The “positive money” clowns

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Where does money come from? According to the “Positive Money” crowd in England (and people like Ellen Brown in the USA) all money except for coins and currency notes comes from bank lending.

As proof of this, the “Positive Money” people quote Mervyn King, who was head of the Bank of England from 2003 to 2013.

When banks extend loans to their customers, they create money by crediting their customers’ accounts. The usual role of a central bank is to limit this rate of money creation, so that an excessive expansion of money spending does not lead to inflation.

And how does government spending figure into this? It doesn’t, since for the “Positive Money” people and for Mervyn King, it doesn’t exist.

As “proof” of this, the “Positive Money” people offer the following chart, which purports to show the origin of the British money supply.

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There is no line for government-created money since the “Positive Money” people think it doesn’t exist. For them “government spending” is simply more bank lending, since (for them) the government must borrow all its money from  commercial banks.

Here is Mervyn King…

The Bank of England’s key role has always been to ensure that the economy is supplied with the right quantity of money – neither too much nor too little. (Not true!) For fifty years, my predecessors struggled to prevent there being too much, so leading to inflation. I find myself in the opposite situation having to explain that there is too little money in the economy. But, in the wake of the financial crisis, and the sharp downturn that followed, the amount of money in the economy as a whole – broad money – is now barely growing at all. 

Yes. It’s called austerity, otherwise known as government deficit reduction. By raising taxes and cutting spending, the U.K. government helps to reduce the amount of money in circulation. The U.K. government does this in order to [1] widen the gap between the rich and the rest, [2] promote privatization, and [3] to reduce the peasants to being  debt slaves of the bankers.

But for Mervyn King, austerity does not exist, since government-created money does not exist.

I wouldn’t go so far as to call Mr. King a liar. That would be harsh. So I will be polite and just say that King is a LIAR!

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Here’s the “Positive Money” people…

For the last few decades our economy has been fueled by money created by the banking sector when they made loans. But in the crisis, banks panicked and refused to lend. This meant that they stopped creating money. Skip forward two years and today we still have the same problem.

So, for the “Positive Money” people, the reason there is too little money in circulation is that banks won’t lend. This is what they (erroneously) call austerity.

What nonsense. It is true that banks have reduced their lending, but it is also true that the U.K. government has reduced its deficit. That is austerity.

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It gets weirder…

What’s the alternative? We’d like to see the power to create money removed from banks as a priority, and for the Bank of England to take over the role of directly creating money (paper and electronic).

Banks do indeed create money when they make loans. But the government also creates money when it spends. The problem is that too much money in circulation consists of bank loan money, and not enough as government-created money. It’s called austerity.

As far as the Bank of England taking over the role of creating paper money, what’s the point? Since 1956, British currency notes have been printed by a company called Debden Security Printing Ltd. Their print shop is in Debden, a suburb of the city of Loughton, located in Essex County, twelve miles northeast of the Westminster parliament buildings in London. This corresponds to the U.S. Bureau of Printing and Engraving in Washington DC.

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Meanwhile British coins are struck by the Royal Mint in the town of Llantrisant, Wales. How would changing all this make any difference to the economy, or to average people? It wouldn’t. The “Positive Money” clowns themselves admit that notes and coins comprise less than 3% of the money supply.

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Positive Money…

Of course, we don’t want politicians to have the keys to the (electronic) printing press, as they’ve just as much reason to abuse this power as profit-seeking banks.

Got it. You don’t want politicians to be able to create money, because politicians would abuse their power.

In reality, politicians already create money via legislation (it’s called a national budget) and they already abuse this power by creating endless billions for bank bailouts and for weapons makers, while they starve average Britons via austerity.

Fortunately for the “Positive Money” people, politicians do not have this power. In their imaginations, only commercial banks have it, since (in their imaginations)  only commercial banks create money, except for coins and currency bills.

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Here is Mervyn King lying again…

Some people talk about the dangers of  money creation. It is important to distinguish between “good” and “bad” money creation. “Good” money creation is where an independent central bank creates enough money in the economy to achieve price stability. “Bad” money creation is where the government chooses the amount of money that is created in order to finance its expenditure.

Got that? According to King’s nonsense, “good” money creation is when an independent central bank creates money as loans, and thereby saddles the economy with an ever-rising debt load. “Bad” money creation is when the government creates non-loan money to finance its expenditures.

Mervyn King…

Insufficient money creation can lead to a contraction of the money supply and a depression. We saw that in the United States during the Great Depression and we see it today in Greece. Excessive money creation leads to accelerating inflation and ultimately the collapse of the currency.

And there it is. The false equation between the British government (which creates its spending money out of thin air) and the Greek government (which must borrow all its money).

And yes, “Insufficient money creation can lead to a contraction of the money supply and a depression.” It’s called austerity.

By the way, what is “excessive money creation”? Mervyn King does not explain. (King can’t afford to be too clear, lest people see through his bullshit.) The only time there is “excessive money creation” is when there are shortages of consumer goods, as occurs in Venezuela. When there is plenty of money, but not enough things available to spend it on, the result is inflation.

Back to the positive money people…

Positive Money advocates the ‘good’ money creation that Mervyn King alludes to – creating just enough money to keep the economy ticking over with no inflation (rising prices) or deflation (falling prices because of a collapsing economy). We’re also very clear that giving Gordon Brown or George Osborne the power to create money to fund their own ‘vote-winning’ schemes would be a disaster and should be avoided.

Got it? Allowing the government to create money (which the government already does) would be a “disaster.”

The “disaster” is idiocy such as we see in the “Positive Money” clowns.

Finally, here are their recommendations…

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[1] Remove the power of banks to create money.  Why? There’s nothing wrong with banks making loans, as long as banks are publicly owned and highly regulated.  The Bank of North Dakota, for example, is a publicly owned bank that  creates money for the state of North Dakota. Without this money, North Dakota would have to rely on the federal government. And since federal politicians like austerity, North Dakota would have to rely on loans from the big private banks (like the other 49 states do). North Dakota would have to sell bonds, and be crippled from the debt.

[2] Return that power to a transparent and accountable process. The public doesn’t want transparency and accountability.  The public knows that the federal government can “print” infinite money, and yet the public likes to pretend that the central government is “bankrupt” so the public can whine about (fill in the blank).

[3] Create money free of debt. This is not possible. All money is debt. Every dollar or pound in existence is a debt — but it is also a credit. If you have a dollar in your hand, then you have one dollar’s worth of credit from the USA. This means the entire USA is in debt to you for one dollar. Indeed, everyone in the world who thinks your dollar is worth “a dollar” is in debt to you for one dollar.

However, while all money is debt, not all debt consists of monetary loans! This is what the “Positive Money” people refuse to understand. Nothing will budge them. (Believe me, I have tried.)  

If I leave my coat in a cloakroom, and an attendant gives me a token to reclaim my coat, then the token is a credit. It is a claim to ownership of the coat. I have lent my coat to the attendant for safekeeping, and the attendant has lent me a token. Each of us has a credit. The attendant’s credit is my coat. My credit is the token. Each of us also has a debt. The attendant owes me my coat, and I owe the attendant his token. Later I can trade the token for my coat.

Randy Wray has tried in vain to explain this to the “Positive Money” people. What Randy Wray doesn’t get is that when the “Positive Money” people call for “debt-free money,” they mean money that is not lent into existence by banks. Such money already exists. It is created by government spending.

[4] Create money only when inflation is low and stable.  No one denies that too much money in circulation can cause inflation. Our problem is that there is not enough money in circulation — at least in the real economy. Hence our permanent recession.

[5] Make sure that new money goes into the real economy instead of the financial markets.  Agreed. Unfortunately deregulation causes all money to  eventually “trickle up” to the financial sector.

[6] Give us control and transparency over how our money is invested.  You will get this control when you mature out of your delusions. It will be automatic.

Most people are enslaved because most people cannot handle freedom. Most people prefer delusion to truth, hate to sharing, and selfishness to prosperity.  Most people prefer cognitive dissonance.

I’ll prove it to you…

On one hand, most Britons and Americans regard any form of socialism or communalism as “evil.” On the other hand, these same people long for a world of socialism and communalism. A world in which people share with each other and respect each other.  A world like the “Shangri-La” of the 1937 movie “Lost Horizon.”

People long for Shangri-La. But they will not get Shangri-La until they stop calling Shangri-La “evil.”

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