Thursday, 20 October 2016

Bernard Lietaer: Complementary Currency (Video)

Bitcoin might seem like a new idea for many, but the concept of complementary currencies goes way back. The Agenda asks: what is currency, and when is national currency not enough?

Monday, 22 August 2016

Court of Genoa: technical assessment on the creation of bank money

In the Italian Civil Court of Genoa, on August 18, 2016, there was a hearing in the case on the failure to take account of the creation of money by Banca Carige.  

The Carige attorney is Paolo CANEPA (brother of the magistrate Anna CANEPA, the "Magistratura Democratica" union secretary), from the law firm ROPPO & CANEPA, who had attended DE BENEDETTI in the case of the LODO MONDADORI against Silvio BERLUSCONI, the former Italian PM. 

The lawyer asked that the case be estopped for total groundlessness, invoking the temerity of the counterparty. The Court refers to the next hearing, October 4, 2016 at 10.15 AM, ahead of Hon. Luigi COSTANZO, President of the Chamber as well as Deputy Chairman of the Court, to decide on the appointment of a forensic accounting expert.

  The lawyer Marco DELLA LUNA, representing the plaintiff, constituted by a British financial company and Marco SABA, argues that the emergence of the revenues from the creation of money by commercial banks, in the case of CARIGE more than euro 25 billion, as well as to rehabilitation of the Italian banking system, would lead - through subsequent taxation - to the safety of the Italian state budget.
A question arises: if everything is in order, why the management of the Genoa bank CARIGE is opposed to the inquiry ?


Monday, 30 May 2016

The Failure of Fiat Money

The 300 year old experiment in driving the economy by creating money is over. We've overpopulated the planet and consumed most of its resources. Creating more money to incentivize higher production, or growth – whether done fairly or not -- just won't work anymore. 

The Federal Reserve may for a time be able to manage a money supply appropriate more or less to a plateaued economy, even an economy as unfair as the one it maintains. But from now on any economy will be less and less able to deliver the goods and services expected by ever greater numbers of people. We face at best a long, slow squeeze, a zero-sum game with a shrinking pie. At worse we face a more acute crisis participated by some trigger event: runaway global warming, a large terrorist event or war, another major financial crash.

This time it's different. We face a true economic/ecological depression, not another financial depression, as so often in the past. Back in the 1930s, as on earlier occasions, we had a financial depression, that is, a speculative boom followed by a financial crash. At that time we still had plenty of productive resources and potential, room for population growth, and relatively few externalized costs.

The problem then was the refusal of the central banks or their equivalents to carry out any kind of quantitative easing (QE) or deficit spending when it could have worked; they choose instead to accept insolvency and liquidation on a large scale. But when the necessary stimulus came – in the form of a world war – the resources were there for the economy to rebound and debts to be absorbed. Today the potential for growth is gone. We had a classic financial crash in 2008, but few have noticed that it coincided with a profound, if slow-motion, global eco-crash. Both are still unfolding, and are now deeply intertwined.

Some recent history will be useful to understand how we got to this point:

The Fed, since the 2008 crash, has been using its power to create money to do two things: first, to recapitalize banks which otherwise would have failed, and, second, to absorb the excess debt of the US government. As a result, the big commercial banks have avoided insolvency and the federal government has been able to run continued deficits without rising interest rates.

The Fed recapitalized the banks by buying their toxic assets (mostly worthless mortgage-backed securities), and it absorbed excess US government debt by direct purchase of long-term government securities (quantitative easing). But this monetary "cure" for the financial crisis has turned out to be worse than the disease.

Buying the banks' toxic assets rewarded their moral hazard, their propensity to take risks in hopes of greater profits for themselves while deflecting the responsibility for losses onto others. Buying long-term government debt from the banks further increased their liquidity. More importantly, it guaranteed a market for Treasury bonds -- which likely would not otherwise have found adequate buyers – keeping the government solvent, but artificially so.

As a result of Fed bond purchases, interest rates on government securities, which normally would have risen to attract more buyers, were kept artificially low. These low rates were expected to encourage lending by the banks and to restimulate the economy, while minimizing interest payments on the government's rapidly expanding debt. As we can now see, six years later, the economy has not responded. Banks found far fewer borrowers than expected to put that all money to work, and the debt burden has exploded.

Unable to offload their bloated balance sheets, banks invested much of their excess cash in new speculative bubbles, especially in the equity markets which have soared to all-time highs. Although the banks not only survived but prospered, and the government has so far been able to meet its obligations, this new wealth went mostly not to the general public but to the infamous 1 percent who were able, in one way or another, to participate in the speculative bubbles unleashed by the banks.

Defenders of QE and the Fed argue that this policy averted a much greater threat of financial collapse, and that in due course economic recovery will take advantage of all that pent-up money in the financial system. A growing economic pie, as so often in the past, they tell us, will more than make up for the increased debt burden necessitated by QE, and in the end benefit all.

Critics of QE and the Fed on the other hand argue that the system is inherently designed to concentrate wealth in few hands, that the primary motive of Fed policy is to bail out the big banks and their investors, not serve the public, and, above all, that an enormous amount of new debt is being created in the process, debt that will saddle future generations of taxpayers and which seems unlikely ever to be paid off.

A growing progressive movement proposes to take monetary policy away from the Fed and put it directly under government control, either through a system of national pubic banking, or through issuance of a government-issued currency, modeled on Civil War greenbacks. Rather than prop up big banks, as in 2008, the idea is to use the money-creating power of central government in various ways to bail out individuals and deserving enterprises.

For instance, all deposits could be guaranteed, even in insolvent banks, by extending FDIC as needed. Similarly, underwater mortgages, unpayable health-care bills, onerous student loans, and out-of-control liabilities could be paid off directly by a reformed Fed or a new public bank, relieving millions of citizens of crushing financial burdens. At the same time, vast government-funded infrastructure programs could pump even more money into the economy.

Similarly, Treasury bonds purchased by the Fed could be cancelled, as suggested by Congressman Alan Grayson and others. The money paid for those bonds would be put back into circulation, without any need to continue to service those obligations. These and similar approaches, it is claimed, would put trillions of dollars of assets directly into people's pockets. Social justice would be served and the economy would be reignited.

This progressive monetary agenda puts great faith in the ability of a centralized government to act in the public interest. It presupposes that the government is reasonably accountable to the public. Given the current corruption and dysfunction in Washington, however, it is doubtful that this faith is warranted. A government-run monetary system, without drastic political reform, would almost certainly reflect the interests of lobbyists, government contractors, and other special interests. It would almost certainly end up creating an elite, perhaps every bit as exclusive as the current crop of one per centers spawned by Wall Street.

Progressives might object that even an imperfect system of financial redistribution would be better than what we have now. But they have to show how that would be so, and recent attempts at financial "reform" on the national level, such as Dodd-Frank, have conspicuously failed to break the grip of the traditional "money power."

The deeper dilemma here is that the traditional and progressive approaches both presuppose that the creation in some form of top-down fiat money will stimulate the economy. The Fed would do it through the traditional banking system, with all its flaws; the progressive critics of the Fed would do it through direct action by big government, in spite of its lack of public accountability. Unfortunately, the common assumption they share -- that we can spend our way out of financial difficulty -- no longer obtains.

There are fewer economic opportunities not because of a lack of money, but because the global economy has bumped up against the limits of growth (resource scarcity plus increasing externalized costs like pollution, climate change, overpopulation, etc.). This isn't the place to argue for the limits of growth. A vast – and to this writer, persuasive -- literature on the subject has been developed since the 1970s.

Those limits – mostly dismissed by "growth" enthusiasts -- are the real problem. And it's a problem not only for the banking system and traditional lending, as well as for government spending, but for all of us. Tragically, it would remain a problem even if debt-free fiat money were funneled directly into the hands of certain consumers, or private investors, or into government sponsored infrastructure projects. Even if such policies leveled the economic playing field, which is unlikely, they would not address the larger ecological disaster before us.

It's the difference between the Titanic going down with first class passengers getting preferential access to the lifeboats vs. everyone on the ship getting equal access to those lifeboats. Our moral preference might be for equal access, but, in the absence of well established egalitarian procedures and customs, equal access is also like to mean chaos and pandemonium. In the meantime, no matter what, the ship is going down.

If the purchasing power now locked up in big bank financial statements would have been distributed among the general population, especially those most in need, they would have had a better shot, to be sure, at claiming their share of dwindling resources. And a better infrastructure – a smart grid, a modernized rail system, renewable energy, broadband for all, etc. – would have helped as well.

In the short run, all that would have meant a better economy and a real measure of social justice. But, in the absence of real prospects for renewed economic growth, it would also, in the longer run, arguably have exacerbated the larger crisis by piling further demands on an already stressed eco-system with finite resources. The inconvenient truth, the elephant in the room, is that we have plateaued as an economy, and are headed down, how far we do not know. The kind of financial system appropriate to a drastically different kind of life has yet to be contemplated either by defenders of the status quo, or most of their critics.

Thursday, 26 May 2016

A majority of millennials now reject capitalism, poll shows


In an apparent rejection of the basic principles of the U.S. economy, a new poll shows that most young people do not support capitalism.
The Harvard University survey, which polled young adults between ages 18 and 29, found that 51 percent of respondents do not support capitalism. Just 42 percent said they support it.
It isn't clear that the young people in the poll would prefer some alternative system, though. Just 33 percent said they supported socialism. The survey had a margin of error of 2.4 percentage points.
The results of the survey are difficult to interpret, pollsters noted. Capitalism can mean different things to different people, and the newest generation of voters is frustrated with the status quo, broadly speaking.
All the same, that a majority of respondents in Harvard University's survey of young adults said they do not support capitalism suggests that today's youngest voters are more focused on the flaws of free markets.
"The word 'capitalism' doesn't mean what it used to," said Zach Lustbader, a senior at Harvard involved in conducting the poll, which was published Monday. For those who grew up during the Cold War, capitalism meant freedom from the Soviet Union and other totalitarian regimes. For those who grew up more recently, capitalism has meant a financial crisis from which the global economy still hasn't completely recovered.
A subsequent survey that included people of all ages found that somewhat older Americans also are skeptical of capitalism. Only among respondents at least 50 years old was the majority in support of capitalism.
Although the results are startling, Harvard's questions accord with other recent research on how Americans think about capitalism and socialism. In 2011, for example, the Pew Research Center found that people ages 18 to 29 were frustrated with the free-market system.
In that survey, 46 percent had positive views of capitalism, and 47 percent had negative views — a broader question than what Harvard's pollsters asked, which was whether the respondent supported the system. With regard to socialism, by contrast, 49 percent of the young people in Pew's poll had positive views, and just 43 percent had negative views.
Lustbader, 22, said the darkening mood on capitalism is evident in the way politicians talk about the economy. When Republicans — long the champions of free enterprise — use the word "capitalism" these days, it's often to complain about "crony capitalism," he said.
"You don't hear people on the right defending their economic policies using that word anymore," Lustbader added.
It is an open question whether young people's attitudes on socialism and capitalism show that they are rejecting free markets as a matter of principle or whether those views are simply an expression of broader frustrations with an economy in which household incomes have been declining for 15 years.
On specific questions about how best to organize the economy, for example, young people's views seem conflicted. Just 27 percent believe government should play a large role in regulating the economy, the Harvard poll found, and just 30 percent think the government should play a large role in reducing income inequality. Only 26 percent said government spending is an effective way to increase economic growth
Yet 48 percent agreed that "basic health insurance is a right for all people." And 47 percent agreed with the statement that "Basic necessities, such as food and shelter, are a right that the government should provide to those unable to afford them."
"Young people could be saying that there are problems with capitalism, contradictions," Frank Newport, the editor in chief of Gallup, said when asked about the new data. "I certainly don't know what’s going through their heads."
John Della Volpe, the polling director at Harvard, went on to personally interview a small group of young people about their attitudes toward capitalism to try to learn more. They told him that capitalism was unfair and left people out despite their hard work.
"They're not rejecting the concept," Della Volpe said. "The way in which capitalism is practiced today, in the minds of young people — that's what they're rejecting."

Tuesday, 24 May 2016

The Ecology of Money: Debt, Growth, and Sustainability

"Modern economics must 'grow' because money borrowed for investment can be repaid only by expanding production and consumption to meet the burden of usurious rates of interest. The roots of this dynamic between debt and growth lay in the financial revolution of the late seventeenth and early eighteenth centuries in Britain, which establish a new usurious monetary system.

"For the first time in history credit was made widely available, but only on condition of an exponentially increasing debt burden. To pay back debts, production had to increase correspondingly, leading to the industrial revolution, economic 'growth,' and modernity itself. Though private creditors grained a monopoly over the creation of credit, and were disproportionately enriched, the resulting economic growth for a time was great enough to benefit most debtors as well as creditors, ensuring widespread prosperity.

"That is no longer the case. With today's eco-crisis we have reached the limits of growth. We no longer have the natural resources to grow fast enough to pay our debts. This is the real root of our current financial crisis. If we are to live sustainably, our system of money and credit must be transformed. We need a non-usurious monetary system appropriate to a steady-state economy, with capital broadly distributed at non-usurious rates of interest. Such a system was developed by an early nineteenth-century American thinker, Edward Kellogg, and is explored here in depth. His work inspired the populist movement and remains more relevant than ever as a viable alternative to a financial system we can no longer afford." 

--  from the blurb on the back cover of The Ecology of Money

The Ecology of Money was published by Lexington Books in 2013 and is available at  

A Summary of the Argument of The Ecology of Money in 10 Points:

1. Our ecological crisis is a consequence of the productive effort we must make to meet the demands of our financial system. This crisis is upon us since we no longer have the natural resources to sustain this effort.  

2. The roots of this financial-economic dynamic lie in the financial revolution of the seventeenth and eighteenth centuries in Holland and England, where credit and finance as we know them were invented.

3. Unfortunately, this financial revolution as completed in England: a) privatized credit, giving bankers a legal monopoly over money creation through issuing loans; b) created a national debt and a central bank to backstop private lending; and c) allowed bankers to charge high (usurious) rates of interest on loans. The Bank of England became the symbol of this "English system," as Alexander Hamilton called it, which was subsequently exported to America and most of the modern world. American populists called it "the money power."

4. Once key sectors of the economy came to depend on money borrowed at usurious rates of interest, it became necessary to keep expanding economic output. The obligation to repay such debts is what forced modern economies into endless "growth." Traditional, steady-state, reciprocal, sustainable economies were displaced by economies relentlessly seeking out new markets, technologies, resources, and laborers, and the industrial revolution -- and what we call "modernity" -- was born.

5. More than two centuries of economic "growth" have given us the miracle of the modern world, with all its astounding wealth and technology. That miracle has also exhausted our planet, which now staggers under the cumulative effects of resource depletion, pollution, overpopulation, and climate change. Insofar as the limits to growth have been reached, we can no longer hope to repay our debts, as in the past, by growing our way out of the crisis. 

6. Our "too big to fail" financial system has succeeded in transferring much of this excessive debt onto taxpayers, postponing and likely intensifying the final reckoning. We are further burdened by a dysfunctional political system -- largely corrupted by the same financial interests -- which is less and less responsive to the urgency of reform, which may now be impossible. 

7. The now inter-woven ecological and financial crisis is likely to play itself out no matter what we do. If so, the survivors will need to adjust to a dramatic downsizing and a return to sustainable economic practices. If civilization survives, it will need a financial system compatible with a steady-state, non-growth economy. 

8. The outlines of such a system actually exist: they were developed by a nineteenth-century American financial theorist, Edward Kellogg. He proposed a decentralized system of public banking, where citizens could borrow on good collateral at a non-usurious rate of interest fixed by law at one percent. Kellogg's system, which inspired American populists, is a model for financing a future sustainable economy.

9. To say that we can no longer tolerate exponential growth as we have known it is not to say that human ingenuity has no future, that profound innovations in human life are no longer possible, or that the vast store of scientific and technical knowledge born of the industrial revolution cannot be adapted to new circumstances. A sustainable, steady-state economy is not necessarily a static or primitive economy, though likely it will be a far more modest and prudent one.

10. Our immediate prospects, however, remain daunting. Human history has long swung between extremes -- boom and bust, feast and famine, peace and war, the rise and fall of civilizations -- and we have no reason to believe our era is exempt from that ancient dynamic. We are a resilient species, and the silver lining of any crisis has always been the opportunity to learn from our mistakes, an opportunity perhaps not otherwise possible. Let's make the best of it.

Tuesday, 17 May 2016

What's Wrong with Our Monetary System and How to Fix It

by Adrian Kuzminski

Something's profoundly wrong with our global financial system. Pope Francis is only the latest to raise the alarm:

“Human beings and nature must not be at the service of money. Let us say no to an economy of exclusion and inequality, where money rules, rather than service. That economy kills. That economy excludes. That economy destroys Mother Earth.”

What the Pope calls “an economy of exclusion and inequality, where money rules” is widely evident. What is not so clear is how we got into this situation, and what to do about it.

Most people take our monetary system for granted, and are shocked to learn that the government doesn't issue our money. Almost all of it is created by loans made “out of thin air” as bookkeeping entries by private banks. For this sleight-of-hand, they charge interest, making a tidy profit for doing essentially nothing. The currency printed by the government – coins and bills – is a negligible amount by comparison.

The idea of giving private banks a monopoly over money creation goes back to seventeenth century England. The British government, in a Faustian bargain, agreed to allow a group of private bankers to assume the national debt as collateral for the issuance of loans, confident that the state would be able to service the debt on the backs of taxpayers.

And so it has been ever since. Alexander Hamilton much admired this scheme, which he called “the English system,” and he and his successors were finally able to establish it in the United States, and subsequently most of the world.

But money is too important to be left to the bankers. There is no good reason to give any private group a lucrative monopoly over the creation of money; money creation should be the public service most people mistakenly believe it to be. Further, privatized money creation allows a few large banks and financial institutions not only to profit by simply making bookkeeping entries, but to direct overall investment in the economy to their corporate cronies, not the public at large. 

Ordinary people can get the financing they need only on burdensome if not ruinous terms, leaving them as debt peons weighed down by mortgages, student loans, auto loans, credit card balances, etc. The interest payments extracted from these loans feed the private investment machine of Wall Street finance, represented by the ultimate creditor class: the notorious “one percenters.”

There are two main critics of our privatized financial system: goldbugs and public banking advocates. The goldbugs would return us to a gold standard, making gold our currency. The problem is that it would become almost impossible to borrow money since the amount of gold which could be put into circulation is relatively miniscule and inelastic. They is no way easily to expand the supply of gold in the world

Credit—the ability to borrow money—is vital to any economy. If we cannot borrow against the future for capital investment—roads and infrastructure, housing, businesses, hospitals, education, etc.—then we cannot fund essential services. To that end, we need an elastic money supply.

Public banking advocates—like Stephen Zarlenga and Ellen Brown--appreciate the need for credit. Their aim is to transfer the monopoly on the creation of credit from private to public hands. Unfortunately, there is no guarantee that this form of "progressive" state finance would be any better than private finance. 

If we had a truly democratic government actually accountable to the public, such a system might work. But in fact governments in the United States and most developed countries are oligarchies controlled by special interests. A centralized public bank—without a political revolution--would likely favor government contractors and continue to squeeze borrowers for interest payments, now supposedly directed to “the public good.” 

This is curiously reminiscent of the system in the old Soviet Union and today's China, where a political nomenklatura ends up calling the shots and enriching itself. Our current system of centralized private finance, as well as the "progressive" proposal of centralized public finance, are no more than twin versions of top-down financial control by an elite. 

Fortunately, there is another model available. There is a long tradition in America, beginning with colonial resistance to “the English system,” and continuing with anti-federalists, Jeffersonians, Jacksonians, and post-Civil war populists. This tradition opposed any kind of centralized banking in favor of some kind of decentralized issuance of money. 

The idea they developed is to prohibit any kind of central bank—public or private—and instead have money issued exclusively locally on the basis of good collateral to individuals and businesses. It's a grassroots, ground-up approach. Priority is given to local citizens and businesses, who can get interest-free loans from local public credit banks to finance what they need to do.

Such a system would have to be publicly regulated to ensure fair and uniform standards of lending at the local level. It would, in that sense, be a public banking system. The absence of a centralized issuing authority, however, would prevent any concentration of financial power, public or private. 

Any top-down system of financial control—private or public—presupposes some kind of control by elites, that is, some kind of central planning, whether in corporate board rooms or in the offices of government agencies, or some combination of both. The historical record suggests that such top-down decision-making is inevitably self-serving, distorted, and socially counter-productive. 

Indeed, whether public or private, it is the love of money empowered by centralized finance which creates the “economy of exclusion and inequality” which Pope Francis decries.

The decentralized system of populist finance would operate with no central planning. Instead, countless local decisions about lending and credit-worthiness would function as a genuine “hidden hand” of finance, one which would be self-regulating. Here the love of money would find no way to leverage its power. Instead it would be dispersed among the general population, as it should be, without burdensome interest charges, to the benefit of all.

Adrian Kuzminski lives on a farm in upstate New York and is the author of The Ecology of Money: Debt, Growth and Sustainability and Fixing the System: A History of Populism, Ancient & Modern, among other works.

Since my brief comments on the gold standard seemed most provoking, let me add this update to my article, "What's Wrong with Our Monetary System . . ."

When people talk about the gold standard they usually mean defining money in terms of some fixed quantity of the stuff. At one time, for instance, the US government guaranteed that $35 would buy you a troy ounce of gold.

That's not a pure gold standard, but one in which gold is mixed up with paper money, that is, bills, certificates, or other so-called token guarantees whose ratio to gold is supposed to be fixed, but which historically has in fact fluctuated wildly.

A pure gold standard would be one in which only gold coins circulated as currency, with no piggy-backing paper money or other so-called token guarantees redeemable in gold available.

Until the invention of credit on a large scale in the seventeenth and eighteenth centuries, that was basically the case. Most Western economies at that time relied on gold and/or other precious metal coins, and little else, for their currency. If there was ever a pure gold standard, that was it.

Gold coins were the basic medium of exchange. Silver and other portable valuables were also used, but let's stick to gold for the sake of simplicity. The key point is that all such items all had an intrinsic value; we can call them commodity monies.

Most exchanges were therefore reciprocal, that is, equal value for equal value. Since gold has an intrinsic value, its exchange for a product or service fully satisfied any transaction. This is in contrast to an exchange based on debt, or a promise to pay, which is not immediately satisfied, but deferred.

Such credit as was available locally for most people back then was relatively short term or seasonal, say in advance of the next harvest. Such promises were often recorded, but did not circulate as a medium among third parties, that is, they were not yet money.

More extended forms of credit certainly existed—most notably the bills of exchange of merchants—and they were important, particularly in long-distance trade for luxuries and some basic commodities (grain, salt, etc.). But they were specialized and limited in scope. Usury was widely condemned, making lending even less attractive to anyone with money. Savers tended to be hoarders.

It is difficult to create credit with a commodity currency like this because money has to be lent out almost entirely from existing savings. The money supply, as a result, was highly inelastic; it could expand only in the event of significant new discoveries of precious metal reserves. 

Indeed, it was only the discovery of vast gold reserves in the New World which allowed the gold-based money supply to expand. This permitted new investment in commerce, and helped fuel the expansion of trade and manufacturing we associate with the rise of early Modern Europe. 

But credit, still tied to gold, remained hard to get, and the bulk of early modern economies remained on a largely local and subsistence level. It was the goldsmiths of seventeenth century England who were among the first to figure out how to get around the inelasticity of gold and commodity monies. 

They discovered that only a relatively few depositors would claim their gold at any one time; as a result they found they could lend out far more to borrowers—in the form of certificates redeemable in gold--than the amount of deposits they actually had on hand, and that they could get away with it (most of the time).

This multiplication of credit through what we now call fractional reserve banking, along with other credit innovations in what some call the financial revolution of the late seventeenth and early eighteenth centuries, made it possible to fund economic growth far beyond what a pure gold standard would allow. 

The key thing was the substitution of various tokens purportedly redeemable in gold for gold itself. At that point gold became identified with and highly leveraged by these various new financial tokens, which were ever less tethered to their gold base.

The so-called classical era of the gold standard—even at its height between 1870 and 1914—was not a pure gold standard at all, but one enormously amplified by credit instruments pyramided on top of gold reserves. 

When we talk about the gold standard in modern times, we are really talking about a series of financial instruments—fractional reserve banking, a national debt, central banks, securities markets, usurious interest, etc.—which created a ballooning pyramid of tokens merely representing gold. 

The final, long-delayed collapse of the largely symbolic modern gold standard during the Depression, confirmed by Nixon's removal of the United States from any last link to gold in 1971, made official what was already plain: that most money had in fact long been issued as debt, with less and less significant backing by any precious metals.

In this light, it isn't hard to see what the call for a return to any sort of gold standard really means. In its pure form, it means the return to a highly inelastic money supply, last seen in the Middle Ages. I don't think that's what goldbugs have in mind, though it might be where we end up in a severe post-collapse scenario.

Otherwise, it means a mostly symbolic link to a precious metal, no doubt psychologically satisfying to some, but unfortunately little more than a convenient obfuscation to the powers that be for how the monetary system, which is killing us, really works. I don't think that's what the goldbugs want either.

(For anyone interested, this and related issues are discussed at length in my book, The Ecology of Money: Debt, Growth, and Sustainability.)


Sunday, 1 May 2016

Bank accounting and Money creation - The Rabbit in the hat BOOK

The Rabbit in the hat – bank accounting and money creation, wants to be a book that puts order in the topic, perhaps the first exclusively dedicated to the subject, at least in Italian. However, it is the first text to have a comprehensive analysis of all aspects of the creation of bank money, from accounting to legal ones, and the individual movements of money on the bank balance sheet in order to reconstruct, accurately, each accounting entry that allows banks not only to create their own means of payment to be used in the economy, but also to keep it in order to take advantage of monopoly situations.

The rabbit in the hat, in the title, wants precisely describe a sort of magician's trick, with which the banking system is able to produce an asset out of nothing without any business cycle. The money creation process is described in the preliminary analysis, in all the elements, from the contiguity between legal and bank money, to the accounting standards, reported and commented in a long chapter, passing by the inter-bank payments and clearing houses, where the trick of the magician acts before to put back the bank money in the balance sheet without destroying it. Attention is also given to "off balance sheet operations", a place outside the rules, where transit some monetary volumes largest of those shown in the financial statements, and to the reserves in liabilities, where the banks' owners can collect their shares.
A book that wants to be analytical but also help with the solution proposed by the various monetary reform movements.

Daniele Pace is a writer and independent researcher, has always been involved in the theme staunch supporter of the legal means of money.
In 2012 he published "The Utopian Money" by offering a future vision of free money from the debt and the Central Powers. He then wrote the comic book "Dialogues with Auriti" in 2014, for a disclosure in the simplest form on the theory of the ownership of money.
In 2015 it is the publication of "The Fruiterer Conspiracy", logical and critical analysis of the Quantitative Theory of Money that would, from about 3 centuries, inflation linked to the money supply, without any empirical evidence.

In Italy is a speaker at many conferences, as well as having the informational space in the web TV Salvo5puntozero.

Table of Contents

The existence of bank money and the data
1. Monetary base and bank money
1.1 The definition of money and monetary aggregates
1.2 The difference between the monetary base and bank money
1.3 The bank money between "sight debt" and deposit
2. The bank deposit and the Italian Civil Code
3. The Bank Balance sheets
4. Accounting definitions in the International Standards
4.1 The double entry accounting
4.2 The audit and control of the balance sheet
4.3 Useful definitions in international accounting standards
4.4 Money and accounting recognition. Because the bank does not
     destroy the money
4.5 Accounting definitions and creation of deposit money. Because
     the bank can create money
4.6 Accounting definitions. Conclusions
5. Money creation and credit
5.1 The money multiplier and the recognition criteria
5.2 The potential of the monetary deposit multiplier
6. The restrictions to the monetary creation
6.1 The liquidity reserve requirements (LRR)
6.2 The liquidity risk
7. Inter-bank payments
7.1 The establishment of the modern clearing house
7.2 The national clearing system
7.3 TARGET 2
7.4 The PM and HAM accounts
7.5 The Intraday credit
7.6 E-MID
7.7 Conclusions


8. The rabbit in the hat
8.1. A medieval practice: the fairs and the first clearing
8.2. The clearing house and bank balance sheet
9. The accounting entries from the creation to the repayment
    of the loan
9.1.1. The customer α asks € 100 loan to the bank A
9.1.2. Α the customer pays € 100 to a supplier, customer β of
     the bank B
9.1.3. The netting at the end of the day: Bank A pays € 100 to
     the bank B
9.1.4. The netting at end of the day: The bank B receives € 100
     from Bank A
9.1.5 The customer α returned the € 100 loan to the bank in cash
9.1.6 The customer α returned the € 100 loan to the bank A
     via current account
9.2. The dynamism of interbank payment flows
9.2.1 Adjustment of budgetary imbalances
9.2.2 The balance equity with funding from the loan
9.2.3 The off-balance sheet
10. The Reserves
11. Simplified framework
12. Taxes, failures and solutions
12.1 The banks pay taxes?
12.2 Banks can fail?
12.3 The solutions
13. Conclusions

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