THE ANSWER (To Whom Do We Owe This Money, Exactly?)
Children have a terrifically simple way of exploring the limits of adult knowledge. They do so by asking a question, then responding to each new piece of data with “but, why?”. The almost inevitable ending to this line of questioning is either “because I said so” or “I don’t know, that’s just how it is”.
I seem to have a elicited a similar response when, on Friday, I posted the blog “To Whom Do We Owe This Money, Exactly?” Since then, that post has been read by 20,000 people on the blog (and many thousands more via a circulating viral email). I have received many hundreds of responses whether by direct comment, email, Facebook or Twitter. The blog has been re-tweeted 1,000 times and shared on Facebook 1,200 times – before being flagged as abusive! The responses almost universally accept that the research is accurate.
The answer is: we owe this money, primarily, to the financial sector we went into debt to bail out.
Broadly speaking, the reactions break down into four major categories:
- Other children like me, saying “I too have wondered. Thank you for asking!”
- People who seem to understand the issues better than me, sharing my outrage at the cyclical madness of the system, but at a loss as to where we go next.
- People presenting themselves as experts, expressing surprise at my anger, because the situation is precisely as it should be.
- A minority of folks calling me “disingenuous”, “sensationalist” or “some kabuki-obsessed drag-queen”.
All of the above answers equip me better, intellectually, and I thank them.
In many ways, the third group of responses (which claims this is all completely normal) is the most disturbing. Assigning a sophisticated term like “Quantitative Easing” or explaining that this is how “Fractional Reserve Banking” works, does not detract from the absurdity of the circle. If this business model did not have government support, it would be called a “Pyramid Scheme” and outlawed.
A consistent response has been this tale (and variants thereof) – big thanks to my good friend Melina:
It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the town.
He stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.
The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
This story is a superb way of describing the matter in a simple way, but contains two fundamental misconceptions. First, it assumes interest free debt. The reality is that the hotelier, butcher, farmer, publican and prostitute only managed to pay a small part of their debt, most of their repayment being interest. Second, it assumes no intermediaries – what if each transaction were handled by the Town’s Banker who skims €10 each time for his services?
My own, perhaps dramatic, but more accurate way of describing the situation involves a necessary transfer of blood between patients using a colony of leeches. The transfer of blood does happen, but there is considerable pain involved and the leeches feed from each transaction, fatten and multiply. This is what is affectionately known as growth. When the colony of leeches reaches critical mass (too big to fail) and there is not enough blood to feed them, some patients have to be sacrificed. This is what is affectionately known as a bail-out.
Yesterday, Sir John Vickers published the Interim Report of the Independent Commission on Banking. John used to be my boss at the OFT. I know him well and am very fond of him. He is a kind, compassionate man and a brilliant economist. The one aspect of him that bothered me then, is the same that still does. He tends to shoot for the middle; goes for the solution that will upset everyone as little as possible. The Interim Report is an expression of all his attributes, but also of that flaw. It seems to me to be suggesting the addition of a rather pretty lace trim to a tapestry that has been rotting for a century and fell apart spectacularly in 2008; suggesting that the taxpayer should pay, again, to invest in a system of slightly more efficient leeches.
I remember my first lesson in physics, as a kid. I was explained the difference between an axiom (something that is self-evident as truth) and a theory (something which required proof). Economics has become axiomatic; a religion. It has become the science of “because I said so” or “I don’t know, that’s just how it is”. It has done so in the face of incontrovertible evidence to the contrary. Creationist in its resistance to the truth. In my time at the OFT, I was part of a team that used free market theory and its many exceptions to explain the hundreds, thousands of cases referred to us; all of them cases of entities acting in a way that was contrary to free market theory.
Here is my counter-suggestion on Banks:
We have an absolutely unique opportunity in the UK right now. RBS is almost fully publicly owned. And yet, it is always talked of in terms of building up the value of our stock-holding then selling (so we can settle our debt to the Banks, including RBS). Why? How about running RBS as the publicly owned institution it is? An institution which does not have greed at its core, provides loans in the areas the government wants to stimulate at reasonable terms and ethical banking services to ordinary people. Then we would have an alternative. We could move our savings and accounts to this institution which is actually run for our benefit, with no hidden agenda. We, as customers, could punish the rest of the financial institutions in the UK until they mend their ways.
Don’t bother telling me why “we can’t”; that this is “very complicated”, “unworkable” or “unrealistic”. My answer is likely to be: “but, why?” We have flags planted on the surface of the moon and a particle accelerator under Geneva crashing hadrons into each other, that say “we can”.
There is a classic economist joke. It goes -
Q: How many economists does it take to change a light bulb?
A: None. If the light bulb needs changing, market forces will do it.
We have given this idea a real go, for more than a century. We are still sitting in a dark room. Maybe all we need is One Good Electrician.
I do hope that The opportunity you describe with RBS is taken up.
The community Bank that Mr Cameron was suggesting is a sticking plaster to appease us your suggestion would truly give us options.
Thanks for your post and your Blog It really is very good to have an independent viewpoint to read.
If only your posts on politics were as balanced as your posts on economics
I’m probably in between category 1 and 2. I honestly don’t know what to do about other peoples pure greed without sounding socialist, and I aint no socialist!!!
THE FACT IS WE LIVE IN A SOCIALIST COMMUNISM SOCIETY (NEW WORLD ORDER) MASQUERADING AS A FREE MARKET.
“some kabuki-obsessed drag-queen”? If only they were as creative with their suggestions as they were with their abuse.
Be careful, if you get much more support the media will be onto you and that’s when the real abuse of power starts.
Keep up the good work!
Jim
Agree
Of course, there’s always the option of a credit union. We’ve had one here in Quebec for a few generations now, the Caisse Populaire, originally created when the Anglo-Scots bankers wouldn’t make loans to the poor French and Irish workers and farmers. Now it’s by far the biggest financial institution in Quebec, while still somehow being a network of independent credit unions under the ‘Caisse Desjardins’ banner. You buy shares in your individual Caisse, you get to go to the annual meeting and have your say on policy, and they even send you a dividend cheque. Try that at Goldman Sachs!
I agree with your solution but I am happy to be branded a socialist.
The current rabble of MPs that make up the majority of the big political parties are dye in the wool free market capitalists who believe we should be moving away fro state ownership.
The party leaders seem to believe that the world works in five year election cycles. The current woes have been coming since Reagan was elected. I doubt that things will get a lot worse unless a dramatic new direction is chosen.
I wouldn’t recommend communism attitude is worth moving that Karl Marx predicted a series of boom and bust cycles that increase in size until those at the bottom paying for it all had enough.
Your solution seems so obvious – I’m probably one of the multitude who can’t see why the state-owned banks can’t stay in the public sector for the public good. Sadly, as soon as they are robust enough – they won’t be sold – they will most likely be GIVEN back to the private sector. All right with you Old Chap? Single malt – make it a double.
For RBS read IBS
For Lloyds – read haemorrhoids
The market’s had a nasty rout
And now it’s bottom’s fallen out.
Sorry to lower the tone.
Are you kiddin’? I am some kabuki-obsessed drag-queen blogger. This is bringing the tone up!
I’d agree that neo-liberal economic theory is essentially a religion. All the pseudo-science and formulation revolves around a single quantity that is not merely ill-defined, but circularly defined, namely that of Value.
Econ 101 says that Value is based on Utility but offers no method of measuring Utility other than Value.
Marxist economics fare no better, substituting Labor for Utility but ending trapped in the same definitional cycle.
An interesting figure you might look into is Thorstein Veblen who argued that Value is related instead to institutional power and that it is a mistake to separate the economic and political spheres.
These days his line of thought is carried on by economists Shimshon Bichler and Jonathan Nitzan.
Useful reading list.
Should have listened harder in class
Given that it’s all run by free-market capitalists and pseudo-regulated by politicians that daren’t upset them, what chances are there of turning RBS into a publicly owned credit union that doesn’t want nothing more than to f*ck us all over again?
(doesn’t want nothing more???)
OR, would UK Bank Run be a good idea? Everyone that cares to moves their money to somewhere less terrible, Co-op perhaps, on the same day?
Sorry to puncture your bubble, but you were never, ever, called a kabuki-obsessed drag-queen. And I should know, because the words I used were “kabuki-fixated”. I’ll grant you that fixated and obsessed inhabit broadly the same territory, but there was never any mention of drag, or queen. Nor would there be.
For others rushing to condemn me, my actual quote was “I’ll pay more attention when the IFS report it. Until then some blogger with a kabuki fixation and a proclivity to report the facts without investigating them is amusing but that’s about it.”
FWIW I have already apologised for the remark (it seemed to hit a nerve) and love Kabuki. Unsurprisingly as I lived in Japan for 13 years.
Hello David. I was not referring to you. Perhaps unsurprisingly, given the above picture, you have not been the only person to use the “kabuki” reference (and your mention was not with regard to this story, but the story on household debt). You are actually one of four.
Incidentally, you will have seen that that story (on household debt), roughly ten days after I reported it, was a question in Treasury Committee, an article in the Guardian, the Mirror and the ES and a front-page story for the Observer.
Hi and thanks for the update. Pleased to hear it wasn’t me…
I did see the story had been taken up elsewhere – congrats on that.
First, the answer to the question: who do we owe?
The Debt Management Office (latest is 30 Sept 2010) says that the debt is owned by:
28% Insurance companies and pension funds
31% Overseas
21% Bank of England (Asset Purchase Facility)
11% Other financial institutions and other
7% Banks
1% Building societies
1% Households
0.2% Local authorities and public corporations
Other than 31% overseas, the answer to the question is *us*. Yup, UK citizens own the debt. That is good because part of the debt was used to build infrastructure, non-PFI hospitals and schools. And when it comes to paying interest, who gets that money? Well, 69% of it comes to us. If you have a pension scheme (other than unfunded public sector schemes) then the likelihood is that part of it will be invested in UK bonds (gilts). The reason? Well, because gilt-edged stock has the reputation of never defaulting and hence you get a guaranteed return on investment. Just what you want for a pensions scheme.
Now to the second part. You say:
“so we can settle our debt to the Banks, including RBS”
look at the table above. Banks own just 7% of the debt, so we don’t need to sell off RBS to settle our debt with RBS or any other bank. Nationalising the bank may be a good idea, especially since there is talk about a “green bank” and a “big society bank” but the government does not own a bank. You could pull all of these banking responsibilities (including student loans) into one organisation. Run not-for-profit with a mandate to improve liquidity it may well do some good.
Glad to see a sensible reply on this. Somehow people don’t seem to understand that these gilts “owned” by financial institutions are overwhelmingly representations of liabilities to ordinary people in the form of their pensions and savings.
Of course the overseas holdings are a bit more of an issue, but inevitable as we run such a high current account deficit. Should foreign investment institutions lose appetite for UK government gilts we are in big trouble.
Great post.
We already have National Savings and Investments, why not extend it to include National Loans?
Lend taxpayer money direct to the taxpayer – what a concept!
Richard,
thanks for breaking that down. What you seem to be saying is that the government has mainly borrowed money from us, which is pretty much what Sturdyblog is saying. If the money was all borrowed from pension funds, and the pension funds were being paid interest by the government, and the government was using taxation to pay the interest, then we would simply be topping up our own pensions through paying higher taxes. Now that would solve two problems!
The real point made in the original blog though is not that we owe the money to ourselves, but that the banking sector is making a profit from every transaction. If you tot up the combined profits of the UK banks and energy companies, all of which we are forced to use to survive and most of which was once nationalised, you could pay off the national debt in a couple of years.
The question is: Why are bankers getting million pound bonuses, while nurses and soldiers jobs are being cut?
A spin on the economist joke:
Q: How many psychiatrists does it take to change a light-bulb?
A: Only one but the light-bulb has to want to change.
The light bulb wants to change. So let’s make the ‘psychiatrists’ listen up.
Some answers:
You (the British people) own the debt.
Public debt is not debt, it is money.
The banks were bailed out with gilts instead of just money.
There is no functional difference (for a sovereign currency issuer in a floating rate world) between a “bond” and “money”, except in terms (interest vs. no interest) and duration.
Nobody has to pay back the “debt”, it’s just a bogeyman story to privatize you to death.
Cheers!
What is Money?
http://moslereconomics.com/mandatory-readings/what-is-money/
Deficit spending 101 – Part 1
http://bilbo.economicoutlook.net/blog/?p=332
Deficit spending 101 – Part 2
http://bilbo.economicoutlook.net/blog/?p=352
Deficit spending 101 – Part 3
http://bilbo.economicoutlook.net/blog/?p=381
Debt is not debt
http://bilbo.economicoutlook.net/blog/?p=3346
Spot on!
The UK Government owes the debt and this debt is savings, financial assets for UK people, pension companies, the Bank of England.
In Total Agreement – which is most unusual for me, can normally find some small parts that I simply cannot go with but for once it’s refreshing to find some common sense being quietly shouted from a hill top
A great idea but…
The banks make too much money from the current golden goose. Suggesting that we should introduce a free national bank for the benefit of the people is like living in Iraq & suggesting that we should have a change in government for the benefit of the people. The ones controlling it are making too much money from it to allow a change without a fight/revolution.
The only counry that I am aware of who tried to move away from the central banking model of ‘borrow a countries working captital as debt from a bank’ was America in the 60′s (executive order 11110). Kennedy introduced silver certificates, dollars, that were not owned by the banks or borrowed at interest but were actually owned by the government backed by silver it held. Debt free money! Kennedy was assasinated & they stopped producing silver backed dollars 5 months later.
Why was that? It’s interest free money? If they had continued to issue silver backed dollars then the currency would have been seperated from the banks & surely this would have meant they were not ‘too bike to fail’?
This legislation has not been repealed so the US government can still produce silver backed dollars but no one has since then. Why not?
There is already a way out of this but sucessive American governments choose not to take it. Once you know why America wont then you will realise why RBS will never be a peoples bank.
Debating the pros & cons of RBS becomes useless & distracting until we identify who controls the worlds money & who is charging us interest on every pound in our pocket. If you look at how much tax you pay & how much national debt we have to pay off we are effectively slaves working six months a year purely for the profits of the banks with no benefit to ourselves because that is where all out taxes are going.
“I care not what puppet is placed on the throne of England to rule the Empire, …The man that controls Britain’s money supply controls the British Empire. And I control the money supply.”
I have been getting very interesting replies from Canada and NZ, who are actually doing this. So, not impossible. Researching further and will report.
I suppose in mentioning the Silver Backed Dollar & Kennedy, at least you didn’t invoke the “Federal Reserve” assassinated Kennedy conspiracy theory. In fact the actual executive order was a rather more mundane, technical affair and was not intended as a means of financing US State deficits in any meaningful manner.
The following explodes that myth
http://www.publiceye.org/conspire/flaherty/flaherty9.html
In fact there have been plenty of times when national governments have sought to finance their deficits direct from the public. Most obviously this is in time of conflict when the issuing of War Bonds, typically below market rates, was a major source of finance and a way of mopping up excess liquidity (to keep down inflation). We also have national savings schemes which similarly bypass banks, albeit at a substantial administration cost.
A structural deficit is not “working capital”. A deficit which is at a level which cannot be sustained through economic growth is eventually going to create a problem. Either there will be a “hard” default or a “soft” one by means of inflation being used to reduce the real level of the national debt (which is what happened in the UK through much of the post-war period, especially in the 1970s, and is happening to some extent now).
For the most part money borrowed by the government from UK institutions is ultimately “owned” by private citizens via their various savings, pension funds and so on. None of this is to say that there aren’t too many middle men in the form of banks taking a slice off of any transactions – indeed there are some serious questions about the efficiency of the financial sector. One only has to look at the administration charges on investment funds to see this. In effect the banks have been hijacked by a cabal of extremely high paid employees who have enriched themselves at the expense of customers and shareholders. That points to a major structural defect.
It’s a route of thought that makes one increasingly conspiracy focussed. Rothschild and co make the likes of Rumpsfeld look devoid of influence and pie fingering, but everything else, discussion about political obfuscation and banking ineptitude, become surface mounted bafflements to a miles and ages deep conflation of distortion and shitness.
Mask’s is one of the few comments here that actually cuts through the nonsense and gets to the real heart of the matter. Why is ‘money’ borrowed into existence with interest attached to it? That is the key question. All these economists and political theorists are blinded by their education and conditioning. They have too much invested in the game and are simply not prepared to examine life through child-like eyes. It’s a terrible situation when people justify their own mental and physical slavery because their ego is so afraid of admitting they have been played their whole life.
It’s just a more subtle manifestation of the situation you alluded to with your metaphor of the confused parent saying ‘that’s just the way it is’ or concocting some argument that is logically feeble but convincing in it’s complexity. It’s irritating, depressing, annoying, saddening, comical and tragic that adults play this game because it ultimately validates a status quo that is responsible for extreme suffering on this planet.
Of course there is a ‘conspiracy’ to suck the wealth from the masses into the hands of the elite. This is 100% undeniable. These people who ridicule those who see the obvious are frightened rabbits too scared to face reality.
Lumping the Bank of England in with the commercial banks is a nonsense. That was simply the effect of quantitative easing – basically “printing” money and using it to buy government gilts with the aim of releasing funds to be spent elsewhere. The jury is out over what the effects have been.
If the government runs a deficit, it has two options. Basically ignore it, which essentially means printing more money, or borrowing it from somebody else. The former of these two approaches is a direct route to inflation and an eventual collapse in the country’s currency as trading partners will not tolerate being paid in an ever-devaluing currency. The alternative, that is borrowing money, can only be from those who have some to invest. Financial institutions representing pensioners and other personal investments cannot possibly be considered as money “owned” by those financial institutions. They generally assets set-off against liabilities to savers, pensioners and the like. As such, unless the State was to directly take over the liabilities to these investors, they have to work through other institutions. This would mean, for instance, the State taking over the liability to pay out on at least the part of private and company pensions represented by the ownership of gilts.
In the case of banks buying gilts, then I hope people are aware that, since the financial crisis the rules on the amount of liquid assets that has to be held by banks as a proportion of deposits was increased to 7% and there are proposals (from the Vickers report) to increase that to 10%. One of the few ways that this can be done legally is to buy government gilts as they have the highest level of security. These rules apply equally to nationalised banks as to private ones (not to do so would run foul of EU competition rules among other things). Those changes in capital rules will have been responsible for increasing the holding of gilts by banks following the financial crisis. Note this isn’t something that is ultimately “owned” by the bank in the form of the shareholders, it’s an asset which is set off against some of the liabilities in the form of deposits by bank customers. As the government tends to borrow at a discount compared to commercial borrowers (as gilts are considered more secure), then it is less remunerative for banks and, hence, for depositors (on average).
It’s worth noting that the state is currently conspiring to perform a “soft default” on the real value of it’s debts by holding down the rate of interest (albeit through the BoE committee). In effect, the real value of savings is being devalued albeit rather more gently than in the 1970s. Indeed it was the artificially low interest rates maintained during the years up to the financial crash that helped to drive unsustainable asset price inflation and associated GDP growth.
There’s a lot more to say on this, but the article exposes a complete lack of understanding of how modern economies and state finance actually work. We are on a fiscal knife-edge to get out of this mess. Those in charge of State finances during the relevant period are to blame for this – basically buying easy popularity through the promotion of excessive private and public debt. There is not easy way out of this.
My take on “printing money” is that this is perfectly safe to do when the economy is not at full capacity (e.g. untill the 6-10% drop in GDP caused by the 2008 recession is made good).
Money creation by the state (not QE where money was only fed to speculators) is especially safe if the money created by a Government is counterbalnced with a simultaneous constriction of the money supply caused by increasing the contingent capital requirements in the banks.
At the moment our monetary system allows 97% of the money supply to be created by the banks throught the creation of money/debt when they lend. The banks lending has an exact correspondance with household and corporate debt to the banks as the money created and leant out by the banks is equivalent to a debt to them by those taking the bank loans and mortages.
The only restriction on the amount of money that the bansk can create under our current financial and legal system is the contignent capital requirements set in Switzerland by Basel. The level of actual lending is also a function of demand for loans (which is influenced by the independant MPC at the Bank of England which sets the BOE policy rate which in turn underpins LIBOR rates). This is one reason the Brown cant be held responsible for the 2008 crash – he didn’t have control of any of the policy levers for the money supply.
Over the last decade the banks trebbled the money supply (M4 now at £2.6 Trillion) and there was a correpsonding boom in household debt to approx 165% of household income.
Austerity programs that attempt to pay back Government debt (after a liquidity trap and balnce sheet recession) will increase household debt. The only way to avoid this is for the Government to directly create money (and unlike QE to feed this money to households rather than banks and speculators).
The reason Governments “need” to raise taxes or reduce public sector spending has nothing to do with paying down debts. This is a giant fiction that we have been fed. In reality, Governments level taxes when the economy is at full tilt to destroy money and prevent inflation. The destruction is necessary to counterbalnce the money flowing into the economy from bank lending.
This is aslo the cause of recessions and bank crisiis. Banks lend too much. Assets rise to unsustiable levels. Inequality and inflation usually build up until increasing proportions of people cant afford to service their debts. They default and either central banks try to reduce demand by raising interest rates or there is a financial crisis caused by liquidity issues.
There are alternatives to this awful system which Mervyn King refers to as the worst possible system.
Governments should create money directly (not by interest bearing bonds). In the 1950s over 50% of the money supply was created this way. To prevent money creation being inflationairy when the economy reaches full capacity there should be a correpsonding constriction on bank contingent capital. This will make the banking system safer, allow stimulation of the economy to prevent depression and protect public servcies and also to prevent an increase in unsustainable household debt levels.
The curent austerty programs are ideolgcially driven, will not reduce Government debt levels but will increase household debt levels, precipitate a second liquidity crisis and throw the economy into a depression.
Certainly its the case that during the period up to the financial crash the money supply growth was enormous due to excessive bank lending. However, that was facilitated by deliberate government policy, not just in the UK, but in many western economies. As with all debt-driven booms, it was going to break sometime. That so many politicians thought they could buy popularity this way with an apparently painless way of prolonging growth (when they were actually mortgaging the future) is a scandal. Bear in mind that during the boom times the UK was even then running a deficit – hardly the policy of reigning in the money supply caused by excessive bank lending that would have been, to coin a phrase, “prudent”.
As for printing money being relatively harmless in a recession, well I’m not sure history supports that beyond a certain level. If the supply of money increases beyond GDP growth then that’s a recipe for inflation.
There is also the little issue of foreign creditors to consider. It might just be possible to get UK investors to put up with the inevitable depreciation of their savings and investments by printing more money (after all, that’s what happened in the 1970s), but the UK runs an enormous current account deficit. Do that to foreign holders of UK debt (private and state) and that could lead to a big run on the pound. It will certainly be effective in reducing the current account deficit, but with enormous adverse consequences for the economy. It would further stoke inflation, and we do not have the type of economy now that will be able to take advantage by way of exports.
We remain on this knife edge, and the Germans fully understand the importance of fiscal discipline. They have the history to prove it.
nb. I suspect that the current problems of Greece, Ireland and, possibly, Portugal might only be fixed by some form of masked default through debt restructuring. That, I suspect, is not an option open to the UK.
I’m all for changing banks but would recommend the cooperative for its ethical banking policies. The remaining banks then have to change or die.
Also and more importantly, in order to change the way the banking system works, we need to control the money supply, not the banks. See http://www.positivemoney.org.uk
Here is a blog entry asking the same question of Irish bond holders with some fairly good answers:-
http://golemxiv-credo.blogspot.com/2010/10/who-are-bond-holders-we-are-bailing-out.html
The reality is that of course that the people who benefit from the issuance of interest bearing bonds to cover future governemnt spending requirements are the senior executives in banks.
The more important questions are why do sucssesive governments choose to cover future spending requirements or need for Keynesain stimulus with interest bearing bonds when it can create the money directly without the need to pay interest. The corollary questions is to ask why it is necesary or advisable to pay off the public sector deficit at all when the economy is not at full capacity.
As you rightly point out whilst the money supply is created entirely by private banks, as an accounting relationship reductions of public sector debt have to result in an increase in household debt.
See Modern Monetary Theory or postivemoney.org.uk for more discussion.
The quote I remember best from my study of economics is “if all the economists in the world were laid end to end they still wouldn’t reach a conclusion”.
“The answer is: we owe this money, primarily, to the financial sector we went into debt to bail out.”
Well, yes, because that’s what a financial sector is for. That’s the very purpose, the reason we bailed it out in fact.
We want a system that hoovers up all the spare cash that people have lying around, their savings, and which then shovels that off to the people who want to make investments, who want to borrow money.
To complain that the financial system is doing the very thing that we have a financial system for is a bit odd really.
“We have given this idea a real go, for more than a century. We are still sitting in a dark room.”
Well, no, not so much actually. Taking the real earnings (ie, adjusted for inflation) index as being 100 in 1987 (sorry, this is just the way it’s done) average real wages in 1909 were 25. In 2009 they were 131. Over 5 times higher.
I’d say a quintupling of the income of the average man in the street in a century was a pretty good advertisement for a socio-economic system really. It’s certainly a feat that no non-capitalist*, non-market** based socio-economic system has ever managed.
* and **….It has happened where there is only some of both, China recently for example, but no one has managed it without some of both.
“We want a system that hoovers up all the spare cash that people have lying around, their savings, and which then shovels that off to the people who want to make investments, who want to borrow money.”
Surely, you forgot “and are likely to be able to pay it back” at the end there Tim, didn’t you?
Because this is precisely what went wrong. They did “hoover up all the spare cash that people have lying around, their savings”, gambled it and lost it.
And then came cap in hand back to the same people.
Indeed – the problem was the “moral hazard” one. That is those that were gambling by lending to poor credit risks weren’t the ones who bore the costs of the default. To make it clear, those folks on the heads I win, tails you lose bet, weren’t the direct (or indirect) shareholders of the bank. No, those lucky folk were the cabal of highly paid bankers who had hi-jacked the banks for their own enrichment. In other words employee power. Of course the government was complicit in this, believing it had found a goose that would lay plenty of golden eggs until it found out the hard way they could so easily go off.
Generally speaking the shareholders took a bath. Eventually the UK government will almost certainly get all its money back – what has gone for ever is the cumulative economic growth for the period.
The financial system isn’t resposnsible for the growth in lvig standards (or real earnings). That would be productivity, innovation and the growth in world population size.
For the period where youa re sugegstingt here is fastest growth (1909 to 1970s) the current money system was not in operation. Governments produced the majority of broad and narrow money and it was backed by gold. This period did have fast real growth in earnings.
The period after the snake and gold standards were abandoned, real tersm growth tanks and there isa huge conflation of debt in parrallel with any increase in hosuehold income. Check out houseprices- costs the requivalnet of 5 years wages in 1950 but now cost the equvialent of over 20.
Just looking at inflation and earnigns ignores the increase in debts that tyhe current version of the money system causes. The real sending power of households is neutralised by the debt increase.
The financial system controls the growth of the money supply through issuign money as debt and this is where things ahve gone chest up.
Hardly any increase in the last 40 years though.
http://bilbo.economicoutlook.net/blog/?p=13193
When there’s massive spare capacity, labour unemployment at 15%, the price rise impact wont be anything like it would be if there was full employment.
An interesting and revealing pair of posts. Likewise for the comments.
Astonishing ignorance: “Here. Here.”, not once, but twice, being the perfect expression thereof.
Astonishing naivete: “How about running RBS as the publicly owned institution it is? An institution which does not have greed at its core…” No greed? Really? You really think that there is no greed at the core of publicly owned institutions?
Astonishing folly: …”the Town’s Banker who skims €10 each time for his services?” The constant, insane, repetition of the communist fallacy by younger people bothers me. The constant need for each generation to learn on its own that it is a fallacy, always the hard way troubles me very deeply. My God but we are a race of stupid wishful thinkers.
The banker skims nothing. He adds value. The innkeeper, the butcher, the pig farmer and the hooker are always the ones worshiped as ‘productive’ by fools like you and your commenters. Without the organizers, like bankers, lawyers, accountants and other so-called parasites, they are useless, inefficient non-producers. Specialization, division of labour, trade and ‘Greed’ create wealth. Trying to do everything by ones self, without bankers and their ilk, does not.
Without the banker the inn did not get built, nor the farm bought, nor tools and equipment purchased, nor…
Perhaps if you actually studied history (and not leftist twaddle-history), double entry accounting, the inherent mathematical symmetries of such accounting as revealed by group theory and similar, you would not be so easily fooled.
My comment, my insult, on double entry and symmetry is aimed at the dolts who point out that debt can net out. Astonishing. A revelation. Whouda thunk it?
Thank you for your constructive, considered response.
My astonishing naivete (re. running RBS as a state-owned institution), is one that was shared by Iceland up until 1996 when they decided to let all those value-adding, organisers loose. By 1998 their economy had collapsed. Canada and NZ are turning firmly towards my naive model. Innkeepers, hookers, farmers and butchers existed long before investment bankers. You may want to take a break from the trading floor and investigate.
I do find it revealing that you group bankers, lawyers and accountants together. The latter two professions require training of immense rigour, over many years and are subject to a system of ethics and a relationship of trust. They are strictly regulated and transgression of their codified ethics will quickly see you disbarred or with your practice license revoked. Investment bankers are entirely the opposite in all those respects.
You call me naive and in the same breath you put forward the idea that the target of the financial sector is utility and growth! Why, then, not reward utility and growth with bonuses? Bankers make as much, if not more profit, from periods of hardship and contraction. The most miserable period in memory (the mass repossession of houses during the last recession) was their golden age.
So, please keep your tone civil and your arguments on point. Bullying may work with your assistant, terrified of losing his/her job, but it does not wash here.
Keep it civil, is it? You run around and in a condescending and poisonous manner call us all manner of disgusting names? Besides, it’s high time you smarmy, smug, self satisfied lefties understand you are not universally admired.
You say Canada is tilting your way. I live in Canada. I own a great deal of stock in Canadian banks. But for your call for civility I would have said you are full of crap, instead I will say only that you err greatly. There are not very many bankers as greedy and piratical as our Canadian ones, all praise and glory to them.
Iceland? You cite Iceland? All 320,000 of them? That’s it, that’s your ‘evidence’, those are your ‘facts’? The Medici, the Fuggers, the Rothschilds the The Templars and Hospitallers, the history of banking from pre-history? I will be civil, and religious, and say: Jesus H. Christ, an astonishing depth of ignorance.
Where the fuddle duddle (a Canadian reference – look it up) did I say the target of the financial sector was ‘utility and growth’. I said no such thing because it is not true. Their target is money, power the great spondulix, fast cars and faster women, hot blondes – need I continue?. The EFFECT (I rarely SHOUT, but sometimes one must) of that target, of that greed is utility and growth. That’s the thing you kiddies never get around – unintended consequences, theirs and yours.
“Bankers make as much, if not more profit, from periods of hardship and contraction.” Well of course they bloody well do. It is tough times that require the most work, the greatest skill and imagination, the most clever, risk taking and hard working people. Yeah, right, I know, they don’t work hard and they are not clever. If it’s that damn easy, why don’t you and all your lefty kiddy friends do it?
OK. Is this the internet equivalent of “Candid Camera”? Are you some sort of stand-up comedian’s funny persona? Own up now.
I give you solid examples from the last 5 years and your response is that (a) I am too young; (b) the country involved is small; and (c) the Medici?
I think I understand unintended consequences now. Your aim was to make some sort of acerbic, insightful point. The EFFECT was that you made me laugh so hard, I nearly dropped my coffee. Bless you.
I think (hope) Fred Z is a wind up merchant. He’s either that or a perfected slave entity genetically created from the frozen DNA of Meyer Rothschild and one of those cartoon ducks that calls ‘mommy’ the first thing it sees after birth.
I’ll confess that a lot of what I’ve read is a bit over my head. But I did so enjoy your beautifully measured put down above.
They have worked out a way to reduce the protein content of cows milk ,not an easy task ,but it means ,people who were once allergic can now enjoy the benefits.Now ,if they could just come up with a way to remove greed ,and avarice from the human brain ,we might just have an economic chance ,in hell ,to get out of this mess.
“Because this is precisely what went wrong. They did “hoover up all the spare cash that people have lying around, their savings”, gambled it and lost it.”
No, not really. They lost some, yes. But the problem wasn’t (and isn’t) that all the banks are insolvent. Northern Rock was, RBS might have been. Lehman and Bear Stearns. The real problem is that all banks are all the time illiquid. It’s a simple feature of fractional reserve banking. If a panic starts then banks simply fall over.
And the amount that we UK taxpayers pumped into the banks? Most of it was simple guarantees. Some of it was equity in Lloyds and RBS. And we’re now thinking that the losses might be in the £5-£10 billion range when it’s all wrapped up…..although there’s still the possibility of making a profit.
The rel;evance of this sort of amount to the £1 trillion national debt escapes me.
You need to speak to the ONS, because they have entirely different figures in their thick heads. Maybe you can help them correct theirs. They seem to be saying that the amount pumped into the system directly was nearer the £700m mark and that the adding of the bailed-out banks’ liabilities to the national book, will push that figure to £1.3 trillion.
Also, you didn’t answer my question.
“and that the adding of the bailed-out banks’ liabilities to the national book, will push that figure to £1.3 trillion.”
Yes, those are the liabilities. But don’t forget, we also have to look at the assets that go with those liabilities. And that’s what gives us our net figure…..which is currently thought to be about that £5-£10 billion loss.
“Surely, you forgot “and are likely to be able to pay it back” at the end there Tim, didn’t you?”
That question? Meh.
Some loans always go bad. In fact, we’d rather have a system in which some did than one in which none did…..for if we restricted lending only to those who would definitely pay back then we’d have a much smaller economy than we do.
But of course in another sense you’re right, in that lending standards did decline and they were too free with the cash. Partly because low interest rates made more thingsd look like good deals of course and partly because there was indeed a property bubble under way.
Don’t see that nationalised banks are a solution to either of those really….
The Iceland lesson is very clear on this point and replicated accorded to my personal experience.
I spent the first 20 years of my life in Greece, at a time when financial institutions were national. It was a stable, happy time, during which there was sustainable growth.
I then returned 10 years later. Banks had been privatised and deregulated and a Stock Exchange had emerged. Everyone was living on plastic and loans and beyond their means. I did not see a flip-flop or pair of sunglasses that were not emblazoned with “Armani”. If you had trouble with replaying a loan, you just went to another bank and borrowed more. I can tell you that my beloved country’s bankruptcy was not a surprise to me nor to anyone else that lived there.
So, I politely disagree. Nationalised Banks make a big difference.
A man’s observations while he is under the age of 30 are pretty well worthless.
Mine were. So were those of all of my friends and business associates. Yours are as well.
” If this business model did not have government support, it would be called a “Pyramid Scheme” and outlawed.”
So it’s the same as National Insurance then?
How is it like NI?
Reintroduce the Glass-Steagal act in the US, bring in something similar in the UK, and the let investment banks get on with it. As long as that divide between retail and investment banks is missing, the latter will continue to fall back on our cash to support their risks.
as it is, Northern Rock aren’t even close to be privatised and they’re already back to offering 90% mortgages on top of being back in the securitisation business.
Exactly what lessons have been learnt here?
Take a look at this great short summary of Modern Monetary Theory-
http://pragcap.com/resources/understanding-modern-monetary-system
In particular look at the section following “Understanding Sectorial Balances”.
This really will show you that the Coalition and others arguments about deficit repayments are an absolute load of ideological horseshit peddled by political parties bought by the uber wealthy to ensure channeling of greter proportions of wealth upwards.
The article uses the US economy as an example but it applies equally well in the UK.
Also take a look at the degree to which the state has retreated from money creation over the last 50 years and the results of this.
Framing an economic discussion about Government funding shortfalls in terms of it being a “debt” that needs “repaying” is simply ridiculous.
Printing money in a recession will strengthen an economy rather than debase it (observe the period 2008-9 and the amount of money created to bailout the banks and for QE).
The Government creating money at full employment however would potentially cause inflation and cause devlaution of the currency. However, this is not the circumstances we are in at the moment and it is certainly not the case if there is a corresponding increase in the contingent capital requirements for banks as the banks will then create less debt/money.
Inflation is a product of the total amount of money in circulation. Too much money chasing too few products leads to inflation. If there is less money circulating as netted out bank induced debt and more of it produced as debt free money created by the Government there will be no higher inflation- just lower total levels of debt, less chance of a crippling recession and less inequality and greater standards of public infrastructure.
The current Coalition are going to tank the economy over the next few years as banks will lend less in the short term whilst they repair their balnce sheets to meet increased contingent capital requirements. The Government needs to step in and maintain at least current levels of spending to prevent the money supply contracting and this causing a huge depression.
The biggest risk that can be taken is to put in place austerity measures (this increases household relaiance on securing loans from the banks) and then allow the banks to swell the money supply again in a few years time as the imbalances in the economy between rich (debt free) and poor(debt encumbered) mean the next recession after 2008 may well be the last. You cannot go into a boom with household debt at 180%. The boom increases household debt so the next boom and bust cycle will be fatal.
BTW thanks for a great blog, mr sturdyblog. Nice one!
Yeah thanks Mr Sturdyblog, even if you are ‘kabuki-obsessed’ (I’m not really sure what that means). Your blog is very lucid about complex financial issues. It is raising questions which seem so obvious after you’ve asked them, the sorts of questions lots of us want to ask before we are bamboozled and patronised with incomprehensible terminology and disdainful assumption. It is a great pleasure to read.
SturdyGurdy, your repartee is weak. I demolish your arguments and all you can do is some weird reference to Candid Camera. There’s no secret recording here. You made some completely unsupported and unsupportable arguments that publicly owned banks will be ‘better’ than private ones, much like the American experience with Fannie and Freddie. Har. Then I crushed those arguments, like the bugs they were.
I don’t claim to know what will improve our banking system world wide. But I do know that the suggestions you have made have all been tried and have completely, utterly failed.
I also know that one does not tinker with a system as complicated as an economy or an ecology without fear and trepidation. Often a kluged together mess works better than the best 5 year plan. Do you think Stalin used stupid planners? He used the best he could get, clever Russians, probably several tens of IQ points ahead of you. All they did was create catastrophe, much worse catastrophe than the evil bankers had ever made.
Sorry Sturdy, you seem a nice young dude with a desire to do good. So were Stalin’s planners.
Stop telling others what to do. Do what you want. If your plan is better, then it will succeed. Call all your friends and family, get them to advance you money, then sit there in a cold sweat and decide what to do with it and how much you should be paid for doing that. Your opinion might change.
The only point on which I expect we agree is that the government support of failing banks and bankers is an outrage.
There’s a very simple test to see if the status quo suits the general public, going forward.
Is there now still the potential that ‘we’, as in the general public, could be in the shit yet again, should nothing of value change in the financial industry? The answer to this question is a resounding ‘yes’, and given this, there’s absolutely no reason for why others should put forward sensible suggestions as to how we should move forward.
I’ve gone through your posts, and you appear to be referring to a better, but unfortunately, outdated banking system, the likes of which no longer exists. The kind of risk that got us into this mess never existed up until 20 years ago, and there is absolutely no reason why we could not return to that point, if we had a strong and/or willing government.
Unfortunately, we don’t have the government now, we didn’t have it with Labour, and the only truth is that whoever is in charge will believe the utter nonsense that the financial industry comes up with regarding how we simply must not change if we, as a country wish to remain ‘competitive’.
Relaxing the laws that protected us is what got us here. The answer to the problem is just as simple.
A stunningly incisive post! I particularly liked your categorisation of your respondees and share your frustration with the category three type. At last some much needed clear thinking on this subject. After all, one doesn’t have to be a playwrite to critique plays.
When the growth in M4 is way above inflation – as it was in the UK for many years under the Ghost of Kirkcaldy’s economic stewardship (sic) – it is clear to the most economically illiterate muppet that an asset bubble is in full swing.
An asset bubble in housing is dangerous for many reasons – but, principal amongst them, is that it sucks money out of the productive economy and into servicing debt as the ongoing above inflation house price increases can only be caused by above inflation increases in debt.
Of course the bankers love it. Who wouldn’t prefer to lend £150k against a house ‘valued’ at £200k as opposed to lending £75k against the same house ‘valued’ at £100k. But the man paying the £150k mortage has a lot less to spend each month than if he were paying a £75k mortgage … all that demand going to waste and into bankers’ pockets.
Surely even someone as economically illiterate as the Ghost of Kirkcaldy should have twigged what was going on?
This is a problem that’s been going on for 40 odd years under Conservatives and Blue Labour.
Remember how the opposition strongly opposed light touch regulation and Government over taxation and underspending, let alone allowing mass unemployment to fester…
I met a man once who, along with a few friends, was involved in “quantitive easing.” The judge told him his operation had the potential to wreck the economy and sentenced him to 14 years.
Hi
now that you have clarified this for me, can you tackle carbon trading.
Seems the worlds leaders got together one day, realised they had taxed us with every tax imaginable, and brain-stormed to come up with a new tax.
I don’t get it.
I think sunshine will be next.
Please explain this to us children.
Regards
Good discussion!
a couple of points;
in your example everyone both owed and was owed, and the problem was ‘getting the ball rolling’. On Wall St. we call that a ’round robin fail’ and all sides simple arrange a ‘pair off’ to clean it up. However, i n today’s economy, not everyone one both owes and is owed the same amount. In fact, many are net borrowers while others are net savers.
With regards to ‘creating money’ for the govt. all spending is ‘creating money’ and taxing is ‘removing money’ (and govt borrowing is merely shifting money from one account to another at the central bank, leaving net financial assets unchanged, which can alter the term structure of rates, but has no discernible alteration of demand).
So the question is more about net govt. spending, which does create money as described, but not about the money creation per se. That is, what is of concern is how that spending in excess of taxation alters real economic outcomes.
You can read my explanation of monetary operations in non technical language at http://www.moslereconomcis.com
The best place to start is ‘the 7 deadly innocent frauds’ at http://www.moslereconomics.com/?p=8662/
Warren Mosler
MMT First Generation
You got Warren Mosler over, dude!
Remember Madoff? obviously, now, he only copied what states do routinely.
The worst of all is the US. I am very much against US-Bashing. Unfortunately, when looking at state deficit and overspending, they are no better than you greeks. They just happen to have the larger economy, and the largest military in the world…
There is no simple answer to the situation, because it goes to the core of the system we live in and with.
As long as states spend more than they earn, and are allowed to borrow money from Banks, this is what is inevitably going to happen.
On the other hand, it is the states that make the laws for the banks and investments to function the way they do.
Now, it is known that power is poisonous, and that the powerful always will work for other powerfuls.
furthermore, in democracy as it exists, the system is built such that those with a taste for money and power will be the ones going for politics. And they are also the ones that should by all means be barred from doing so, BECAUSE they have this taste, and already are tainted by corruption.
And the ones that would be really fit to serve their people are simply too honest and are so disgusted by the business of politics as they exist, that they will keep away, and thus never get to power. Although, these are exactly the people we would need to be in power, BECAUSE they have no taste for it, and therefore there is a slight possibility they wont be corrupted too badly.
I have no solution. I am myself caught in the daily battle for survival.
Greetings from Jerusalem
Yochanan
Oh, and reading through the posts, I think Fred Z is a perfect example for a person sitting in a position they should not be allowed into.
Playing with other people’s Money and fate, without ever being conscious of or willing to take the responsibility they carry on their shoulders.
so,to whom do we owe the moneys too?
A brilliant piece of work! I have been researching this myself for months and come to similar conclusions. Like you I imagine I have people calling me a conspiracy theorist, a dreamer, unpractical etc. The reason ‘why,’ we cannot do this it boils down to is because some people are making too much money from the taxpayers to let this little beauty slip away.
People need to know and we need to demand this change. I am glad you have the solution through RBS too – I am in agreement for sure on that point. The only way we can sort this is to get a party with some guts and honesty to keep a public bank that issues our money. My suggestion was going to be to widen the definition of the Greenbank and offer good saving rates to ordinary people, using money generated by green taxes, better taxing of off-shore accounts and bankers bonuses to fund it. But your RBS idea works just as well, and I was also wondering why the Government was so keen to sell off the shares for a bank once it started making money again…? Seriously any idiot could tell you you only want the company when it starts making money again, these are the people running things?
Heeeeelp. Lets get on the streets and protest and this insane situation!
Also – after I posted (not sure how live this thread is?) I read more of the comments. Fred Z what twaddle you talk..? Particularly this:
““Bankers make as much, if not more profit, from periods of hardship and contraction.”” Well of course they bloody well do. It is tough times that require the most work, the greatest skill and imagination, the most clever, risk taking and hard working people. Yeah, right, I know, they don’t work hard and they are not clever. If it’s that damn easy, why don’t you and all your lefty kiddy friends do it?”
It doesn’t come from imagination or hard-work – it comes from a system that has inbuilt features which take from the poor and give to the rich. Any banker enjoying those periods does so purely from being in on the game. Our current fractional reserve system NEEDs poor people to borrow. So say a young person buys a house on a tracker rate, they might pay their bank monthly payments plus interest. They might manage and be lucky having work that has a steady increase in salary. They might beat the inflation in the system. However they might lose their job or experience a credit crunch like 2008. Suddenly they cannot meet their mortgage payments. Eventually they might lose their house. So they may have paid about £25,000 out of a £180,000 mortgage. All during the bad times the banks threatening repossession – and then eventually it happens. They lose all their capital investment, have paid interest to the bank on top of their houses cost and still got nothing to show for it. Now consider the fact that the money that was loaned to those people was created out of thin air – how is that system fair? Not only that but my creating money from nothing the banks increase inflation which in turn make the cost of living unbearable compared to salaries.
Trust me Mt Fred Z the day I can make money from nothing and lend it to you and charge interest for it is the day I too will be driving fast sports cars and urinating money away in the form of expensive champagne. All these bankers getting their bonuses and living such outlandish lifestyles while their fellow human beings struggle to put food on the table should be ashamed.
If you are poor in the UK it is not your fault. It is the fault directly of the financial ‘service’ industry.
So you want to run RBS as a public body. We had a bank, the Post Office Giro; I used to be a member, until the government sold it off, now part of Santander. The people also had a bank called the Trustee Savings Bank, it wasn’t a big bank but a lot of small independent branches. A government saw some rich picking for its friends, and sold it off to Lloyds. As I remember it raised about £20 billion, which the government had to give to Lloyds (didn’t last long, they bought a useless estate agency).
Now it cost the ordinary Joe and Josephine a small fortune to start up these organisations so a Tory government could make a killing. No its best not to try it again, WHY? Because if it becomes profitable someone will steal it and you will end up with no pocket money.Always shuts the kids up.
Well to be honest I don’t really understand economics in the same way that most of the people in these posts do….as 1 person stated …maybe I should have listened in class.
From where I sit as an average joe all these “financial disasters” have always looked …to me …like nothing less than theft.
It always seems that when the economy seems to be doing well and the working/middle classes are managing to save a few pounds and starting to feel a little comfortable, that ….due to everyone saving for a rainy day the money isn’t circulating….eg top dogs personal bank account is getting a little low for his liking because average joe is saving a few pounds for himself so it’s time for top dog to get his money back….this is done in the form of a “financial disaster” forcing average joe to spend the few quid he had saved ….or even just taking it from him in the guise of a banking failure..otherwise known as theft.
As for the bonuses bank executives get….why….WHY…the wages they receive are an adequate appreciation for doing the job they are paid to do and the lifestyle they get for doing it.
How many bankers had their bonuses taken back after the collapse of the banks….
so bankers lose the tax payers money in a banking collapse then use more taxpayers money to bail out then lend it to taxpayers at a higher interest rate to refill the pockets that had holes in……that’s like me lending £100 pounds to me and paying fat boy £10 for allowing me to do so..
It is the opinion of this forum that the nationalization of banks is a firm step in the right direction, for the multitude of reasons stated above. As we are currently looking at an 83% government ownership of RBS it could be argued that this is almost the case, with exception that there is no direct ownership to the everyday taxpayer.
The tax money that was made available to RBS in the form of a bail out has since been re-invested, allowing the bank to post recent profits approaching £2bn. However, for the government to recoup any of OUR money they must sell off shares in the bank to private investors, hence taking us away from the ideal of national ownership.
This is a very poor position to be in if you are a member of the tax paying community. Given OUR investment of taxes within RBS and subsequent majority ownership of the institution the only party able to reap the rewards is the bank itself, there is no return on OUR investment without sale of shares which leads to a reduced stake in future profits. It is the classic Catch 22 situation.
Given that shares are being sold off, is it not conceivable the every tax paying citizen could each own a single share? Assuming shares are bought using the same tax money funding the bank and managed by a transparent third party institution. This would allow the taxpayer to directly receive the return on the banks investment of the tax payers OWN money and return some much needed wealth to those who need it most?!
N.B. I would like to say thank you to those of you out there who respond to this for the knowledge that you are about to impart upon us all. Whether I have stumbled upon a viable solution to this quandary or am simply talking out of my Fred Z hole, I am always ready to learn. May bankers have mercy on us all.
“An institution which does not have greed at its core, provides loans in the areas the government wants to stimulate at reasonable terms and ethical banking services to ordinary people. Then we would have an alternative.”
We all have the possibility to do this already and I cannot understand why more people don’t do it. I use a building society for most of my financial dealings, and a co-operative (ok, ‘The’ Co-operative) for the rest. Why, why, why does anyone today who complains about the banks give even one thin penny of their hard-earned money to those banks? Move your money today, take it out of the hands of the banks and put it in member-owned building societies, cooperatives, and credit unions.
grate article mate.
it is simple really, we just have to turn the debt into things ,you know ,like schools and roads etc.for the privilege of being in the enviable position of supporting the governments debt the banks should be forced by law to ‘earn this privilege”oh I know a levy on every transaction should do it’ that way the money comes back again to the goverment.
Hi – of course the correct answer to your question is that the banking cartel would object .
I used to be amazed that we allowed the BOE to be a private company for 250 years prior to nationalisation . Imagine a government giving a license to a private company to print money then lend it back to the government at interest ?
Now we have the situation that the same license exists – but since the BOE england has been nationalised – it then loans money to not just the government but to a very select group who then can lend it at guaranteed profit to whoever – Imagine that they even lend it back to the government !
Is there any limit to the Banking Cartels power ? Look at the deal they struck for NR ?
I wonder what will happen to RBS …
really enjoyed reading and passing on your blog…. you may be interested in or already know of BERNARD LIETAER…his research is very interesting… http://www.lietaer.com.
Your funny…………..if you want to find out whats happening to the worlds economy,check out Rothschild on you tube.also The Money Masters-full version,the federal reserve its history,Ron Paul and Alan Grayson senators trying to get rid of the fed,also Lindsey Williams,if you follow the trail you will see that Rothschild and his mates have the world in an economic meltdown,he has control of all but two of the worlds central banks.Syria and Cuba.Iran?one will come to him soon after the war,He owns the gold exchange in london, dutch shell oil,most of Israel where the 3rd world war will be started from they want to attack Iran?Loads of assets in America,nearly all media thats why their name hardly gets out,
see this blog.http://the-tap.blogspot.co.uk/2010/02/who-owns-bank-of-england.html
very interesting blog loads of info contained.We in the youtube world know what their up to and what they are doing to further their take over of the world,with their new world order,its all on youtube everything .They were instrumental in the Russian commy uprising also chinas ,loaned money to governments,both sides in all wars.check it all out and you will realise they are nearly ready to have a go of taking over putting the world in debt meltdown is their first step,research it , Cecil Rhodes was their agent sent into South Africa to open up the gold and diamond mines,he kept his workers in enslavement camps,also the new world order started from him,its all documented its amazing how one family can own the world enjoy researching.Remember we on youtube know all about them.
Bob, you’re a credit to conspiracy theorists the world over…
http://www.guardian.co.uk/business/2011/mar/27/dutch-bankers-bonuses-axed-by-people-power
This is a story run in a English newspaper over here about dutch people sticking together
to get what they want please read.
Today, I went to the beach with my children. I found a sea
shell and gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She put the shell to her ear
and screamed. There was a hermit crab inside and it pinched her
ear. She never wants to go back! LoL I know this is completely off topic but I had to tell
someone!
An excellent piece of work and research. Thank you. I have enjoyed your conclusion, but feel there must be many more solutions – I have a few ideas, but generally, it doesn’t sit right with me that only one thing can be done, that RBS is owned by the public. I think it’s a logical conclusion – could you/we consider 3 or 4 more? Leandra
I am not sure if someone has already covered this here…In short there is no debt!! Well not debt that the average man or woman would understand anyway. We borrow this worthless stuff (that right, money is worthless) from people who create it out of thin air on the back of a promise that we will pay it back. Our own governments are well and truly in bed with these jokers and we are like gullible dogs just interested in whats in the hand of our so called masters who have taken master-classes in dog psychology and training techniques. It has also been going on for a very long time…please wake up!
Well done a simple and satisfyng explanation. Why aren’t we on the streets? Now how about the meaning of our lives the purpose of our existence on this planet. Why have we chosen such a miserable game of monopoly where do we find joy peace and contentment, certainly words we hear often but are rarely felt or demonstrated where’s the teacher when you need one?
A simple explanation please!