use value of location/land – ie units redeemable in payment for rentals (John Law suggested a similar system in Scotland in 1705, although he had in mind a central bank, and hence deficit-based but land-backed credit, rather than land-based credit); and

        (b) units redeemable in payment for energy.

        I think that the optimal candidate for a unit of account/ numeraire is an absolute Unit of energy.

        I advocate a ‘Guarantee Society’ agreement as a trust framework, whereby sellers and buyers on credit terms (retail or business) both pay into a pool in common ownership for the use of a mutual/collective guarantee.

        Users would have ‘guarantee limits’ rather than credit limits, but te effect is the same: banks cease to be intermediaries, and become service providers, and no longer need put their capital at risk supporting credit creation.

        • Graham Hodgson

          On the first point, I start from the proposition that a bank is just a commercial enterprise which receives revenue and spends money. Where does the money it receives go, and from where is the money it spends drawn? Other enterprises show on their balance sheet an asset entry, “cash in hand and at the bank”, but bank balance sheets don’t. They do declare their holdings of banknotes and coin, but these are the holdings they issue over the counter and fill the ATMs with. They don’t spend them. These are its stock in trade, not its funds. They also declare the balances of accounts with the Central Bank and other banking institutions, but these are for clearing customer payments involving interbank transfers, not for spending.

          When a bank deducts charges and interest from its customers’ accounts the money doesn’t disappear, it is added to the account balance that the bank claims for its own use and that balance is used to finance its own expenditure. The customers’ ability to make further payments decreases whilst the bank’s ability increases by exactly the same amount. The aggregates go up and down, because they’re poorly constructed, but the money stays in existence at all times.

          However, because that account is not administered by an independent third party, as is the case for all other enterprises, but by its own accounts department, the continued existence of the money doesn’t get reported separately as an asset of the bank on its balance sheet, but is just netted off for reporting purposes against all other internal accounts through the P&L account.

          When the bank deducts a loan repayment from a customer’s account, on the other hand, it reduces also the balance of the corresponding loan account which it claims as an asset. The customer’s ability to make further payments is reduced: nobody benefits from a corresponding increased ability; the money does disappear.

          On the second point, when a business gives trade credit, it loses an asset in the form of the value of the goods and services supplied but gains a financial asset in the form of its customer’s debt, settlement of which will increase its liquid assets. The long-term result is that inventory has been converted to cash.

          When a bank extends an advance to a customer, it records the customer’s loan obligation as an asset but does not surrender any other asset in exchange. Instead it balances off the additional asset with a new liability. When the loan obligation is settled, the bank’s balance sheet reverts to its previous position. The long-term result is no-change. The two situations are not categorically equivalent.

          However, perhaps we’re arguing at cross-purposes. I’m concerned with clarifying banking as it is at present, but if you are arguing for a system as it could be, then I’m happy that credit could form the basis of a payments system. After all, that’s how tally sticks and negotiable bills of exchange originally operated.

          Once we start considering a fungible currency, however, it’s clear that we are following different paths. The search for the perfect basis for a stable exchangeable currency is well subscribed and may even reach consensus, but at the end of the day, the system is going to be taken over by stupid people. I am not championing a particular system at present, but trying to develop an additional perspective by questioning the core assumptions concerning the nature of the system which has emerged from the ravages of two millennia of stupid people, which might help make whatever the next stage of development turns out to be more robust and more resilient. I am not assuming, therefore, that a successor payments system will continue to employ a fungible currency (which is not the same as assuming that it won’t!).

          If the balance in a payments account is simply a record of the account holder’s ability to make payments, administered in a similar way to, perhaps, their credit rating, then the account is not a liability of the bank and its administration has no consequences for the bank’s capital.

          If the repayment of an advance extended by a bank does not replenish the bank’s coffers, and the account from which the repayment was drawn is not a liability of the bank, then the advance does not represent an asset of the bank. I believe there is at least intellectual, but more importantly, practical value in exploring the implications of these possibilities.

  • Nick Bagnall

    Interest, or what was called usury in the Middle Ages is one of the problems. Islamic law used to outlaw that, until they started to have vast sums from oil to invest, when they also got into usury.
    Those with money should only be allowed to lend it with the original sum returned.
    A second is that the Reserve Banks are private companies, who are allowed to create the credit out of thin air, then lend to Governments as well as companies and individuals, charging interest to all. It would be better if Governments created their own credit again as they used to do in the distant past.
    A third problem is that Limitied Liability Companies have no life cycle,
    unlike other entities, they do not have a limited life span. We need to find a way of closing down all the major companies, bringing them back down to a more human scale.
    Fourthly, gambling with futures, currencies, commodities, and even lotteries should cease.
    Finally, there needs to be a substantial tax on personal wealth, together with family funds, and other hidden money. Start with 5% on anyone with over a million. That alone should limit inflation.

  • Andy

    I can fully recommend Murray Rothbard’s The Mystery of Banking to anyone wanting to read around this more.

    This book is an important (definitive?) work on fractional reserve banking and shows how the process of us making deposits and banks lending money is based on fraud.

    Free PDF Version here

  • GrahamFP

    In response to Nick Bagnall – I almost 100% agree with your points except that it is corporations that should have their life limited. As I understand it corporations were put together for the task of executing a major project (e.g. building a railway) once the job was done the corporation was dissolved. However the legal profession (paid by the corporation supremos, who enjoyed their power andc didn’t want to let go of it) made a case that a corporation was a legal body (just like you and me)? and was entitled to live on and not be dissolved and from then on these legal bodies have ‘carried on’ and grown out of control and have become power/profit orientated in a ;divorced from humanity’ way. Usury and Corporations, control those two items and the rest will fall into place. Good luck with that as I fear it’s been left too late, the rot is invasive and pervasive.

    Usury is indeed the root of the banking problem, no question about that

    I think gambling shouldn’t be ‘banned’ so much as ‘seen for what it is’ I am not a believe of forcing ‘right actions’ rather education should show these actions for what they are.

    I do not agree with your taxation ideas. Get rid of usury (which is the biggest tax there is) and you won’t need to worry about taxes. I say work top get rid of taxation altogether, look into the history of taxes you may be surprised?

  • william methven

    Fundamental issue highlighted elsehere on this web site is that banks must be relieved of their monopoly over the creation of money & of their ability to charge interest. The power to create money must reside exclusively with local & central government under strict parliamentary controls. No one should be allowed to create money but a publicly owned & publicly accountable body.
    The power of creation of money is such a powerful social, economic & political tool that it ahould never be allowed to fall into private hands for private profit. It has undermined our democracy to a point where we see that government is less powerful than the banks & incapable of stopping their excesses. THe banks run the country & have done for at least 200 years.
    The only role for banks should be to lend out the money that is deposited with them & to lend it out for a fixed fee – full reserve banking. Nothing else.

  • http://None Bill Clarke

    Why is Robert Peston reluctant or afraid to tell viewers that the money banks lend is debt created out thin air and is not depositors’, which is the impression he left viewers with?

    Is he afraid of the bankers or the BBC?

  • chris

    James Rickards talks about a Davos proposal for 100 Trillion more in debt. Will Robert Peston report on that I wonder ?

  • martin

    Chris, with your knowledge and experience do you really feel that you can’t join our campaign for positive money? Surely we have far more in common, and broadly shared values and interests, to sidestep any “antics with semantics” and move forward together?
    I figure we all want a just, equitable, sustainable money system in place of todays unjust, inequitable and profoundly unsustainable system. And we all seem to appreciate that debt is fundamentally a distorted and disfunctional form of money?

    • Chris Cook


      As I responded just now to Ben I am wholly in favour of ‘Positive Money’ as an aim and agree largely with the analysis of the problem.

      But I am afraid I cannot support the proposed solution, although I wish the proponents the best of luck with it.

      Having said that, the proposals I am putting forward, which are based upon a practical, rather than theoretical, understanding of financial markets, are not in opposition to the aims of Positive Money, and offer complementary solutions.

      I’m quite happy to work with people in support of a common aim.

      But as the guy said, we can’t solve 21st century problems with 20th Century solutions, and it appears to me that Positive Money’s proposals are harking further back than that.

      • martin


        yes, I know what you mean. We are still in thrall to primitive notions of money, as if it were a commodity. Funny how rarely we see open discussion about the ownership and control of money. Zarlenga’s “Lost Science of Money” is well worth the read…I borrowed it from the British library (800 pages in 7 days!). Good luck with your campaaign/reforms. I’m with you!

  • Jake

    “Unless there is an editor or reporter with a perfectly neutral work-focus and style of presentation, then ALL reporters and editors are politically biased.”

    “Bias however, is no sensitive issue where a mature audience is apt to detect bias and account for it. The damaging aspect of ‘news’ coverage is its non-focus on imperative issues and qualifiable solution; and that so many citizens of all countries of the world hold to so many irrelevant snippets as if they can be served by them.”

    “For some 20 years for instance, the prospect of a ‘balanced budget’ occasionally draws some focus. But, in the news, and in politics, never have we seen an exhaustive proof of whether it is even mathematically possible to balance the budget under current and ever-worsening conditions. If however, world politics will ever see the solution of ever-mounting debt, and a solution of the ever greater costs of ever mounting debt, inevitably this will be through the eyes of a mathematic expression equivalent to conclusive, mathematic proof.”

    “Do the people even want to see or hear this, or administer to issues in conclusive terms? Only their focus on such a scope will tell. But certainly no news-service offers the inevitable argument.”

    “In any event, the impertinence of the audience befits the impertinence of submitted material. If they had no equally impertinent audience… all impertinent material, and all impertinent politicians, would be equally vanished.”

    “Just something to consider, as we plunge ever deeper into insoluble debt.”

  • Conrad Jones

    “Moral hazard occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk.”

    Murray Rothbard’s ‘The Mystery of Banking’ is an interesting read (as referenced by Andy above) and (in one chapter) highlights a System of Banking adopted by Scotland prior to the 1844 act. The fact that Scottish Banking was stable UNTIL the Bank of England took charge, highlights the cause. So why didn’t Scottish Bankers complain – because the system reduces competition and encourages a gradual monopoly over the market which benefitted the existing Banks of the time and protected them against newer competitors.

    The Scottish System had a central clearing house but no Central Bank. The Central Bank’s role in this crisis is key to finding the solution.

  • Conrad Jones

    The BBC produced this programme where Robert Peston illuinated this little known and understood mechanism of Fractional Reserve Banking -good. But – as pointed out in another comment, many people would glaze over (I can picture many people I know doing this) and start looking at their TV Guides for Footlball or Films and so would not connect any debt problems they were experiencing with how the Banks operate.

    Many people blame private Banks. Mervyn King blames private Banks, politicians blame private Banks (but readily accept Jobs with them when they leave office – i.e. Ruth Kelly, Tony Blair, etc). The BBC blames private Banks. So why the hell did the Government hand over £200 billion pounds to them? Moral Hazard is the reason why this Crisis developed. The Central Bank providing bail out to essentially private profit making businesses (Private Banks) created the environment for this to happen. If the Bank of England didn’t give this garuantee that they would transfer some of the purchasing power of the Taxpayers over to the Banks if they got into trouble garuanteed that the Banks would need that safety net and will continue to need it so long as the Taxpayers continue to believe what they are told to do in TV News and other main stream News Media outlets.

    The BoE encourages risk and malinvestment which caused the Housing bubble. If Private Banks were allowed to pay the full cost of their mistakes, Banks would operate in a more stable manner without the near communist style centralism provided by an all powerful central bank.

  • Jake

    We are in a worldwide economic crisis AGAIN, and “MONEY” is at it’s very center AGAIN. And we have let it happen AGAIN. It is a crisis of money management, and the result of permitting ruthless private international financiers to gain and keep control over “OUR” money AGAIN. Yes, money is a sovereign right that arises from the sovereign right of an individual to enter into contracts. By allowing that right to be usurped by private banking interests we have lost the greatest power a free and democratic people can have – economic power. I would say that 90% of all the people are confused about money. About what it is now, where it comes from, but more importantly, what it should be, and where it should come from.

    Wealth often confused with money, can take almost any form, and historically it has, from gold to cattle, from grain to salt, and water to land. These are all forms of wealth, commonly called commodity wealth with the exception of land, which is known as “real wealth” or “real estate” because it has certain distinctions that commodity wealth does not. Notes or deposit receipts (money) for grain, metals, gems, or other items of value have served throughout time as a safer, more convenient means of transferring payment. Here the reputation of the issuer was the key factor in its acceptance.

    But the point here is that “money” is a medium, or means of exchange that takes the place of the items being exchanged. When items of value are exchanged that is called “barter”. Money is used in place of barter. Money is not the things themselves. For money to retain it´s integrity it should be free of any intrinsic manipulation which one of them is interest.

    Mathematically Perfected Economy NOT ONLY restores our sovereign right to issue our own promissory notes to each other, but also offers a money management system at the same time.

    • Conrad Jones

      I agree with you, people are ignorant of the way money is created. Where money comes from and who creates it should be part of the school curriculum.

      I think that the Bank of England – along with Gordon Brown; has again allowed “ruthless private international financiers” to gain and keep control over our money.

      The Government should be the only institution that is allowed to create money, Private Banks should then borrow that from the Government – and pay the Government for the use of it. A private inistitution that conjures “money” out of thin air.

      “The second Banking Act 2009 abolished the “weekly return” of the number of banknotes issued by the Bank of England: “Section 6 of the Bank Charter Act 1844 (Bank to produce weekly account) shall cease to have effect”.

      The Bank Charter Act 1844 restricted Banks from issuing Bank Notes, leaving this solely in the hands of the Privately owned Bank of England. This was primarily aimed at the Scottish System which flourished with many Scottish Banks competing with each other by issuing their own Bank Notes. The Scottish Free Market Banking System rewarded the honest more stable Banks and eliminated the less credible Banks as people had the freedom to exchange their notes from one Bank to the other. If People suspected a Bank was unstable – there was no safety net; they went bust. The other Banks knew this and so there was an incentive not to over stretch themselves with risky casino style investments which are now supported by the Bank of England bail outs.

      • Graham Hodgson


        The Bank of England still publishes a weekly return of banknotes in issue, but it no longer publishes weekly accounts, since they were being used at the height of the crisis to fuel the speculative frenzy in the media (Preston to the fore) as to which banks had now gone cap in hand to the Bank whenever the weekly accounts showed a rise in loan assets.

  • Conrad Jones

    “Robert Peston Discovers the Root of the Problem”

    I don’t believe he has.

    He’s highlighted a major factor but NOT the root cause.

    The Bank of England gave £200 billion to collapsing Banks now criticise the Banks for returing to their old ways is misleading all of us. The system has not been changed and could get a lot worse because the worst Banks were given an unfair advantage over the banks that did not get into financial difficulties thereby encouraging failure. The better banks will now see this as a green light to place greater amounts of capital into riskier investments as they know that taxpayers money will be funnelled in via the BoE. Moral Hazard.

    Free Banking doesn’t mean Free Bank Charges, it means Free entry into the Market Place by new competing banks. Full Reserve Banking would definitely help as it would eliminate the need for BoE to provide bail outs. Technically , any Bank that requested one would be admitting that it was breaking the Law as not all of it’s depositor money was where it was supposed to be.

    If removing Fractional Reserve Banking means the end of the need for a central bank – then that can only improve the economy dramtically.

    In summary –
    1. The Private Banks are not the real problem, they are merely responding to the manipulated market place which is being constantly tampered with by the BoE.
    2. The elimination of Fractional Reserve banking would stabilise the economy and prevent theft from people’s savings and spending power. 3. Time deposits would lock peoples savings into a time period where they would allow the bank to use their money in loans.
    4. The Depositor would have no legal right to demand this money back until the agreed loan period had ended.

    • Jake

      Neither have you Conrad. There is only one solution for inflation, deflation, and systemic manipulation of our money and properties. If you have another solution please share it with us.

      • Conrad Jones

        Hello Jake,

        Thank you for your comment.

        Do you believe that the Bank of England is doing a good job?

        If not, what do you think that they could do to improve the Banking System?

        If you believe they are doing a good job, what aspects of what they do and have done have contributed to the stability of the financial system?

        • Jake

          From this perspective it should be abundantly clear that bankers as legally sanctioned usurers and faux creditors have no place in a democratic society. They are neither desirable nor necessary. They should be no more welcome than slave owners, political dictators or murderers. They have no right to insinuate themselves into economic relations as the only legal arbiters of debt and credit. But having done so, they have impaired every other freedom inherent to the democratic ideal and continue to prevent a truly free market economy from taking shape.

        • Jake

          To be more specific to your questions.

          Do you believe that the Bank of England is doing a good job?
          No, other then for themselves and their shareholders.

          If not, what do you think that they could do to improve the Banking System?

          Eradicate it/kill all the banks, and convert to Mathematically Perfected Economy (MPE)

          What is MPE?

          Mathematically perfected economy is a currency not subject to interest, comprising a debt financing all permissible enterprise, paid by each and every debtor exactly as they consume of the associated production.

          There is no inflation or deflation, as the currency in circulation is always equal to the current value of existent production across however much of the economy is supported by a circulation.

          Neither the value of money or assets are altered by changing proportions of circulation to indebted assets or services. The value of the money is always consistent in quantity — both in earnability and spendability — with the remaining value of the indebted assets which exist, for which it was issued, and which constitute its immutable value.

          The remaining circulation is always sufficient to pay off debt. Further production therefore is not impeded by a deficient circulation, deplenished by paying more than what circulation was introduced for to finance the production.

          Debt is not multiplied beyond the circulation or remaining value of indebted assets. To pay debt obligations exceeding the remaining value of indebted assets sets off a perpetual cycle of re-borrowing and multiplication of debt. Merely to maintain a circulation, we must borrow again so much as we have paid beyond the original circulation which was equal only to the un-multiplied debt.

          Neither production or consumption are impeded by imposition of extrinsic cost. In every transaction, production is traded for equal production.

          So long as we make such a circulation available to production, no impediment, limitation, or inequity whatever are imposed upon production or commerce. Production and commerce are fully expedited only by a completely liquid and effectual currency.

          Mathematically perfected economy is no more than a singular prescription, dissolving unjust intervention.

          • Graham Hodgson


            Ever keen to learn from arguments grounded in mathematics, I followed your earlier link to the source of Mathematically Perfect Economics (, found no mathematics but downloaded his spreadsheets and attempted to infer his mathematical arguments from the equations in the model.

            Were you aware that in calculating the amount of debt outstanding at the end of the period, he forgets to subtract the amount of debt principal repaid during the period (column H)?

            Bit of a perfection deficit in my book.

          • Conrad Jones

            I’m not familiar with MPE yet – so will have to comment on this at a later date.

            your comment:

            “No, other than for themselves and their shareholders.”

            Interesting. The Bank of England was supposedly Nationalised in 1946. So WE are the shareholders.

            Or are we? It would be nice if there was a bit more transparency on the “Bank of England Nominees Ltd”. Ask your MP to table a question in Parliament about the “Bank of England Nominees Ltd” and he will say something like:
            “I’m sorry, but the Bank of England is not covered by the system of Parliamentary Questions, and so I cannot table one on your behalf.”

            The BOEN was created in 1977 – but we the Taxpayers – don’t know why.

            Perhaps a T-Shirt campaign should be started with:

            “I’d like to know what the Bank of England Nominees Ltd does with my Taxes”,

            printed on it in big, bold letters and sold (at reasonable cost) to London Tourists. It worked for Nelson Mandella.

          • Jake


            Period ENDING DEBT = Period BEGINNING DEBT – Periodic PRINCIPAL PAYMENTS + Periodic PRINCIPAL PAYMENTS (necessarily re-borrowed to maintain the circulation) + increased circulation (systematically borrowed into circulation) + Periodic INTEREST PAYMENTS (necessarily re-borrowed to maintain the circulation.)

            IE: Period ENDING DEBT = Period BEGINNING DEBT + New Borrowing (increasing the circulation, if or where the circulation is increased) + Periodic INTEREST PAYMENTS (necessarily borrowed back into circulation, to maintain the circulation.)

          • Graham Hodgson


            OK, I think I see the logic. But why do you have to borrow back the interest? That doesn’t disappear from circulation. It’s paid to the lender for the lender to spend back into circulation, just as the money you use to buy a pound of sausages is paid to the butcher for the butcher to spend back into circulation.

            There’s no magic about interest. The issue about interest is whether it is moral, not whether it has to be magicked in and out of existence. If the bank, or the butcher, respend the money they receive promptly and in full, everything’s hunky-dory. If they don’t, and the money’s allowed to accumulate idly on account, then the economy starts to suffer. The dismal fact is that it is anyone who reaches pay day with money unspent in their account who is dooming someone else to further debt, which is really all Keynes was trying to say with his “demand for money” obfuscations.

          • Jake

            Never checked back here to reply. Sorry.

            If all interest would be spend back into circulation there would indeed be no problem. Unfortunately this is not the case. For instance interest received by banks is loaned back into circulation at interest :-(

  • Derek

    As Conrad says, people’s eyes glaze over…

    That’s the problem. The only problem really. Suppose you went to a planet far, far away and found the aliens running a happy sustainable economy where the fruits of their labours went back to the people, and money didn’t exist. And you told them that barter was awkward and cumbersome and what they needed was tokens of value to be used for exchange. “Good idea” they’d say. Then you’d explain that a certain caste of the species must have the right to print money without constraint. And another caste can print money as long as it’s lent to the lower caste.
    “To make their lives easier?”
    “No, to keep them in slavery.”
    “What’s slavery?”
    “Slavery is working and not getting any reward for it.”
    The little green men are puzzled.
    “So you need a caste that works without reward and a caste that gets reward without working? Do you have any other clever inventions to tell us about?”
    There is a long pause.
    “Excuse me, I need to return to Earth, I have a money reform campaign to launch.”
    “Good luck, Earthling!”

    Unfortunately homo televisionnis is not as smart as the Little Green Men.

    • GrahamFP

      Well Jake, I couldn’t put it more tactfully:-) Well said!

    • Wesley Kitikonti

      Dear Graham, Jake

      I’ve been watching you chaps pat the “BBC Pest” Chap a bit so will be back on this post mid week, this ‘MPE’ has caught my eye I will be listing to this fellow at MPE, sounds like this post from Mark-Lee:Giles, January 21/22 2011, 5:09/5:37 pm has the measure of MPE, I’m sure I/we can grasp it if we give it sometime. The downloaded pfmpe-multiplication-of-debt-excel-sheets, from the MPE site, they look fine to me even column’H’, especially PFPE Debt Progress Mockup 2009, 35-yr chart scale at zero-interest, I’m not an accountant but we have a ACCA at the office, i’ll call a meeting Monday and have her run through the data, she will give me an unbiased opinion.

      all the best Wesley

      • Graham Hodgson

        Hi Wesley,

        I’ve spent four hours or so going through Mike Montagne’s MPE site and videos (oh dear! and I thought Peston was a tedious listen). As far as I can tell (start here and follow the “MPE 101″ et. seq. links at the botom of the page), he’s proposing a system of centrally issued money backed by undertakings by or obligations of the citizenry to deliver goods and services to the value of the money issued, the money to circulate until delivery when it will be withdrawn to the value delivered. The whole process, including all payments to, from and between individuals and enterprises, is to be administered through a centralised government computer, which also uses the data to run the credit ratings system.

        His analysis of the problems of the current system depend on the assumption that interest paid is lost to circulation and must be replaced by new borrowing, which I’m sure your ACCA will confirm just ain’t so. However, the charts he generates do come pretty close to what has actually happened over the last 30 years. Just coincidence? Perhaps not.

        For interest payments to have no impact on the real economy, banks must recirculate their revenue by buying goods and services. But it could be that so much money is flowing from the goods and services sector as interest to the banks that they just can’t spend it fast enough to return it all in time to prevent liquidity shortages. Even when they give it away to their staff in inflated salaries and bonuses the money simply can’t be spent in time. The surplus ends up in the financial markets bidding up the second hand prices of bonds and equities, with only a slow trickle finding its way back to productive enterprises (through new issues) and to consumers (through interest payments, dividends and equity release) to finance purchases of goods and services, leaving a deficit in the productive sector that must be met by further borrowing.

        The overall impact is arguably equivalent to what would be the case if the mistaken view, that interest payments had to be financed by further borrowing, were in fact correct. However, MPE does not seem to propose doing away with the finance sector, although its current parasitic nature is described and deplored. Indeed, MPE seems to envisage either a greater role for financial services or their effective nationalisation, with mandatory diversion of income away from consumption into savings for retirement and (possibly) unemployment and health care (although the web page on health care is just a stub at present and unemployment is not considered). If I am right, and the real effects successfully anticipated by the flawed MPE analysis are due to diversion of liquidity from the productive to the finance sectors rather than to the burden of interest per se, then the MPE prescription will not deliver the improvements claimed.

        • Jake

          Interest has a critical fault. So long as it exists, there’s no neutralizing or stabilizing of its consequences; its inherent processes are perpetual, and irreversible.

          As Mr. Kondratiev observed, “interest” inherently meets its end.

          Mathematically Perfected Economy *IS* the only “resource” (production) based economy — and it’s the only fact of actual, just, sustainable economy, because it is the *only* integral solution of the categoric faults of conventional, pretended economy (purposed exploitation).

          • Wesley Kitikonti

            Graham, Jake
            Many thanks, our accountant had a good look at the figures and after a few hours, she came back and asked where I got the files from..! She asked for more information on ‘sheet 5’ the ‘MPE’ model, “they aren’t accounts figures at all, as the bank hasn’t charged Interest on the loan..!!!”
            We discussed the current Economic issue a little, and the BOE etc, She then explains it to me that she has known for many years that the monetary system has a major flaw, but in her words “what can you do about it’”, well I was flabbergasted to say the least. Surely we are not that inept that we will stand by a watch the Economy just fall over time and time again, to be honest when the Banks collapsed Sept 2008 we thought the world was at its END.
            I’m going to listen to all of the Audio files on the MPE website, which is a bit of pickle I might add, the mike montagne chap sounds like he’s onto something BIG – in business or ‘Busy Ness’ we must try to improve products/services the monetary system is the hinge pin for all of us we must work together to resolve this major problem.
            Dear Jake, please email if you have time I/we would like to discuss further with you, I should, will share this information with our board of directors / investors.

            Many kind regards

            Wesley. A. Kitikonti – w.kitikonti [ at ]
            UK Operations Director,

          • Graham Hodgson


            Yes. The fact that interest is charged on bank advances, and paid to banks, is clearly the ultimate cause of monetary instability, promoting greedy and irresponsible behaviour by bankers and starving the real economy of money, whether directly through money destruction as MPE maintains, or indirectly through spending bottlenecks as is my view.

            A consequence of my position is that I’m going to have to do some more research to assess how much of a problem non-bank institutionalised lending (ie savings and investments) is likely to be. With hundreds of billions swilling around the foreign exchange and stock markets you can see how there might be a liquidity problem for the real economy.

            However, one truth about money is if something seems intuitively obvious, it’s almost certainly wrong. You’ve got to follow the money through every set of accounts before you can be sure what’s happening.

          • Ben Dyson

            @Graham – your comment about something that seems obvious being almost certainly wrong when it comes to money is spot on. Please let us know what you discover in your research.

  • David Nock

    It’s great to see this issue flagged and arguments for reform presented through a quality broadcaster like the beeb (which still keeps its head above the soup of corrupt and dumbed down news broadcasters oozing away out there), giving this issue the credence and authenticity it deserves and dodging the tarnished ‘conspiratorial’ brush that other, great but more humble and less professional news outlets, fall prey to. Great work.

  • R

    The Preston video DOESN’T get to the ROOT of the problem … which is that international banks are run only for private profit and have license under law to simply create money from nothing simply on basis of being asked for a loan [even if that loan is to another international bank] … that means that even two international bankers as private individuals have the ability to create as much money for nothing as they will, no checks , no scrutiny… it is beyond counterfeiting as it is legal , by laws engineered by who? – international bankers !
    Then they loan this virtual money to governments at crippling interest , not on governments but on tax-payers , countries now in debt beyond their whole economy being able to pay the interest on national debts which keep rising, when the government should have created the money itself, interest- free… but it is international bankers who finance politicians, ‘buy’ governments …
    Then there is the man-in-the-street and in industry who wants a loan… the bank insists on something REAL in exchange for the principal sum of VIRTUAL money it CREATES for the loan from NOTHING… the bank charges interest, but money is never created to pay the interest … thus all interest is paid by new pricipal amounts in loans … all interest is eventually redeemed through FORECLOSURE … the banks automatically come to own a percentage of almost everything in the world ever year whilst everyone else is increasingly in debt to banks, directly or through government … banks also buy up smaller banks so eventually it must be that everyone in the world under any government is in unrepayable debt beyond their income to one private individual with the right to create all the money in the world and use it to have power over everyone in the world , whilst this one man owns legally everything in the world that has a monetary value or can be bought…

    So the current escalating crises are peanuts to what is coming , all thatbhas been ‘resolved’ by ‘bail-outs’ is that governments borrowed even more virtual money from banks to give to banks so that banks would be more powerful and bigger both ways , loaning money to themselves …

    It is almost the whole of mankind being duped by a few legalised mega-con-men, but the size of the con is so big that folks just won’t believe this is how we run our money-value system… almost no-one will stand against them and those who have have been bribed, blackmailed, and even assassinated , whatever it takes … the only power that excels the power of world bankers is the masses who actually work their whole lives simply to make these parasites fatter and more powerful …

    Our money system automatically bankrupts a percentage of folks every year by simply never creating the money to pay interest … the bankers hide that by creating more money for a time and everyone thinks life is wonderful living off virtual credit, but then strangle it for a while and buy up the industry and everything else that falls into their pockets at rock-bottom prices in the depression that RESULTS FROM THEM alone , by simply strangling money supply …

    147 banking families already own over half the money value of the world [World Bank figures] and the growth is exponential [which means we are in the steepest point ] …we are not far off the point of one man creating a new word order with him as absolute dictator of its puppet membership , much as all major governments already have an inner circle of men controlled by world bankers …

    The ‘beast’ then already has our world by the throat and is preparing to bring countries progressively under martial law once it has precipitated civil revolt to justify it…

    The ‘problem’ for mankind is rather bigger than simple monetary reform , we need a mass demand for ceasing to ne governed by companies who borrow from private individuals money that private individuals are allowed to simply create from nothing … that even God predicts will not happen and the means to suppress rots is already established in for instance USA where the expected maximum revolt is a million people , who can be held without trial and legal representation and even notification of spouse/relatives simply at the whim of government in suppressing opposition of any kind as ‘terrorism’ …the stock cars with human shackles and the gulags and the humvee-mounted ray guns all exist … ask why the US government needs them to cater for a million terrorists inside USA … then look at the events leading up to the loss of civil rights BY AMERICANS in the ‘Patriot Acts’ and beyond…

    We are talking world slavery by means an utterly corrupted money-value system where one man will inevitably own the world for NOTHING he ever had or could have without the biggest con in human history…

    • william methven

      Excellent but frightening post R. Let’s hope the super elite slip up & expose themselves for all to see.

    • Chris Cook


      You’ve got the wrong end of the stick, I’m afraid.

      Banks are middlemen.

      On one side of the banks’ balance sheets is debt, much of it secured against over-valued assets and on the other is deposits, whether wholesale (other banks, funds etc); retail (individuals) or the lender of last resort (the central bank).

      It is indeed the case that 90% of the population are in debt to the other 10% of the population who also own virtually all of the unmortgaged assets. But while bank shareholders may be among this number, their ownership stake in the banks has nothing whatever to with any debts owed by or to those banks.

    • Jake

      Spot on R. Our only hope is to get ALL banks out. We do not need them as from this perspective it should be abundantly clear that bankers as legally sanctioned usurers and faux creditors have no place in a democratic society. They are neither desirable nor necessary. They should be no more welcome than slave owners, political dictators or murderers. They have no right to insinuate themselves into economic relations as the only legal arbiters of debt and credit. But having done so, they have impaired every other freedom inherent to the democratic ideal and continue to prevent a truly free market economy from taking shape.

      One problem, One solution!

  • steve

    My concern is that people will see and hear bits about banking and will be mislead.

    The phrase “Robert Peston” gets about 8000 searches per month. The results page from a search shows his blog at or near the very top.

    This was the No 1 result;

    On his blog there is a small cartoon of him (right hand side) down the page a bit which is called “On The Money”

    You are encouraged to click a link inside the small box which takes you to a video… here

    If you watch the amusing video you will here Robert Peston talk about what happens with our money….

    Trouble is that, it’s (the video) not true or at least only partially true. Please watch it and you will see what I mean.

    There are certain people who are in positions of great influence and power. They have a massive effect on how the people in the street interpret our and the worlds financial and human situation.

    I think someone else here has already asked about journalists and their reporting.

    From my experience the media (TV, Press etc) are very myopic. It’s not so much that they don’t know what’s really going on but they are held to account by their various bosses. To say something which goes against their particular and prejudiced ideology is like committing employment suicide.

    To prove my point there was a programme recently which was produced by John Pilger who is surely one of the worlds best investigative reporters…

    The programme in question was called The War You Don’t See and aired at 11:30pm on ITV.

    He was critical of the way the media handled news reporting which happened to include our very august BBC.

    The news papers that did mention this film/documentary were The Guardian and a couple of socialist publications.

    It was not mentioned in the BBC and as far as I can make out it was not reported in any right wing news papers.

    Personally I don’t give a fig on anyones left, centre or right wing leanings.I do though give a fig on hearing the truth, no matter how unpalatable.

    The BBC failed to even report about this program and the right wing papers also ignored it and it sickens me.

    If anyone reading this thinks or believes the general populace is being fed anything but neatly packaged misleading communication then I think it’s time to think again.



  • william methven

    I watched a good American film on the whole issue of what is money & what do we need it for – The Money Fix (see link to watch it online.

    One poignant moment came when in a vox pop people were asked where money came form, who created it. Incredibly nobody interviewed knew. I say “incredibly” because money is something that we handle everyday. It is so much an integral part of our lives yet I would gues most people don’t know how or by whom it is created.
    You realise then how this ignorance cannot be by accident. Name me one other item you handle & use daily that you don’t know where it comes from or how its made – broad terms. Carrots, cars, chocolate, clothes? You know your car (if you have one) is made by Ford, Toyota etc in a factory. It is made from metals, plastic, rubber etc. & sold to you to make a profit. So who has made your money either cash or digital, how has it been created and why?
    The publics general ignorance of the creation of money is a deliberate policy of government & the corporate media over a long peiod of time. If the public knew the truth there would be open rebellion.

  • william methven

    Re the ownership of bank of England & Bank Of England Nominees Ltd, the BoE is governed by the freedom of information act. What about asking the BoE under FOI about BOEN?

    • John Wilson

      Re asking the BoEngland anything that could be construed as ‘sensitive’… it’s all been done – and extensive letters back and forth to HM TReasury.


  • Derek

    Well, without going overboard on what God has said or otherwise… R is probably quite right when he says: “the only power that excels the power of world bankers is the masses who actually work their whole lives simply to make these parasites fatter and more powerful …”

    And therein lies our hope; most people are unwitting slaves of a system they do not understand. However, thanks to electronic communication, this ignorance can be reversed – television-induced brain-rot notwithstanding!

    Disgusting though the “Giant Vampire Squid” may be, it’s hard to be completely paranoid about it. If it was really as unscrupulous as R believes then Ben would have been silenced by now, dead and his body never found. Are you still there, Ben?

    R says: “Our money system automatically bankrupts a percentage of folks every year by simply never creating the money to pay interest” and says that this is in order to seize their assets. Well, not exactly. Banks do not benefit by acquiring deeds to tumbledown shacks in Mississippi. There comes a point when the banks own everything worth owning. At that point there is no need for a net flow of cash to the banks. But, of course, they will want to continue the game, striking some sort of balance between encouraging the slaves to create wealth, and syphoning it off. But to do so they will have to return cash to the economy. I strongly suspect we are already seeing this. Defaults rather than seizure of assets will achieve this – the banks, whether consciously or through experiment – will find it’s best to allow people to walk away from debts. Most people will say “about time too”, not realizing that this has come about because the banks own everything.

    • Ben Dyson

      Still here Derek – thanks for that uncomfortable moment of reading there!

      Very few people – including about 99% of the people working in the City of London – truly understand how this system works. Even those with decades of banking experience see things from within the bank, which gives them an impression of a reasonably honest business model that takes money in from depositors and lends it out to borrowers. It’s only when you look at the system as a whole (whilst simultaneously understanding the intricacies) that the wider effects and implications become obvious. Of course, now that we (and many others) have done that research, it becomes much easier to present it in such a way that ordinary people can get it – and we’ll be releasing a few things on that front very shortly.

      • John Wilson

        Derek, thsnk god for the internet then – it’s all being revealed and is attracting huge interest all over the world.

        I fear that Ben will not succeed – Sir Joh Vickers is one of them, so are the others on that panel…. there is only one way… THE PEOPLE MUST REVOLT – EN MASSE.

      • John Wilson

        I’ve said it before, I’ll say it again …. even bright people simply do not comprehend how evil this system is….

        Their fingerprints are on every soldiers grave for the past 200 years… more later, dinner time :-)

  • stojan nenadovic

    Noncredit money as a gift is the best positive money. Noncredit money is the only real money. Noncredit money as a gift is the necessary additional quantity of money in circulation (dM) as a percentage (k) of existing quantity of money in circulation (M). dM = kM ;
    k = (supply – demand)/demand ; k = 5% e.g.
    If noncredit money is emitted according to the cited formula, inflation cannot exist. Noncredit money demands new system of national accounts:
    (P/C)P = I ; P = GDP ; C = COST ; I = INCOME ;
    INCOME – COST = NONCREDIT MONEY (i.e. positive money) ;
    Noncredit money = surplus of consumers + surplus of producers ;
    GDP – COST = SURPLUS OF PRODUCERS (i.e. profits) ;

  • jeff lampert

    I think we have left it all too late!
    We cannot reverse the “bubble” of funny money.
    It will “burst” sometime soon.

    I have absolutely no idea what that means!!

  • Pingback: Robert Peston Discovers the Root of the Problem: Fractional Reserve Banking « The Global Awakening()

  • steve

    The King (Mervyn) has said that inflation which now stands at 3.7% is likely to reach 4% to 5% over the next few months. He also says that real take home pay has been squeezed by around 12%.

    The inflation he talks about is CPI or consumer price inflation. RPI or retail price inflation (this includes mortgage payments) is now running at aprox 4.7% which is 16% higher than CPI.

    With fewer jobs available people will find it increasingly difficult to move to a better paying one.

    Anyone interested in hearing how Citigroup saw this some years ago should do a search via google for the term “citigroup plutonomy memo”

    I would like to have discussions with a few people with a view to coordinate some activity.

    I have done quite a lot of research and read several books which discusses the topic of banking structures and think there’s two possible routes to take.



  • Derek

    Yes I believe things can be made easy to understand. But I’m still struggling and I’ll tell you why.

    I certainly believe that the banks bleed the rest of us dry, it’s inherent in the system. Yet I’m not sure that it’s right to describe the system as dishonest. Sure it suits the banks to let people have a naive misunderstanding about where loan money comes from, but the process itself is honest enough: it’s just that the loan starts, not as money but as credit, an agreed obligation to pay in due course. I don’t know when it officially becomes money but I’ll assume that it’s when it becomes mobile – a cheque, for instance, transfers a bank’s liability from the borrower’s account to a vendor’s account, maybe with another bank. Since no actual money is involved in setting up the debts, I don’t see where having liquid reserves comes into it except to cover the occasional withdrawal. Why shouldn’t two parties, with no money at all between them, agree to owe each other the same sum, one as a loan held in a cheque account, the other as a repayment schedule, both fully aware that the debts can’t be settled instantly in cash but will be worked off as agreed?

    • steve

      Hi Derek

      Whether the current system is dishonest or not is partly down to how we define dishonest.

      You are quite right when you say that two or more parties can exchange production/output and there are in fact bartering systems that do just that.

      As it stands the banks which are private corporations operate as middle men for the distribution of our FIAT currency which happens to be £s.

      The banks are deciding who gets what etc. Up till 2008 most of the money lent into existence was in the form of mortgages against an existing asset (a home).

      Not that long ago a home would cost around 2.5 times the average salary. A home now costs around 7 + times the average salary. This is called asset price inflation.

      Because the banks are deciding who gets what and because they didn’t have enough capital to back up their bad debts two things have happened.

      Firstly, we the tax payers have had to bail them out and secondly the amount of credit in the system has been massively reduced.

      There is now insufficient money in the system for us to trade so money gets tight, jobs get lost and overall we get a bit sicker.

      The bank of England produce little graphs that show M4 money supply and you can see it climb and then drop as money was taken out of the system.

      By the way, the cost of a loan is still very high compared to the LIBOR rate (wholesale cost of interbank lending). The people, that’s us are caught in the middle and our politicians are powerless to do anything about it…. apart from changing the law and rules which I suspect they won’t do.

      The banks may not be dishonest but the system still sucks and it doesn’t need to be this way.



  • GrahamFP

    The system is dishonest because ‘borrowers’ believe the bank has lent a real asset.

    Therein lies the dishonesty because what the bank does (through no or little cost to itself and with the full backing of the judiciary) is to put you in its debt. Thereby gaining control over you, you are virtually a bonded debtor. But the reasonable understanding of the ‘debtor’ is that he has to pay back the banks assets, with interest of course (because one reasons that the bank has taken an asset, that could be earning money elsewhere, and let you have it instead, so you happily pay the interest. If the banks didn’t have this license to trick us, (’s been made legal for the banks to turn a book entry into an apparent loanable asset) they’d go to jail for fraud. You try it, see how far you get :-)

    The whole thing is about control, put someone in your debt and you have control over them and that control is normally enforced by the courts if disputed. Clever isn’t it? Or have I got it wrong?

    • Derek

      Yes, you have got it wrong. :) Customers who think in terms of the bank lending money that already exists are not being defrauded, they are simply misinformed. Instead of providing ready cash, banks take on a liability when they lend you money: they have to honour the cheque or transfer, ultimately crediting a third party with whatever you spend. The market value of the “financial product” (an oxymoron if ever there was one) is exactly the same whether they allocate cash in advance or leave it until someone wants to withdraw some.

  • stojan nenadovic

    Noncredit money as a gift is real money.
    Noncredit money as a gift is public business.
    Credit money as a debt is not real money.
    Credit money as a debt is private business of banks and their clients.
    Noncredit money as a gift is positive money which emits the state.

  • Mike Crees

    Hi Ben ..Do we not have the power ourselves, and i know that this has been suggested individuals ,withdraw our money from our accounts .Find different ways to pay our bills…take the power away from goverment and the banks,till they come to there sense’s….Mike Crees

  • Malcolm Donald

    Progress for Positive Money in very quick time. Congratulations to all involved. My personal gratitude goes to Professor A. Werner from Southampton University for his lucid writing in his ‘New Paradigm in Macroeconomics’. I consider that this book should be the Primer for every economics student. At the end of the day the most fundamental pivot in any democracy should be the democratisation of money supply. There should be no alternative. Lets hope you can convince The Independent Banking Commission and Governor of the Bank of England to this effect for rest assured the private usurers will use every means in their armoury to maintain their privileged position of creating money out of thin air.

  • http://nowebsite Allan Jones

    I have for a long time tried to expose this credit creation and interest demand on a small amount of deposit.
    One attempt I have thought of is a challenge in the courts in equity argueing that the amount of default owed by a bad loan that is no fault of the borrower ie; the damage now done to london bissinesses in roits there.
    The amount owed should be no more than the amount risked by the lending bank which today can be one thirtieth or fortyith of the principle.
    No borrower should be hounded by a bank for the full amount owed of a loan if default is an act or cause beyond the the fault of the borrower as both bank and borrower agreed that the prospect of the loan was indeed good at conception.
    I know that this is not all of the problems of fractional reserve banking that demands a profit on all of a loan instead of the cost of providing a means of exchange which should not involve a profit margin above the cost of opperation of the service.
    As there is no product manufactured in a bank other than a service, and that is the eqitable exchange of goods and services of those that want a decent means of fair exchange, this at present is not happening.
    I do hope that some borrower caught up in a loan default due to public unrest in England at present would like to try the equity argument I have put forward.
    I have found that most of the other attempts at proving fraud or deciet are covered by various bank acts or simply that the borrower has agreed to the elements of a loan in contract however in default there is a chance to counter the banker’s demands in a court.
    I hope to have added to your brave act of getting this word out it is a messy misunderstood system designed by thieves.
    Thank you Allan Jones Lithgow Australia

  • http://nowebsite Allan Jones

    It would seem that while people are questioning banking systems in these blogs there is a chance of making the system more complicated than it is.
    Very simply the fractional reserve banking system has not changed in mechanism since the days of the goldsmiths although the names of things have changed.
    With the goldsmiths they held gold for safe keeping and issued a certificate in its place to use in trade or commerce plus a healthy charge or fee, they realised over time that only 10% of gold depositors called upon the physical gold so they issued more certificates backed by fractions of the gold stored, this went well until a panic caused the holders of gold to claim the gold, if all certificate holders claimed gold there was not enough gold to pay all certificates.
    The same story reappears with the recent crash of investment banks in USA where it was instead of gold held it was subprime loans rated at AAA this reflected in share price as the loans became unpayable due to interest rate hikes investors sold off the shares gutting the company.
    As gold has been replaced by a share value which were representing a multiple of the actual value, the same principle is in opperation here. although the ratio is much higher today than in the days of wise old goldsmiths.
    This new credit created bubble involving fractional reserve loans, speculations,investments, or call them what you will are all subject to collapse when a panic is noted.
    As governments are now limited to how much treasury bond issues can take place due to the taxing powers or ability to pay, there can be no more bailouts to save private banks from the folly they have created.
    Either a revolution in banking takes place or we are all subject to trying to pay for failed banking systems in cuts and taxes.
    The main fault is interest charges and fees upon the expansion of debt built upon a very small assett, all countries have debts to an international fraud which can no longer sustain itself and will call upon the public again to save them, this is realy the adding of a super interest on interest.

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