Positive Money

Making money and banking work for society

News from Ireland – Sensible Money

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Lots of good news on progress with the awareness raising about the flaws in our money system in Ireland in the latest Sensible Money’s Newsletter (9th April):

1) Debate on Newstalk Radio

Newstalk Radio have previously published an article of ours ‘So Where Does Money Come From Anyway?‘ and our contact there is very keen to get a debate going on the pros and cons of monetary reform. They are currently going through our list of potential speakers from both sides of the argument.

2) Letters in the Irish Examiner, The Irish Times and The Irish Independent

James McCumiskey was busy sharing his views on the Cypriot levy on bank deposits with various newspapers. The same letter was published in the Irish Examiner, the Irish Times and the Irish Independent (Scroll to the bottom for the Indo). Amongst other things James wrote;

‘’The fundamental problem with our banking system is that in the eurozone, UK and Euroland, private banks create 97pc of the money supply.’’

3) Article in the Irish Independent

We have some good contact with Irish Independent columnist Brendan Keenan and he agreed to write a little on our two-tier banking system. We’ve politely corrected him on how misleading it is to concentrate on the ‘ECB printing money’ as he often does and we’ve explained that most of the money the national central banks of the eurozone create is electronic central bank money and this isn’t in general circulation.

With this in mind Brendan wrote an article which included the following:

‘’One might suppose that experts would at least agree on the nature of banking and money, but apparently not.

There are pressure groups arguing for a new definition of money-creation, based on bank lending.

Without getting into the mind-numbing details, part of the argument is that the money being supplied by central banks is the wrong kind of money, and not suitable for recycling into the real economy.

What is needed, they say, are borrowers, which would allow the banks create money from new loans. That presents an obvious difficulty, in a world already awash with debt.’’

While Brendan’s analysis was small it’s a start and we keep him regularly updated.

4) John Water’s articles in the Irish Times and talking on RTE

John Waters is very much on board with our analysis and he has written some articles on this issue in the past. He has been criticised for getting involved in economic issues when he hasn’t studied the subject. However what has been very encouraging is that most of the comments on his articles where in full agreement with his analysis that the creation of money by banks was a big problem in our society.

He spoke a little about the fundamentals of money creation on RTE’s The Saturday Night Show. View here (John starts at 37:54 mins)

He has also written several articles on the topic.

Three weeks ago he wrote:

‘’In the 1970s, the politicians extended to the banksters the powers and prerogative to become the creators of money’’           

‘’Four decades ago, the idea of money as a means of exchanging and storing value for the benefit of democratic society was abandoned in favour of a system which prioritised the needs and demands of major financial players – banks, bondholders, speculators and stock-jobbers.’’
Two weeks ago he wrote an article well worth reading in full:
’’At the core of the process of modern “money creation” is a form of priestcraft – the manipulation of money systems by powerful bankers
 
‘’“Our” money system is owned and controlled by privately owned banks that create euro by a process akin to transubstantiation, in the form of debt. Money is generated only when it is borrowed – each new loan means that a specific amount of money is brought into being. When the loan is eventually repaid the capital is eliminated.’’
 
‘’The interest exists nowhere except as a debit, and so the growing accumulation of debt in our economies is not a misfortune but a structural inevitability. The continuing scramble to find money to pay down interest means that the only way debt repayments can be discharged is by borrowing more money.’’
 
‘’The generalised accumulation of debts in the system, without any basis other than on the computer screen of the lenders, means there is a diminishing pool of “money” with which these mounting debts can be paid down.’’
One week ago he wrote a humorous piece on another aspect of our analysis. We’ve been arguing for some time that mortgages have always been able to increase in duration until now and this is quite a significant milestone. With mortgages approaching the natural limit of taking two incomes thirty years to repay getting out of this recession may prove difficult since so much of the economy’s money originates from mortgages. John wrote:
‘’Since virtually all money is nowadays generated via loans – which mostly means mortgages – the obvious way of rebooting the European economy in tune with present economic understandings is by devising some mechanism whereby banks will be enabled to expand their lending practices as they did a generation ago.
 
‘’the money supply across Europe more or less doubled in every decade since the 1960s’’
Mortgages, from which most of our money originates, now take two total concurrent careers to repay and cannot be further expanded within the existing model. Since money is chiefly generated through mortgage lending, the European money supply has recently been contracting alarmingly, as prudent borrowers take advantage of every opportunity to pay down debts early.’’

5) Complaint on Bank of Ireland’s slogan

You may have seen or heard Bank of Ireland’s slogan ‘We have credit available and we want to lend’. We feel this is a very misleading as Bank of Ireland would create any credit it lends at the time of the loan. We explained this to the Advertising Standards Authority of Ireland but they felt the complaint was better dealt with by the Central Bank of Ireland who are now dealing with it. While we’re not hopeful it will lead many places it seems if you go far enough you can change things. The BBC recently admitted a video it made on ‘How do banks work’ was ‘misleading’ and removed it from their website.

6) Sensible Money on RTE’s Prime Time TONIGHT (9th Apr 2013)

We submitted a document to RTE outlining specific comments on The Frontline and Prime Time which we felt were misleading. We’ve updated and forward it to them periodically. We’ve been invited to attend the audience of tonight’s show where we will be given a short time to explain how the monetary system has lead to us paying higher taxes. While it’s not the ideal topic to work our analysis in it’s great that RTE are taking some note of our analysis. The show starts at 21:35.

7) Submission to the Oirachtas Joint Committee on European Union Affairs

The Oireachtas Joint Committee on European Union Affairs had a public consultation on Ireland and the future of the European Union. We submitted Ireland and the future of the European Union: Updating the banking system to the digital era which first of all explained how directly banks create/destroy money and the consequences of this system. We concluded with how the eurozone could transition towards the modern variation of full reserve banking which we’re proposing.

8) Evening Talks in UCD and UCC

Paul gave evening talks on Updating the Money Multiplier to The Commerce & Economics Society in University College Dublin and a similar talk to the Economics Society in University College Cork. One of the presentations was filmed by supporter Steve Kerr and you can click on the links below to view each section.

Where does money come from?
Why is there less money during a recession?
Problems with the money multiplier model of banking
The consequences of the debt-based monetary system
Why is this recession so unique?

9) Meeting with Sean Fleming TD and Paschal Donoghue

The House of the Oireachtas Committee on Public Accounts produced a report on the crisis in the domestic banking sector. It contained a number of inaccuracies which conformed to the idea that banks fund loans from other people’s deposits. When banks lent more than they had on deposit the explanation offered from the report is that the difference was funded from through interbank lending. This demonstrated that the 13 TDs involved just don’t fully understand the two-tier money system in which banks may lend central bank money to each other but they create the type of money the lend to non-bank borrowers. Inaccuracies included:

‘’The period between 2003 and 2007 saw very significant expansion in both bank lending and in the extent to which this was financed through the interbank markets rather than by deposits.’’ p19
 
‘’Its retail funding came largely from deposits from the UK and corporations, and from wholesale market borrowings.’’ p32
 
‘’ The Irish banks‘ customer deposits were increasingly inadequate for funding their growing lending. The alternative source used was wholesale funding.’’ p41
 
‘’ The Committee believes that in Ireland lending expansion made the interbank market a more important funding source than depositors.’’ p55
In explaining the inaccuracies to the authors we’ve secured two meetings which will take place soon.
Sean Fleming is the Fianna Fail spokesperson on Public Expenditure and Reform.
Paschal Donoghue is vice-chair of the European Affairs Committee.

10) Possible Conference on Monetary Reform

Paul was due to meet Professor Ray Kinsella in UCD to discuss the possibility of a conference on fundamental reform of the monetary system. However the meeting didn’t take place and Ray has proved had to contact since. Graham Barnes from Feasta is keen to help organise it and it is back on the agenda. We will keep you informed of any major developments on this through e-mail but you can also keep up to date through facebook / twitter.

11) Karl Whelan to update his TARGET2 paper

Paul met professor Karl Whelan in May 2012 and they eventually agreed on how the monetary system actually worked. However they failed to agree that it was a problem for the economy or society. Karl is a highly respected economist and he wrote a much cited paper TARGET2 and Central Bank Balance Sheets which analysed the eurozone’s TARGET2 system of money transfer between the national central banks. It contained the following misleading sentences which Karl has agreed to correct in his next revision:

‘’…the reality is that most money creation in modern economies takes the form of the addition of credits to a bank’s reserve account.’’
”It is worthwhile also briefly outlining how decisions about money creation are made in the Eurosystem. All decisions about the conduct of Eurosystem monetary policy are taken by the Governing Council of the ECB which consists of the Governors of the central banks of each of the participating countries and the six members of the ECB Executive Board.’’
In reality most money creation in modern economies takes the form of additions of credits to a borrower’s account and the decisions on the amount of money in the economy are taken by mortgage providers and loan officers in the commercial banks of the Eurozone.

12) Meeting with David McWilliams

Paul will have a meeting with the influential economist David McWilliams tomorrow. After politely correctly David over some of his articles for over a year he’s finally started to take note. It should be an interesting meeting and it would be great to have him write about our analysis of the debt crisis.

13) Our Article in Village Magazine

We had a 700 word article on the monetary system published in today’s edition of Village magazine. You’ll have to buy a copy to read it.

14) New Books on Monetary Reform

Positive Money launched their book Modernising Money at their conference 2013. It’s a fantastic resource which explains the issues with the monetary system in as simple terms as possible in its overviews but as technical as you like in the details. It also explains the proposal very well and answers some concerns that arise from the proposal.

Fair Money Ireland are proposing very similar reforms to Sensible Money with the added condition that any money created by the central bank be distributed evenly amongst the adult population. They launched a new book which we haven’t read in full yet so cannot comment.

15) Other Articles of Interest

The Guardian UK published ‘Trading without money? Why a new system can address the economic spiral’ which discusses some of the issues we’re trying to raise. The entire article is interesting but a short extract of the important bits are below:

‘’In most countries, about 3% of our money originates from government-owned mints that make notes and coins. The rest is digital and created by private banks, out of nothing, when they issue loans. When we go to a bank to take out a loan, the bank does not lend its own money or that of its depositors.’’

‘’As banks create the amount borrowed, but not the interest to be paid on that loan, there is now more debt in the world than money. That means there must be an increasing amount of lending to pay off debts plus interest while maintaining the amount of money in circulation, which means economic activity must continually increase. Otherwise, as debts are paid off, so our money supply shrinks, which leads to defaults, foreclosures, bankruptcies, unemployment, depression, and, history shows us, then crime and extremism.’’

The Financial Times published a letter by Professor Richard Werner:
‘‘[Banks] don’t lend existing money. Instead, they newly invent the money that they lend, by pretending that the borrowers have deposited it and thus crediting their accounts without transferring any money there, by simply inputting the desired number.’’

The German Business Daily Handelsblatt published an excellent article written by Norbert Häring entitled “Is It True That Savers Are the Banks’ Creditors?”

16) Talk in Thurles

Paul will be presenting our analysis to a group of 100+ concerned citizens in Thurles, Co. Tipperary this Saturday 13th April. It will be in the main function room of the Anner Hotel, Dublin Rd. All are welcome.

Paul, Tony, James and Kevin
Sensible Money