More Debt than Money:

The impossible contract.

The Politicians Guide to Money System Collapse


Andrew Chalkley



Introduction and Summary

This summary is close to finished. Please send me any needed adjustments before I publish it.

Letter to All


Dear reader

I assume you want the formula to fix your financial system. To create a solution, it is necessary to understand the way money works for society, for both money and humans are imperfect and the solution, itself, will be imperfect. So a solution is a combination of imperfect components. This is a problem for me as I am a bit of a perfectionist. Money is imperfect because it not able to act as a store of value at the same time as enabling transactions. Money was invented to facilitate transactions and so it needs to act as a temporary store of purchasing power between transactions, but it does not need to hold value any longer than the next transaction. I take you back to a village of old not long after we came out of our hunter-gather stage. Instead of swapping eggs for carrots, we swapped eggs for a universal token as a mode of payment, then walked across town and swapped the tokens for carrots. Humans soon established typical mutual exchange values which we call 'price' and so items have a value measured in tokens. Note that, because every item has a value or 'price', accounts can be created in the common unit of account. This method of mutual exchange is a far superior method of trading that overcomes the inefficiencies of the barter system. Money enables efficient transactions, enables us to set 'values' in the marketplace and, to do so, acts as a temporary store of value. The process works well until someone holds onto the tokens for too long, to use them as a store of value for future use. This hoarding inhibits the exchange of eggs for carrots and so we have the first imperfection of money:

   Hoarding inhibits transactions.

The tokens only need to maintain value for as long as a typical exchange occurs. It turns put that the average time taken to the next transaction is critical to the operation of money.

Humans are also imperfect as they tend to maximize for their own benefit, which is tolerable when conducting transactions but not when holding influence over a money system. The inventive nature of humans will cause the tokens to be used for other perceived benefits including hoarding for a 'rainy day' or using tokens to make more tokens or commandeering the supply of tokens or monopolizing the stock of existing tokens or lending tokens. It also includes creating virtual tokens which are traded in a parallel system to the original physical tokens, forming an alternative payment system by transferring virtual tokens. Such is the inventiveness of the human. Another innovation is the practice of: 'lending of tokens and expecting a greater number of tokens in return'. Throughout history, this has consistently been called usury and the practice regularly denounced and often banned because it becomes impossible to pay more tokens than exist.

   Usury is the practice of lending tokens and expecting a greater number of tokens in return.

We must never forget that tokens were designed solely for the purpose of exchanging carrots, eggs and apples. Our inventiveness and natural self-interest will cause us to use money in ways that are counter-productive to the original purpose of money which was to enable trade. The whole area of making money from money is an evil, that is not currently recognised as such.

We might imagine the tokens to change hands at least once a day which is three hundred and sixty-five times a year which would be expressed as: Velocity = 365. If we imagine money to change hands once each week, we would have: Velocity = 52. If we perceive money to change hands each month, we would have: Velocity = 12. Modern money commonly changes hands twice a year which is expressed as: Velocity = 2. The reason is that we are not using money for its intended purpose. We are doing any number of things with it rather than its original purpose. Just as in the village, the practice of hoarding tokens inhibits transactions involving eggs and carrots. In our society, the hoarding damages the Real Economy. Possession limits growth. The carrots and eggs section of the economy is called the Real Economy. Even modern day study of money focuses on making money rather than spending money in the Real Economy. If we reduce our expectation that money should move from the apple seller to the egg seller, say, to once a week, then we should expect: velocity = 52. So it follows that possibly only 4% of money is Circulating Money doing the real work of money in the Real Economy at any one time. (2/52=4%) If we reduce the expectation to once a month, then we are requesting money to change hands with a velocity of 12 times a year, which suggests that 17% of money is 'Circulating Money' being used for transactions and 83% is Hoarded Money.

It thus appears that almost all the money is hibernating or used in financial transactions. Humans have run a constant battle against the misuse of money and its use for anything other than trade in the Real Economy. The Real Economy is that part of the economy that is concerned with producing goods and services rather than the part of the economy that is concerned with buying and selling on financial markets. In the modern world, we manipulate the use of money so much and put so much human effort into its manipulation that we watch our Real Economy get destroyed. We import food and watch our industry collapse whilst an army of financial advisers fight to tell us how to make more money from money. If traders have no money with which to trade, there is no economy.

No Perfect Solution

The solution is going to be difficult because there is no perfect solution and the rampant misuse of money has become excessive and normalized. Much of the study of money is directed to ways of misusing money rather than ensuring its appropriate use as a medium of exchange. Even the definitions have been distorted to aid its misuse. So you will need to travel a little journey with me to study the imperfections so you can evaluate a workable solution. It is imperative that I take you on this journey as there is no simple set of rules and many things will improve the economy without being a complete solution. Monetary reform is also very dangerous as you don't want to cause a collapse of the system. Not fixing it is a fairly sure path to collapse, and the collapses tend to be rapid and brutal. If there is a collapse, it will be beyond Mad Max. Food transport to the cities will cease entirely.

Like the punishment of a good father, you will make the system resilient to total collapse. You make the system friendly to those exchanging eggs and carrots in the Real Economy. You will cut the volume of money that is evading the 'eggs, carrots and apples' Real Economy. You will reduce instability. You will collect tax to prevent the oversupply of tokens in a manner that enhances the Real Economy. Surprisingly, there are taxation methods that are fairly painless and actually boost the economy rather than damage the economy, as most current taxes do. You will correct the issue of government debt and a host of other issues on the way. You don't want to bring the whole system down to fix the complaints of the anti-bank people. The anti-bank people are as much a problem as the get-rich-people and their support team of devious bean counters. You cannot entirely get rid of usury but you can get rid of it where it is damaging and dangerous to the banking industry and civilized life. You will change the current 'rampant usury' to a 'controlled usury'. You will need elements of usury to enable easy credit for business entrepreneurship and to allow the banks to make a healthy profit. The bankrupting of occasional citizens is tolerable but the bankrupting of nations is a dead end road for banks that will lead to their demise. We rely on the payment system of the banks to pay bills rapidly, efficiently and over great distances, even between people of different languages. This payment system is utterly fabulous and universally trusted. I can pay my bills from my kitchen table. I use the bank statement to create my business records. I can pay for a new motor for my electric bike from a business in some unpronounceable town in China where they do not even speak my language. The system is highly efficient and almost completely error free. It is a credit to the banking industry to have developed such a sophisticated worldwide payments system. Our modern world is not possible without the payments system and the fees for using it are very cheap. As a database writer, none of my customers match the efficiency and accuracy of the banking industry. During 2014 The USA Automated Clearing House Network handled:

around 18 billion transactions. [10064]

moved approximately $40 000 billion. [10064]

has close to zero errors.

Our problem is not the fantastic payments system, our problem is the horrendous debt that this money system generates. It is a system that consistently generates more debt than there is money available to pay those debts, as I shall shortly to demonstrate. This debt, in itself, is only the small part of the problem, it is the unpayable nature of the debt that is even more troubling. Even the unpayable nature is minor compared to the last problem. As we look at the issues further, it is the instability that is by far the greatest worry. The unpayable debt, the volume of hoarded money and various other destabilizing issues create a situation where a financial crisit will feed its own collapse. You don't want to be on the top of a ladder when you have a heart attack. Don't sleep walk in no mans land.zzz Don't picknic on a cliff edge. The financial instability is like the long slow build-up of snow on a hillside that has become so deep that any moderate trigger could cause a landslide of a size never experienced in the history of mankind. My studies suggest that it is like the recent era of Australian firestorms that have burnt with a ferocity never previously imagined. As we have improved snow landslide management and fire management techniques, we need to do the same with our financial system. The current economic system has the pent-up potential to create a financial Armageddon of a magnitude never seen in the history of mankind. This will be an interesting historical event but it will be unpleasant. People will be fighting with machine guns over a sandwich. It will be a doomsday event that will be in the history books in a thousand years time. And one of the sentences in the history book in a thousand years time will be that the people knew nothing about it ----------- until the day it happened.

Unfortunately, the scenario of a total collapse is entirely possible but also entirely fixable. So we will try and change that sentence in the future history book and the one next to it that says that 'the financial meltdown was so sudden and was of such a magnitude that .......' You can fill in the dots. I give you the chance to alter history. A few months ago, a coloured child was shot in the streets and it caused riots. What will happen if all the ATM's cease to function, all the bank-credit evaporates, no bank transfers can occur and food cannot be transported to the cities? Once the food stores get ransacked, nobody will be brave enough to bring food to the cities for fear of attack. There will be no food. You have no choice but to educate yourself about this as the alternative does not bear thinking about. By the end of the book, you should be able to remove the instabilities and change those sentences in the future history books. I have written this book in a style that even simple people and politicians should understand but it also contains much that is not currently considered by economists.

The money token system has beautifully evolved from the exchange of carrots, eggs and apples in a village. At the same time, the manipulation of the tokens has become extreme. It is hoarded, virtualized, extorted and has led large portions of the population to dedicate their lives to 'making money from money' and accumulating more of it, which is, of course, exactly what you should not be doing with money. Money is solely for the purpose of exchange and hoarding damages its use as such. The village tokens need to be released into society in appropriate volume which might depend on how many eggs, carrots and apples exist. You need to release a few more tokens into society each year as the apple, egg and carrot growers get more efficient. Thus, we release more tokens as the volume of goods and services increases.

   A crucial component of a money system is the control over the volume of tokens issued into society.

It is difficult to be sure whether token increase leads to an increase in production of eggs and carrots or an increase in egg and carrot production requires more tokens or both. We release a few more tokens each year as the population grows and we will need extra tokens to make up for those that frustrate the system by hoarding our tokens. Lastly, we need to release a few more to cover anyone lending under usury. The term usury has been softened to the word 'interest'. Usury is a historically much-condemned practice of lending and expecting more tokens in return. When usury occurs, the debts magnify to become unpayable which then requires more tokens to be released to cover the interest. If we don't release more tokens it will be impossible to pay the interest. The USA releases about 5% more tokens each year and China releases about 15%, whilst the UK is all over the place, but is about 7%. Euro Area releases about 8%. To manage your economy you will need to maintain a constant increase in the magnitude of the money supply somewhere in this region. However, this effect can be made by increasing the velocity by decreasing the Hoarded Money. This is difficult because you will find it almost impossible to control the cyclical and inappropriate lending habits of the banks. Driving a car blindfold will be easier than controlling the lending habits of banks.

First, I must lead you through some of the logic of money. We live in exciting times. Debt free societies are possible and have occurred before. National debt is curable. Most of the instability of the system can be removed and much of the environmental damage can be reduced with some smart thinking. Sensible use of money allows the distribution of resources, it energizes the populous to work hard, it shapes the development of the nation and makes us competitive amongst nations and it can be done without debts and destruction.

I wrote this summary of the full book at the request of Dan who I met in Costa Rica one holiday. He appeared to want it for some committee. The summary turned out better than the book and so the summary became the book. It allowed me to build the solution into the structure as I went through. The book developed from a pamphlet I wrote for the Occupy group three years back. I was new to activism. I noticed that activists were good at finding the faults but poor at finding solutions. Whilst writing the pamphlet, two glaring errors poked me in the eye. First was that the official statistics stated that the average debt per person in Australia was $34 000. As an ex-mathematics teacher, I reasoned that it should be zero, as some put money in the bank and some borrow it. The next glaring error was that the tables of money owed to the IMF/World Bank were all negative. All nations are in debt to the IMF / World Bank except four that were zero. This had to be wrong as one half must be in credit and the other half in debt. They are all in debt. So who is the IMF / World Bank? It turns out that the IMF/World Bank are not owned by nations or the United Nations. They are owned by international banks and have a structure similar to any other multinational corporation. They exist to make a profit from nations, not for the communal benefit of nations. Currently, the IMF has accumulated 2814 tonnes of gold [10001] and the Bank for International Settlements 108.0 tonnes. [10001] My further research led to this book.

Money has a few imperfections. It was invented to facilitate trade, to allow more efficient use of resources, to facilitate transactions. It thus has to store the value of the last transaction until it transacts the next transaction. Whatever its value was at the last transaction must be held until the next transaction and so forth. However, it is not always predictable how long it will be held until the next transaction. There must be enough of these value holding tokens to cover for all transactions during a day. So the volume is unpredictable. To maintain value, there should not be too many tokens. Nor should there be a shortage. So management of the tokens is a haphazard guess at best. To ensure that everyone uses the tokens, some level of administrative force is required. So the 'issuing of money' goes hand in hand with control of a society. If someone bucks the system and creates their own money, they get hammered by the authority. If they are a nation, they get flattened, literally. Because the tokens have value, the issuer has an advantage over ordinary citizens in that the issue of fresh tokens gives the issuer an advantage at the first use of the token. This is called seigniorage. If the issuer is constantly releasing (spending) new tokens, then they need to reduce the volume of tokens to prevent an oversupply. Because the volume of tokens required is unpredictable and because it is difficult to predict how long people will hold tokens before re-using them, the rate of removal is not precisely predictable. So some flexibility needs to be built into the system, so that tokens are available on demand. This is particularly relevant to business where an increase in workload requires more tokens for a short period of time. If tokens that are surplus to requirement are not removed, excess tokens build up and dilute the pool of tokens in a process called inflation. It is difficult to predict how long people will hold tokens before reusing them. A milkman restocks his milk cart daily. A shop restocks weekly. A shirt shop may restock monthly. A beggar spends within minutes. A wage earner may be broke in one week. So the number of transactions completed by money in one year is not predictable. One might expect it to be twelve times a year. In most countries it is two or less. There is a big problem in society with Hoarded Money. This Hoarded Money, if all spent at once will overwhelm the volume of goods and services and cause massive inflation of even hyperinflation.

The imperfect nature of money is easy to see when you consider the ways we use money:

Money is prone to hoarding by people with more than they can spend. They steal it from the circulation like removing the balls from a pool table, mugs from the tearoom or the coins from the carwash.

It can be stolen.

It can be counterfeit.

It can be monopolized.

It can be lent. People with more than they need, may lend it to those that need money tokens for some reason. If the borrower is required to pay back more than they borrowed, it is possible to have more owing than there is tokens.

Substitutes can be created by writing on a certificate: "I owe the bearer of this certificate one token" and "collect it anytime you want!". Yet the lender may not have the token that that the certificate represents. The token supply has effectively increased by the number of unbacked certificates.

If the volume of substitute tokens is high and they are lent into society at say 10% interest, it is easy to have more debt than money. If there are 100 tokens and 100 certificates, within eight years there will be over 200 tokens owing to the certificate issuers. In thirty years there will be 1744 tokens owing to the certificate issuers, yet there is only 100 tokens and 100 certificates in circulation. Yet the naughty certificate issuers never had the tokens that backed the certificates in the first place. The money system is no longer functioning for the benefit of society. The certificate issuers have bought the land, assets and politicians.

The system is collapse-prone. If trust in the tokens evaporates, the people revert to barter.

If money is hoarded, it can all come out of hiding in one day and flood the system causing loss of confidence.

More Debt than Money

When I explain the logic of money to people, I first demonstrate that it is possible to have More Debt than Money. Initially, people find this difficult to accept. I get some seriously puzzled faces when I demonstrate this mystifying phenomenon. I could not believe it myself when I first discovered the situation, so I worked on numerous ways to confirm to myself that this was truly the case. I give three examples and then a graphical representation to demonstrate that there can be More Debt than Money.

My first example:

Imagine the time when gold was money. Imagine all the gold in the world. Imagine all the gold in the world is lent out by those that hold the gold. Interest is payable at 10%, in gold. At the end of the year, how is it possible to pay the interest? How can you pay back more gold, than there is gold? The interest has done something very strange, it has created unpayable debt! Money has created unpayable money. The process of expecting more in return than was lent is called Usury.

The next example:

Consider all the money in the world that has been created by the central banks of all the nations of the world and imagine that all the money is lent out at 10%. How can the interest be paid? How can we pay back more money than there is money? The banks want more money than all the money. This Usury is a major feature of our money system. Our modern money system creates More Debt than Money. Our money system creates more debt than can be repaid with the money in circulation. The creditors want more money than all the money that exists.

My third example:

There are ten people in a room that represent the people of our nation. You are one of them. I am a bank and I will lend each of you one hundred money tokens which we shall call dollars. The interest rate is 10%. You may trade with each other, build each other houses, and carry out regular business.

It is now the end of the year and I want my money back and you each owe me $110. If you cannot pay, you can give me your real assets. In days gone by, this would have included enforced servitude or even your wives and daughters taken as concubines.

This, clearly, will not work. So the first thing we learn is that it is possible to have More Debt than Money. More Debt than Money means that the debts are unpayable. If the debts are unpayable, then an Impossible Contract has been created. If this Unpayable Debt is an Impossible Contract, is the debt legal? I don't have an answer to the legality of Impossible Contracts, but they appear to be very common. I call this:

The First Flaw of Economics

   It is possible to have More Debt than Money.

Asset Stripping and Default

If an economic system generates More Debt than Money, it is a flawed system. It is characterized by Unpayable Debt and constitutes an Impossible Contract. The debts are uncollectible. The debts are unpayable. Default, foreclosures and asset stripping are inevitable. However, we can live with some usury. Individuals die and their debts die with them or their houses get repossessed. This is uncomfortable but sustainable. Debts to governments, however, are sustainable until the nation is stripped of its assets. From then on, a default is inevitable. A nation cannot be foreclosed or repossessed, and so a default is inevitable. Various interesting terms are used such as: 'bailout' and 'haircut'.

'bailout'=Create and advance more virtual credit to the nation so that the nation can pay the interest on the previous loan. This avoids killing the horse that allows the banks to scalp the public.
'haircut'=The debt or interest is reduced to a payable level. The bank only lent credit that it created out of thin air. The money did not originate from a central bank.

There are some obvious solutions but nobody seems bright enough to use them:

The government mints a coin with one trillion dollars stamped on it. It uses this Trillion Dollar Coin to pay off its debt to the banks.

The government creates a Public Bank. This bank is owned by the government. It lends money to the government when prudent. The government thus owes money to a government bank which makes the debt irrelevant.

The government creates a digital version of cash. This would be real or virtual currency notes where the serial number, a digital picture and an ownership history of the note are stored on smart phones, smart cards and anonymous cards like metro cards. The digital data is passed instead of a paper note with its serial number. This is different to the bank system where you have a balance of credit for money that never existed. In this system, you own the notes as you would have title to the notes and it would be recorded in the same manner that land titles, car registration and domain name titles are recorded. Thus, there is no reliance on a single computer system. As with land titles, vehicle registration and domain names, ownership details get updated when appropriate, rather like using a credit card on an aeroplane or ship. The updates can be done at the next convenient time.

The fourth example of unpayable debt is an examination of the figures for Australia:

You now study The Reserve Bank of Australia. The RBA to date has created a total of $67 billion currency in the form of cash folding notes. This is the total of the money created by the Reserve Bank up to 2015. It has created no more than this $67 billion. All figures in this book are in billions and mildly rounded, so remember $67 billion. The total Money Supply for Australia, (officially called M3), is $1760 billion, which is misleadingly called 'Deposits'. Clearly, the $1760 billion did not come from the Reserve Bank nor was it generated by the Reserve Bank. More on this in a while. However, we have noticed that there is a lot more money in circulation than the money created by the Reserve Bank. The next discovery is even more startling. The total debt in Australia owed to lenders is $5400 billion. (as listed by the Australian Debt Clock.). As a society, we owe more Australian money to the Australian banks than there is Australian money. In round figures: The total debt in Australia owed in Australian dollars exceeds the total money in Australia by a factor of three. Do not think that this is an Australian peculiarity. Almost all countries have the same scary 'debt to money' situation.

Back To Our Village

In our village scenario, this situation arises when only, say, one tenth of exchanges for carrots and eggs occur using original tokens. Most transactions now occur using borrowed tokens. It occurs like this: There are insufficient tokens to make for egg and carrot trade efficient, but a generous person who claims to have 'excess' tokens, offers to loan you tokens at 10% interest per annum. The token-lender says that he will keep the tokens in his vault and that when you wish to pay someone he will transfer the tokens to the other person. The token-lender says he will give you real tokens if you really need them at any time. You now trade eggs and carrots for these virtual-tokens. Soon, almost all trade is done using virtual-tokens from the token-lender. Soon your village society has 100 real tokens and 1000 virtual-tokens. The token-lender demands interest on the 1000 virtual-tokens each year which amounts to 100 tokens each year payable in tokens or virtual-tokens. Clever you, will spot the impossibility of paying the 100 tokens because that would leave your village with no real tokens. What occurs is that the debts build up or the token-lender creates and lends more virtual-tokens. Either way, the debt increases as follows: 1000, 1100, 1210, 1331, 1464, 1610, 1771, 1948, 2143, 2357, 2593 [10 years], 2853, 3138, 3452, 3797, 4177, 4594, 5054, 5559, 6115, 6727 [20 years],7400 ,8140 ,8954 ,9849 ,10834 ,11918 ,13109 ,14420 ,15863 ,17449 [30 years]. Yet you have only 100 real tokens. Usury is a mathematically impossible menace. The village collectively owes 17449 tokens to the token-lender even though the token-lender may not even have had any genuine tokens to start with. Anyone could set up this lending system because the lenders are not lending out real tokens. They are lending virtual tokens. They are lending tokens that do not exist. However, you would be hard put to run your village with only the real tokens because your village chief has not issued enough tokens and because the virtual-tokens are easier to use and because business needs money or credit before it can operate. The village chief was not up to standard on each of these three.

The Village Chief

As village chief, your task is to ensure sufficient real tokens are released into your village so that resort to borrowed virtual-tokens is less necessary. In reality, the token-lender never had the tokens that were lent out, but the virtual-tokens did enable trade whilst there was a shortage of real tokens. The token-lender had another benefit to society. The token lender would extend credit to business to allow expansion of business and to cope with the fluctuation in the money needs of business. The village chief spent money into society which created an inflexible money supply. His input did not give on-demand supply of money in line with the needs of business. Business needs money when it needs it, not to buy fancy cars, but to purchase stock for the Christmas rush. Businesses cannot expand if they cannot obtain capital. The village chief was not aware of this and only spent money into society on a random basis. This was good for general employment, but hopeless for expanding business. If the chief were to run small local banks that lent to farmers and business to carry them through tough times or to buy better equipment the businesses would be less likely to scurry to the token-lenders. The money supply expanded in harmony with the needs of society whilst the village chief had issued insufficient real tokens. The borrowed virtual-tokens had accumulated interest that was impossible to pay. So the token-lender finished up owning almost all the real assets and land in the village. The token-lender generously funded your re-election because you were inept at issuing real tokens. The token-lender then dictated policy to the democratically elected chief. This was why all major religious texts forthrightly condemned the practice of usury as it deprives the village people of their real assets. The religions texts forgot about the needs of business. Business needs money tokens before it can create an income. One of your problems is that the virtual-tokens are readily available and easier to use. As village chief you started to use virtual tokens from the token-lender because they were easier to use, which led to your second problem, the village administration became in debt to the token-lenders. And yet another problem was that you as village chief lost control over the number of tokens in society. The village chief was no longer spending tokens into society, the token-lender was lending virtual tokens into society. If the token-lender lent more tokens than he collected in repayments the token supply increased and if the token-lender backed off on token lending, the volume of tokens in society decreased. The decrease caused business collapse and hunger which was blamed on the chief with claims that you were incompetent at economic management. Don't entirely blame the token-lender. The token-lender expanded the money supply in line with the needs of business. Unfortunately, the token-lender got carried away and got citizens and governments into debt. As an individual citizens are a little like businesses. You need to look after your future. You need to educate yourself in real-world situations both in schools and as many jobs and real work situations as possible. You need to look after your reputation. Like a business, you may need to borrow to buy the appropriate clothes and car to get the job. Government only arranges the job and pays in arrears, whereas a bank will give you money before you earn the money. We don't want to destroy the banks, we want them to behave. That will take understanding and regulation and some adjustments to government money procedures.

Richard Henry Dana 1867

After the discovery of America, capital was in demand, and men were ready to pay interest on it. Then the theologians were obliged to review their teachings. If it had come to this, that money must be had, and men would pay interest on it, ecclesiastical ethics must be revised.

If business people do not have money to start or expand a business, they are keen to borrow money or credit or anything that looks or acts like money. Bank credit fulfills this role. The bank-credit never came from a government bank but is has the same effect, it enables transactions. Even though it does not exist, it enables trade and is available on demand. The more business needs, the more the banks create. It is ideal, until it collapses, which usually coincides with excessive greed in the finance sector. Nowadays, the banking sector is more interested in making money from money rather than assisting business to grow. On occasions, they will withdraw funding and take over the assets of the businesses they were previously supporting.

The Value of Transactions in Cash

Although the volume of cash currency in nations is generally less that 5%, the value of trade carried out with cash is even less. According to the US National Automated Clearing House Association, in 1995, $533 000 billion was transferred by wire, $11 000 billion by Automated Clearing House and $800 billion by credit card, $73 000 billion by check and $2 200 billion in cash transactions. [10063] This gives a total of $620 000 billion of which a mere $2 200 billion was in cash transactions which is 0.35% of the total transaction value. However, I am not confident that they have covered all cash transactions. So we have: Less than 5% of money is in the form of government created cash currency, and less than 1% of the total value of transactions is conducted using cash currency.

US Money Supply and Debt Figures

Currency created by the Federal Reserve: $1 250 billion[10002]
Total Money Supply (M2 not M3):  $12 010 billion[10002]
Total Debt:  $43 290 billion

[Dec 2014 in round figures. US National Debt $17 820 billion (Federal Reserve), St Louis plus US Private Debt $25 470 billion (Bank for International Settlements)]

(Note: M3 is not published in the USA, which distorts the result somewhat.)

(Note: I use round figures throughout the book as we are dealing with concepts, not high finance.)

(Note: I avoid using trillions and quadrillions. All figures are in billions.)

In the village terms these USA figures are equivalent to the bizarre scenario of:

Real tokens= 100
Virtual Tokens= 860
Tokens owed to the token-lenders= 3450

[This is the same ratio as USA.]

As chief of the village, you have inherited a money system where there are 100 original tokens, 860 virtual-tokens that do not exist and 3450 tokens are owed to the token lenders. Your task is to get out of that situation.

And some graphs that I have created to scare you:

In my graphs, the orange is the total cash currency created by the central bank. The green line is the money supply of the nation. The green is credit created by banks. Notice the almost insignificance of the orange part. In your village, the orange represents real tokens, the green represents the virtual-tokens and the red is tokens owing to the token-lenders. Your village is now operating on credit rather than tokens. For each genuine token in circulation, there is now thirty borrowed virtual-tokens and eighty tokens owed to the token lenders.

Some Scary Graphs


Graph of Australian Money Supply and Debt

Australia has significantly more debt than the total money in the nation.
The ratio of Debt to Money is about 3.0 [$5400 billion divided by $1760 billion]

Amongst the total collective of all debtors and mortgage holders in Australia, only about one-third of their debts can be repaid.

Australian banks list these debts as assets. Only one-third of these debts are collectible.

Only about ~ 3.5% of the money in Australia was created by the Reserve Bank of Australia. [$1760 billion divided by $67 billion]  We are running the nation on credit.

USA graph of debt and money

Graph of United Kingdom Money Supply and Debt

Graph of Germany Money Supply and Debt

Graph of Poland Money Supply and Debt

Canada. A graph of Money Supply and unpayable Debt. 
Some people ask why the Bank of Canada can't directly increase or decrease the money supply at will, since it regulates the supply of paper currency in circulation. 
The answer is that the banknotes issued by the Bank represent only a small portion of all the money circulating in the economy at any one time.

Impossible Debt

Interest on anything of fixed supply creates an impossibility. Let us blame arithmetic for creating an impossible situation where there is more money owing than there is money. It is one of the imperfections of money with which you will have to deal. The very mathematics of lending money creates a situation where the money owed to the lender exceeds the total amount of money in existence. When money is lent, the debt is magnified with interest but the volume of money remains the same. Over a whole society, this becomes problematic, because total debt exceeds the volume of money. Just considering Australia and Australian dollars alone, there are nearly three times as many Australian Dollars owing to Australian Banks than the total volume of Australian Dollars in existence. Very few countries escape this payment impossibility. Europe has a debt to money ratio of about two point six. Greece is about three and the USA is about three and a half.

You may see at least two reasons why the debt cannot be repaid. The easy answer is that there is more debt than there is money. The green is smaller than the red. The green could only pay off about one-third of the red. I may need to prod your brain for you to see the second reason: The green part is the essential circulating medium. It is the money that flows from person to person as transactions occur when goods and services move between persons. Without the green, the transactions cease and we have no economy. Thus, the green cannot be used to pay off the red because the green is the essential circulating medium. No money, no food, no farm produce. Even a failure to constantly increase in the green causes a recession as in the graph of Spain:

Graph of Spain Money Supply and Debt

A fall in the volume of green causes a dreadful recession called a depression as in the graph of the Great Recession:

Greece Money Supply

It is thus impossible to use the green to pay off the red. So the lenders need to create more loans to keep the system running. More loans are issued to ensure that interest on previous loans can be paid. If more loans are not forthcoming, the interest from previous loans cannot be paid. To keep the present money system functioning, total debt has to grow constantly and the debt can never be repaid and interest is paid with freshly created loans. We are loading the future generations up with unpayable debt. If by chance the banks refuse to grant credit, the nation is plunged into financial paralysis for lack of circulating medium. Whole industries collapse and individuals are bankrupted and the whole charade typically gets blamed on government incompetence. Sometimes even the banks collapse. All the bank needs to do to create paralysis is to collect loan repayments whilst resisting the issue of new loans. This causes the green in the above graphs to shrink as in the case of Greece (and Spain to a lesser extent). The whole of the modern money supply is issued by banks as a loan and the banks have total control over the size of the money supply and thus over the health of the economy. The talking heads will have you believe problems are the fault of the government and the lazy people. Hopefully, you are not that easily fooled. If you would like one of these graphs for your country, let me know, I most likely can get the data and compile the graph for you. Sometimes I have problems obtaining 'Currency' and 'Private Debt' figures and sometimes the data is obfuscated. It can take significant time to data-crunch as the dates can be in an inappropriate format.

Greece Default

To constantly increase the volume of 'green' Bank Credit, there is a need to create new loans. New loans require new items on which to hang debt. The land is already divided up and debts hung on the land titles. Cars hold loans. Education is now on the list. More than 95% of all money in circulation is a loan. We are living on credit. Less than five percent of the money we use came from a central bank. The €30 billion that the IMF lent to Greece did not come from the ECB. The person who has this Bank Credit against their name in a bank account is not paying the interest but the person who took out the loan that created the Bank Credit is paying. Let us do some elementary mathematics. Let the interest rate be 10%. For each $1000 of Bank Credit in a bank account, someone else is servicing $3000 in debt. This $3000 accumulates $300 interest per annum. This is expensive money. If the interest rate was 5%, The interest would be $150:

   $1000 in circulation costs someone else around $150 per annum in interest.

This can be corrected and there are a few remedies you can apply. One is to significantly increase the orange portion. One such way may be called the 'Trillion Dollar Coin solution'. Your government mints a coin with a face value of one trillion dollars and uses this to pay off the government portion of the debt, commonly called the 'National Debt'. Another is for the government to create a public bank. This bank is owned by the government and interest accrues to the government. The government borrows money from a bank that it owns. Government debt is thus owed to the government. Interest accrues to the government and the debt is somewhat irrelevant. Australia had this system in 1911 and then became the most prosperous nation in the world. Other countries have used public banks with remarkable results. The Brics countries, Brazil, Russia, India, China and South Africa, all make heavy use of public sector banks. Between 2000 and 2010 they had an astonishing GDP increase of 92%. Public Sector Banks compose about 69% of the banks in China and has made massive progress transforming itself into one of the world's major economies. It has released enormous entrepreneurial energy that created trade and income growth on a scale the world has never seen before. It does not let corporations mess with the government. In the following graph, the purple region is debt owed by the government to the government:

Graph of China Money Supply and Debt

Being a bank, it is in the payment loop with the other banks of the nation where Bank Credit is transferred from account to account to effect payment between citizens. It is difficult for the treasury to do this as it is not a bank and thus does not operate within the bank transfer system and does not adhere to the principles of double entry bookkeeping when it creates new money. It creates money without associated debt. It does not create Bank Credit which always has attached debt, it creates currency which unfortunately has various disadvantages in the modern world. Digital money is the money of choice in our modern world. So I will shortly create a digital money system for your nation that is an extension of the cash currency system.

Graph of New Zealand Money Supply and Debt

The Lunacy of National Debt

Here is the next economic oddity. The talking heads constantly tell us that government needs to balance its budget and that governments have clocked up too much debt. Citizens start to believe the argument that taxes must be increased or the government must cut spending to reduce the 'National Debt'. These talking heads engage in endless arguments in a debt blame game that avoids two obvious sensibilities. You can blow their reasoning out of the water with two simple questions:

Who has the authority to create the money of the nation?

Why would a government be in debt for money that it has the authority to create?

There is a common-sense reason, but I'll leave you guessing for a while. You may even grasp the logic before I explain it.

The Second Flaw of Economics

   Balanced budgets are a nonsense.

This is a major fallacy in modern economic thinking. It is entirely incorrect to think that the government taxes in order to have money to spend. They are, after all, the entity that is duly authorized to create money.

In times gone by, National Debt did not exist. It was not that the debt was zero, the expression 'National Debt' did not exist. Governments did not borrow money because they did not need to borrow money. Be sensible, Governments are supposed to create money. When operating correctly, governments create money and spend it into society and they tax money back out of circulation to prevent an oversupply of tokens and to create a demand for money. A government need never be in debt for its own money. Let us put that in headlights.

A government need never be in debt for its own money.

Which reminds me of a beautiful story that I read in a fascinating book by Warren Mosler:

The father of a family gives his children a business card each time they do a good deed or do some work around the house. They occasionally do odd jobs but there is no great keenness to do so. The business cards effectively have no value and have been thrown in a drawer. The father gives an edict that they must give him a number of business cards, weekly, as rent and some business cards for meals. The business cards immediately have value and are much sought after. The young are keen to carry out chores to earn business cards.

The effect of the family taxation was to give business cards a value and to make the inmates productive. Warren Mosler demonstrates the logic behind taxation in your nation. Taxation should occur to prevent an over-supply of money and to create and maintain a demand for money. In this family, business cards are not taxed to obtain revenue. The father can create any amount of business cards at no cost. Taxation and money creation are intended to work hand-in-hand to form a money system. One requires the other. However, the system has gone horribly wrong. Banks create money by lending. They remove money from the money supply by collecting repayments. The magnitude of the money supply depends on bank lending and collection. These are subject to fluctuations that are out of the control of government and only partially controllable by banks.

Do not fall into the trap of thinking that: all the government needs to do is spend money into society. Most businesses need money before they can conduct trade or supply a service. The corner shop needs to buy stock, buy plant and pre-pay rent before the shop earns its first cent. Government money spent into society does not provide this. The trader needs money or credit before business commences. The inventor needs dollars before he makes a dollar. Government is clumsy and inept at providing this service. Local Commercial High Street Banks have been remarkably good at providing credit to businesses. Commercial (High Street) Banks increase the local money supply on an 'as-needs' basis for each and any business that needs trading money and these Commercial (High Street) Banks are experts in evaluating the risks. Herbert Hoover, President of the USA between 1929 and 1933, put it this way:

Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs. [10003]

Without access to money or credit businesses cannot get past the 'idea' stage and existing businesses are stifled. In your village scenario, how would a banana trader collect bananas from a distant tribe if he could not access some money to purchase the bananas in sufficient quantity to feed your village? As village chief, you would ensure that he was able to access sufficient money to go on the banana fetching expedition. Governments are poor at doing this. Sometimes family and friends will supply funds, occasionally a government development bank will provide funds, but mostly it is a local commercial bank that provides funds.

Self Interest

People have a tendency to look after their own interests. The operation of a financial system is no different. Thus, the concept that the system should operate as a free market is flawed. The money system must be strongly regulated by others than those that benefit from the system. Self-interest should be completely eliminated from the regulation. In simple words: People maximize situations for their own financial best interest, so most financial transactions will reach a balance. The same argument should not be applied to those in charge of the system. There is a tendency for participants to maximize the situation for their own benefit and so the money system needs to be heavily regulated so that the system does not favour those at the top of the food chain.

These are not new issues. Sir James Steuart from Scotland recognized this when he wrote about economics, including Public Debt and Banking in England, before the French Revolution. This was nearly 250 years ago and about seventy years after the Bank of England had been created by a group of private entrepreneurs as their own cash cow. This powerful book was overshadowed eight years later by a much-feted book by Adam Smith that was somewhat more gentle on the banking profession. James Steuart mentions the 'new' institution of 'National Debt' which occurred when a small syndicate of private business entrepreneurs created the Bank of England. It was a bank but it did not belong to England. Steuart believed that economic development must be purposefully managed by the state. He believed that private self-interest would be counter to the best interests of the nation. The statesman should safeguard the public good and the economy should be regulated to prevent self-interest overriding public good. He believed that allowing the creditor class to regulate the creditor class with its hold on finance was a recipe for disaster. His writing was overshadowed by Adam Smith who advocated that individual self-interest would allow a self-adjusting economy being led by an invisible hand. The book by Adam Smith got heavy promotion and his 'invisible hand' is more like an 'invisible hand' in the till.

James Steuart 1767

Europe was possessed by our ancestors free from taxes; our fathers saw them imposed, and we now see how fast they become mortgaged for our debts.

James Steuart 1767

Let us now suppose what is actually the case in Great Britain, that from the swelling of public debts an enormous fund of personal property is created. This is formed out of the income of the whole nation; and as it has been purchased by those who have lent money to the state, in common language it is included in what we call the monied interest: ....

Smiley face translation into modern wording:

Andy Chalkley  In Britain, the massive increase in National-Debt has created enormous property wealth for a financial elite. This enormous wealth derives from the income of the nation to the benefit of those who lent money to the nation. In common language, it is those we call the 1%.

James Steuart 1767

They carried their views to nothing less than obtaining a majority in the house of commons, by the weight of their wealth, and of becoming the absolute rulers of the nation.

Andy Chalkley  The bankers have stacked the parliament with politicians in their pocket to the extent that the bankers have control of parliament.

James Steuart 1767

By the first step, namely, by refusing credit, it appears passive only in allowing natural causes to destroy both the bank and the nation, as I think has been proved.

Andy Chalkley  If the bank does not lend, it will destroy the bank and the nation.

James Steuart 1767

but how often do we see ambition putting on the face of public spirit, and animating the resentment of a nation, under colour of providing for her security? Hence wars, from wars expense: recourse is had to credit

Andy Chalkley  Ambitious persons give the illusion of looking after our interests. They create the talk of hate and war and offer to provide us with security. Hence wars and large debts to Private Banking Corporations.

James Steuart 1767

This was the case, in the example above cited, when seven millions ready money, borrowed by the late king of France, became a debt of thirty-two millions on the state.

Andy Chalkley This was not a nice book for the creditor class to have in the public arena. Conveniently, Adam Smith came forward with a book that was promoted, whilst James Stuart was decried as an 'old mercantilist', whatever that means.

UK National Debt History. Adapted from Wikipedia.

Just to check that you actually looked at the diagram:

What date did the National Debt start?

What date did the Bank of England open for business?

UK Parliament enacted an income tax that became effective in 1799. This was a new tax.

What is National Debt? National Debt is money owed by the Government. To whom does it owe this money and where did the lenders get the money that the government borrowed?

Now I will test your ability to think logically. You will hear talk about 'paying off government debt':

Why would a government, that has the authority to create the money of the nation, be in debt?

To whom is the government in debt and why?

Who made the money that the government borrowed?

Where do they get the money that is lent to the government?

US National Debt History.

Under the current national financing arrangements, the way forward involves the nation and its individuals getting deeper and deeper in debt to the private banking system.

The Thirtieth Flaw of Economics

   Never forget that national debt is owed in a currency that the government is legally entitled to print.

Unfortunately, we now have a system where the government only makes less than 5% of the money of the nation as cash currency. Banks make in excess of 95% of the money supply. The government no longer uses cash currency to pay its bills. It uses bank accounts containing virtual Bank Credit and thus like ordinary citizens it needs to add credit to its bank accounts before it can use the Bank Credit. It does this by borrowing the Bank Credit and promising to pay it back in the future. The mechanism is to issue IOUs with a promise to pay back the money in the future with interest payments at regular intervals. These IOU's are called Bonds in most countries and called Gilts in the UK and Securities in Australia. Unfortunately, the government loses the ability to control the size of the money supply through money creation and taxation and has to constantly borrow more to keep up the functions of government and pay interest at the same time. The control over the size of the money supply has been removed from government and is becomes dependent on the lending mood of banks. The size of the money supply is solely dependent on the rate at which banks collect loan repayments and the rate at which the banks create new loans. This is a rather bizarre way of controlling the money supply of a nation. Governments have a most strange way of increasing the money supply by getting further into debt and spending the money. It is the act of borrowing that increases the money supply and spending just moves it from government bank accounts into the hands of the citizens. If by chance the citizens are reluctant to take on more mortgages and car loans, the government can borrow and then think of some way to spend it into society. Thus, the apparently idiotic statements about boosting the economy by deficit spending. The only way to keep the system going is to take on more debt. Either the people take on ever more debt or the government does it on their behalf.

Half the nations are bankrupt and the other half haven't realised they are bankrupt. Parrots rule!

What is in a Bank Account

It turns out that the so-called money that we have listed in our bank accounts, is not money as we think of it. It is credit. It is credit on the banks books which you can transfer to others as a means of payment. It is Bank Credit that you can convert to cash currency. It did not come from the central bank. The banks do not have $1760 billion of cash sitting in vaults and $1760 billion of cash does not exist. Only $67 billion of cash exists and most of that is in people's back pockets. Now we sniff out where the money listed in bank accounts came from. The Reserve Bank of Australia has created $67 billion of cash currency. The government does not pay its bills using cash. The government pays for things using bank accounts. Consider what you do if you want money. For little items, you pay with cash or from a bank account. For large items, you will borrow the money. And here is the clue. If you want more money than you have in a bank account, you borrow it. Money is available if you borrow it. So consider the borrowing mechanism. You walk into a bank and ask for one million dollars to buy a house. The bank looks at you and says 'ok'. On the appointed date, the bank transfers one million dollars to the seller by writing one million dollars with a plus sign next to it in the sellers account. It writes one million dollars against a new loan account in your name with a minus sign next to it. One million dollars with a plus sign and one million dollars with a minus sign makes zero.

How banks create credit and debt at the same time

However, the nation now has one million dollars more money in the nation and one million dollars more debt. No transaction occurred at the central bank. No money moved from a vault. No customer deposits were required. And thus, money creation occurs when banks lend money. This is one of many ways of arriving at this conclusion. I am not a lone voice in the wind. There are many statements about this characteristic of our money system all discussed in future chapters. Here are just a few of many:

Bank of England

Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits. ......

money is largely created by commercial banks making loans. ......

Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money. This article explains how, rather than banks lending out deposits that are placed with them, the act of lending creates deposits - the reverse of the sequence typically described in textbooks. ......

Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. ......

Bank deposits are simply a record of how much the bank itself owes its customers. [10004]

Ralph Hawtrey, Former Secretary of The British Treasury

Banks lend by creating credit. They create the means of payment out of nothing.

Bank of England 2014

Is it difficult to believe that the Central Bank with the blunt instrument of interest rate control can control private corporation lending habits. As inflation continues to flourish, their control appears to be a carefully controlled myth. ...

Creating money in the form of cash notes is illegal and called counterfeiting, however creating money that is equivalent to cash and lending it to people is apparently legal. [10004]

Marriner Eccles, Governor of the Federal Reserve. 1941

If there were no debts in our money system there wouldn't be any money.

Robert Hemphill 1934, Credit Manager of Federal Reserve Bank, Atlanta, Georgia

This is a staggering thought. We are completely dependent on the Commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.

We make money from nothing and lend it out at interest. So we make money on money that never existed before we lent it out. Good Business. We write $1 000 000 in one account and -$1 000 000 in another account. Simple bookkeeping. The big joke is that there is not enough money out there for you suckers to repay us. You have to pay us more than we lent out. So we gradually take all your possessions.

Fractional Reserve Banking

Many students of economics were coached to believe a fictional story about 'Fractional Reserve Banking'. This is incorrect and misleading. When a loan is made, no reserve is required. At the moment a loan of one million dollars is made, one million dollars of Bank Credit is created and one million dollars more debt is created. No bank or customer money was required. No transaction or contact with the central bank is required. The mechanics of money creation does not require money from any other source. However, after the new credit is created, there is more money in the nation so all banks will need a little more stock of ready Bank Credit as there is slightly more Bank Credit in society that can be moved. However, this reserve can be borrowed. Fractional Reserve banking is a red herring to mislead you from the actuality of the mechanics of credit creation and cover for the reality that new Bank Credit is created without any backing. Even the Bank of England states this:

Bank of England 2014

Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money - the so-called 'money multiplier' approach. [10004]

We want you to believe that our Bank Credit is the same as genuine government issued money.

Bank Lending and the Great Depression

This characteristic where our money supply relies on the lending habits of lenders is starkly shown in this graph of the Great Depression. When debt repayments exceed creation of new loans the money supply shrinks and there is close to nothing that the government can do. When banks fail to create more loans, the money supply shrinks drastically causing a depression with numerous business failures as the Circulating Money dries up. Notice that the orange component created by the government (cash currency) does not decrease. This problem is not caused by government:

A graph of the Great Depression in the USA.

Notice that the Bank Credit portion of the Money Supply decreases whilst the government issued cash currency increases slightly. When the Money Supply fails to increase in line with an increase in population and trade, a recession is felt by the people. When the Money Supply falls, the effect is felt by the people as a depression. A severe recession is a depression where businesses fail and unemployment increases. From the graph, you can see that this is caused by bank lending practices causing a fall in Bank Credit. Try not to be fooled by the media suggesting it is poor government management.

A graph of the Great Depression in the USA.

Bank Lending and the Greek Depression

The problems in Greece are similar. Cash issued by the Central Bank of Greece has not decreased. The credit issued by banks has decreased. When banks switch off the supply of credit, a recession or depression occurs. The government has no facility to make banks create fresh Bank Credit. You will have more luck pushing a piece of string. The Greek economy is in a depression because there is a lack of working capital for business. Business cannot obtain funding because the banks will not extend credit. There has been a dramatic fall in Bank Credit similar to that in the Great Depression. This is worsened by the Eurozone's destructive request for Greek austerity. So, under instruction from the IMF, the government is required to cut spending and increase tax rates, both of which magnify the bank created problem.

Greece Money Supply

Debt to Banks

Now I will show you an even bigger problem than the debt in bank accounts. The debts are magnified by interest. The debts magnify whilst the available money remains constant. The result is unpayable debt and the process is called Usury. Perhaps you can understand my diagrams:

How banks create credit and debt at the same time, then magnify the debt with interest.

Consider the situation in ten years:

How banks create credit and debt at the same time, then magnify the debt with interest.

This creates an unstable money system. Only $67 of $1760 billion of the Money Supply in Australia comes from the central bank. This is 3.5%, in round figures. Where such a small portion of the Money Supply comes from a government authority and so much depends on the lending habits of banks, the system becomes unstable. Any fluctuation in the volume of loans issued by banks affects the volume of vital circulating medium. This tends to create booms and busts. The busts being the recessions and depressions. The citizens are constantly paying back loans to the banks and the banks are issuing new loans. The money supply falls dramatically when the banks slow the issuing of new loans. The banks do the exact opposite of what is needed to maintain a steady and healthy economy. They lend more when they need to slow down and they cut back when they need to lend more. They lend more when the economy is booming and lend less when the economy is contracting. This can be seen on the Greece graph above.

Two Money Systems.

Here we look at the two systems of money. They have the same unit but they are entirely different forms of money. They are linked together and work parallel to each other, but they are entirely different forms of money. The first is the Cash Currency that is the created by the central bank as folding paper notes (and a few coins). The second is Bank Credit as listed in bank accounts. Your bank balance is the amount of money the bank owes you, payable in real money which is Cash Currency. The system of moving Bank Credit from person to person enables a very efficient payment system. The problem lies with the debt that is constantly magnifying. In simple terms, to generate an extra million of Bank Credit as part of the money supply, a million of debt is created. To increase the money supply it is necessary to hang debts on more and more items that can have debts hung on them. If more debt is not created, the money supply cannot increase.

Euro Area Debt and Money Supply

The Legal Definition of Money

I have problems trying to find a legal definition of money. It appears that the legal definition might as expressed by Professor Knapp:

Anything which is defined by the state as money is money. [Knapp 1924:158]

Professor Knapp, a Professor at Strasbourg University defines money as a system of tokens the state is willing to accept a payment of taxes. The state's unique role as a creditor, specifically the tax collector, authorizes it power to define money. [10075]

English economist, John Maynard Keynes, described it in these words:

anything which the State undertakes to accept at its pay-offices, whether or not it is declared legal-tender between citizens [10076]

The important characteristic of money is the ability that it gives to the holder to extinguish debt. One might prefer to define money as that which has been declared 'Legal Tender'. However, citizens may decide to use whatever they like as money and thus we would get some thinglike a definition used by The Supreme Court of Canada:

Any medium which by practice fulfills the function of money and which everyone will accept as payment of a debt is money in the ordinary sense of the word even though it may not be legal tender. , [10077]

The arguments are quite long and tedious. I gave you these snippets to warm you up so that you might decide for yourself whether Bank Credit should be classified as money. It perhaps depends on whether you believe that the government decides what is money or what citizens generally accept as being money. Bank Credit did not come from the government but was created at the time a loan was made and is thus credit. Although it can be used to extinguish debt and enables transactions, it is stretching things to claim that it is money. It is credit for money and, as such, has many of the characteristics of money.

Effect of a Fall in Money Supply

When the Money Supply falls under a Bank Credit regime, loan repayments are received by banks but fewer loans are granted. The loan repayments tend to come from the Circulating Money, rather than the Hoarded Money. Hoarded Money is held by 'those with more money than they can spend' and those with an inadequate supply of money are the borrowers. Thus, the Circulating Money section will decrease. A fall in velocity will be noticed. Those that consider the economy to be related to the gross Money Supply are incorrect as it is related to the Circulating Money portion of the Money Supply. My calculation for this makes an assumption of a cut off time of one month. One month being the difference between Circulating Money waiting for the next transaction and Hoarded Money that is held as a supposed store of value. This time may be overly generous, but it allows a calculation. So the Circulating Money percentage = (Velocity x Cut-off-time-in-weeks / 52) x 100%

 Velocity Circulating Money Hoarded Money
 12 100% 0%
 10 83% 17%
 5 42% 58%
 3 25% 75%
 2 17% 83%
 1.5 12% 88%
 1 8% 92%
 0.75 6% 94%
 0.5 4% 96%

The Velocity of Money and its relationship to 'Hoarded Money'.

So if the velocity is 2 (17% Circulating Money and 83% Hoarded Money) and the Money Supply falls 8%, the velocity has a tendency to fall to 1. The reason is that the 8% is largely taken from the 17% Circulating Money. It is not taken evenly between Circulating Money and Hoarded Money. So when there is a fall in the Money Supply, the Circulating Money takes a sharp fall destroying business as it does so.

Effect of a fall in the Money Supply and its effect on the Velocity of Money.

When the Money Supply falls the bulk of the reduction occurs where it hurts most, in the Circulating Money component of the Money Supply. This magnifies the effect of the decrease. You can see this in the Great Depression Graph. 1928 Velocity = 1.5 and 1932 Velocity = 1.17 and by 1937 the money supply had recovered to its pre-Depression value but the velocity did not recover until 1943 and then had another fall. It also does not follow that an increase in the money supply will lift the economy as the increased money may find its way to 'those with more money than they can spend' and thus, it gets hoarded. If you want to recover an economy, it is better to go round villages and towns and give out small denomination notes to poor people the street who will spend it the same day. Or send out a bonus with welfare cheques.

A graph of the Money Supply during the Great Depression in the USA.

A graph of the Velocity during the Great Depression in the USA.

A graph of the Money Circulating during the Great Depression in the USA.

How to improve the economy.

A drop in the money supply tends to damage the economy because it reduces the Circulating Money to a greater degree than the fall in the money supply. (Reason: most of the reduction in Money Supply is taken from Circulating Money.) It is not reasonable to assume the reverse. If the money supply is increased, it may or may not boost the Circulating Money or it may become hoarded. This depends on whether it is spent to those with more than they can spend or to those with no savings. Even if the money is spent into the circulating component, businesses may have little ability to expand. Not every business will expand to match the market and many will have a delay in so doing. Expanding the economy is not as simple as increasing the money supply. Parameters need to be set to encourage businesses to expand. They should not have been treated so atrociously in the first place.

The Problem with Kings.

The banks have a problem when they lend money to a king. When a bank lends to a king, what happens to the debts when the king dies? Does the debt transfer to the next monarch? Or does the new monarch shout: "Off with their heads", with the reasoning that usury is prohibited in the bible. Whatever the answer, it is still a fairly large disincentive for a bank to lend to a king. The creditor class of old needed a better system so that their credit could be repaid with interest so that they could lend to a government with confidence. The solution was to remove the monarch or reduce the monarch to a figurehead. This had the advantage that the king lost the sovereignty over the creation of money. To hang a debt on the government and thus the people and the nation, it was deemed appropriate to give the people a say in government in the form of a vote. The system is called democracy. The next task was to control the way people vote and then to create political parties and control the parties. Public Opinion is controlled through a media system. Political parties are controlled through direct funding and funding of compliant parliamentarians. The debts owed to the creditors are payable with the taxes of the people. Revolutions are a convenient way of removing an established monarch. International war is a good way to destroy or bring to heel a recalcitrant nation. Any political party, that does not tow the line, gets the economy destroyed by the withholding of credit causing a severe fall in the money supply which leads to a recession or depression with its consequent unemployment, foreclosures and business bankruptcies, which is then blamed on the government. Both political parties support the debt banking system and every war that is advertised on the television.

John Adams (1735-1826)

    There are two ways to conquer and enslave a nation. One is by sword. The other is by debt.

The Value of Money.

Money is an essential requirement for civilized life. The primary characteristic of money is that this initially valueless piece of paper enables the commercial transactions between citizens and businesses. I list this as:

The Third Flaw of Economics

   Money has no value to the creator. The creator of money can create money tokens in any volume at effectively no cost. Money has no intrinsic value.

The magic of money is its ability to lubricate transactions. When a $20 note goes from A to B to C to D to E to F to G to H to I to J to K, it has enabled $200 worth of commercial transactions. As individuals, we value money by what we gain in the next transaction, but the real value of money is its ability to create many transactions. I usually tell this as a story:

I walk into a small quiet town that doesn't see many visitors. I get a haircut with a $20 note. The hairdresser buys some fresh fruit at the store. The farmer brings some more fruit around to the store. The farmer gets his four-wheel-drive repaired. The mechanic goes down the café and spends the $20 note. The café owner pays the cook. The cook gets his hair cut. This $20 note manages ten transactions on this day. One $20 note created $200 worth of transactions in one day. This is equivalent to 3650 transactions in the year which is described as a Velocity = 3650. This is $73000 of transactions from one $20 note. Very few notes ever manage this number of transactions in a year. They typically manage around two transactions in a year.

The rapid movement of the note ceases as soon as it reaches someone with too much money. The affluent person puts the note in a pocket and leaves it there. The worst thing that can happen to money is to hoard it. The next worst thing is to tax money that is actually creating transactions. Sales Tax and Income Tax would have destroyed our special $20 note before it had completed one lap. We are taxing money that is creating wealth-producing-transactions and leaving hoarded and speculative money untaxed. This is entirely the wrong way around. Money only does its job when it is passing from person to person. Money ceases to function as money when it is hoarded or used to push up the purchase price of assets. I give you this little story to show that the power of money lies in its ability to create transactions and using it as a store of value is counter productive to its primary purpose. This is the primary imperfection of money. When money is used as 'a store of value' it is not lubricating transactions and has thus ceased to act as money. I have a very neat way of making the citizenry more affluent by charging a neat little tax. It is called a Demurrage tax. It is a very small tax that discourages hoarding and makes money move much faster which makes everyone more affluent by more than the tax. I always thought that was the cleverest tax. A tax that makes you better off. The Demurrage tax is a small monthly tax on money holdings which encourages people to spend rather than hoard so they pay less of the economy-damaging income and sales taxes and get much higher benefit from the greater flow of money. You will need Demurrage tax of some kind in your perfect solution. It will be an unpopular medicine that is needed to correct the misuse of money.


Our taxation system stifles trade. Under a sales tax regime, a percentage is removed at each transaction which heavily damps trade and real wealth creation. The same happens with income tax. It rapidly destroys trade and wealth creation. In the village example above, income tax and sales tax take a high percentage at each transaction between the egg trader, carrot grower, potato seller and customers, destroying the local economy. Hoarded Money is left entirely untouched and untaxed. The only tax that is collected is collected from well behaved Circulating Money that is dutifully carrying out its life's mission. Money that plays truant escapes taxation. It is not the money that suffers, but the whole of society by not allowing citizens the benefit of the potential transactions. If the velocity is increased, more transactions release their potential goods and services. How tax is collected not only influences economic activity, it also creates dangerous instability in ways that I shall explain. Yet there are tax regimes that don't discourage trade and economic activity. You will be unlikely to see them in your lifetime because of the scaremongering by those with enough money to modify Public Opinion, which happens to include your opinion. How much of your opinion has been modified by those with the ability to modify your opinion? The problem of taxing transactions is visible in this graph. This is not proof that increased transaction taxes decrease tax collection but it is enough to seriously challenge the talking heads that believe that an increase in income tax rate will result in greater tax collection. You should be able to find the points in this graph where decreased income tax rate, increased the tax collected.

The influence of taxation rate on the taxation collected. and

Please do not move on until you have found the two points on the graph where tax rate reduction increased the tax collection. The reverse is not so clear.

Bank Credit in bank accounts often manages less than two or three transactions in a year. Money only helps the economy when it creates transactions. Money flowing to rich people, not only deprives the poor of the money, it deprives the poor the money to carry out transactions, so it stifles transactions amongst the poor. If a man with zero money sings a song and gets a dollar, which he spends on a bag of nuts, he is still poor, but he is not hungry. To this man, it is the flow of money that is important, not the ownership of money. Removing our $20 note from a poor area of town has the potential to remove up to $200 worth of transactions each day. The poor tend to use cash and they spend it fast which means that it does not stay in the wallet for long. To people with insufficient money, it is the flow of money that is important. To people with more money than they can use, it is the store of value that is important. This different to the usually portrayed dilemma of the rich versus the poor. The poor generally have little chance of storing money, they just need enough of the stuff flowing to enable them to feed themselves. The problem can also be regional. One area can have plenty Circulating Money and another area can be going hungry. In days gone by, England had an excess of seventy mints dotted around the nation, operating independently of the monarch, creating new money as needed. It was not a full solution but it helped. This kept money plentiful and the economy strong in local areas as is witnessed by the grandeur of the cathedrals of England. [10005] Here is another quip from Rev. Henry Swabey (1826 - 1878):

Local Mints are always a sign of economic decentralization ... as they serve to counteract the centralizing Usurers. [10006]

Never forget that the $20 note cost nothing to produce. This was the secret of Caesar's success. He made money plentiful to those that had need. Money available to the poor does not make them affluent, but it enables them to feed themselves. The poor may still have an individual net worth of zero, but the rapid movement of a few twenty dollar notes amongst the poor enables the poor to feed themselves and enables basic services. By untaxed flow of money in a poor area, everyone can be fed and have haircuts and be well groomed and have music lessons and go to dances. As soon as the twenty dollar note gets taken out of the district the activity stops. The hairdresser cannot pay the chiropodist who cannot pay the manicurist who cannot pay the hairdresser.


These passages are amongst many economic instructions in the Quran. They hint at the avoidance of hoarding:

Those who spend of their wealth by day and by night, secretly and openly, for such there will be reward with their Lord, nor will they have cause for fear, nor will they grieve. (Provided that wealth is spent in a manner that is Halal, such spending will stimulate the economy and put wealth into circulation.) [Al-Baqra Verse No:274]

And let those who hoard gold and silver and do not spend them in the way of Allah know that a severe and painful punishment is awaiting them. [At-Tauba: 34]

They who hoard up gold and silver and spend it not in the way of Allah, unto them give tidings (O Muhammad) of a painful doom: On the Day when it will (all) be heated in the fire of hell, and their foreheads and their flanks and their backs will be branded there with (and it will be said unto them): Here is that which ye hoarded for yourselves. Now taste of what ye used to hoard. [Al-Qur'an 9:34-35]

Islam forbids the hoarding of money because hoarding prevents money from enabling production and services in the Real Economy. Mohamed was a trader and practical man and so knew of the money needs of business, but also of the desperation created by riba amongst poor people.

Jesus did not word it so clearly:

It is easier to pass a camel through the eye of a needle than for a rich man to enter the Kingdom of Heaven.

One $20 note, that cost nothing to create, can create many thousands of dollars of transactions for the poor. A few worthless $20 notes can feed a neighborhood by enabling food to circulate from growers to citizens. It is not the $20 note that has value, it is the transactions that it enables that have value. An appreciation of this character of money is essential to evaluate the solutions that I propose.

Unfortunately, during a financial downturn, people are prone to hoard money which is the opposite of what is needed to recreate a vibrant economy. A low Velocity is the best indication of a high level of hoarding. We have fallen into the error of believing that money has a real value because it is used as a medium of exchange. Money was never intended to be a long-term store of value and should never be allowed to be treated as such. Unfortunately, we treat saving as natural. The human race needs to find an alternative way of storing short term convertible wealth. Maybe this could be precious metals, however, most of this is in vaults and thus this also is hoarded.

One twenty dollar note costs almost nothing to create. The twenty dollar note has a value to an individual of twenty dollars because that is the value the individual can obtain at the next transaction. The value to society is much much higher. A society functions when money moves and stagnates when money does not move. Economists think it is the size of the money supply that influences economic activity, but they completely miss the influence of velocity. Boosting the money supply is utterly useless if the fresh money gets hoarded, as it often does. This leaves the talking heads baffled at their own simplicity. Fresh money only helps the economy if it goes into the circulating component of the money supply. Why even bother increasing the volume of money when all that is needed is to bring money out of hibernation. Velocity is all important. Money must never be inhibited from moving. Common inhibiting factors are: hoarding in the form of saving, taxing money at the time of transaction and failure to create and spend new money into the circulating medium. When banks cut back their lending, whilst still collecting loan repayments, a significant reduction in Bank Credit occurs. This can be seen in the graphs for the Great Depression, Greece and Spain. The drop in the volume of Bank Credit is less likely to impact the volume of Hoarded Money and so it impacts the trading economy significantly. Persons do not borrow to hoard, they borrow to fill a spending need and thus the instant impact on circulating medium.

Transaction taxes include: Income tax, company tax, sales taxes, GST and VAT taxes, house stamp duty. Any transaction tax should be less than 10% and preferably less than 1%. Such a tax is a Robin Hood Tax, which is also called a Financial Transaction Tax (FTT). A Robin Hood Tax is typically less than $1 in $1000 (0.1%). My recommended version of a Robin Hood Tax is a tax on ALL transactions, including share and investment transactions, but also your daily shopping purchases. (Sales Tax would be reduced to zero for most items.) Anytime that money moves, a tax of $1 in $1000 is due (0.1%). This may have to be reduced to 10c in $1000 (0.01%), if too much tax is collected. Proponents advise figures in the range $1 in $1000 (0.1%) to 5 cents per $1000 (0.005%). This is insignificant to poor people and is far less than the current $300 company tax per $1000, $400 income tax per $1000 and $100 plus sales tax per $1000 currently charged. Some proponents suggest that a Robin Hood Tax could replace all current taxes. I do not advise this as it would create an unstable situation. It is unwise and de-stabling to collect too much tax in one area. Some suggest that a Robin Hood Tax should apply only to financial transactions whereas my view is that it should apply to all transactions.

To reduce hoarding of money, wealth, particularly in the form of money holdings, needs to be taxed. Wealth taxes include: direct annual wealth tax, death taxes, demurrage tax and inheritance tax. In the wise words of Margrit Kennedy:

Instead of paying interest to those who have more money than they need and in order to keep money in circulation, people should pay a small fee if they keep the money out of circulation. [10007]

This is called a demurrage tax.

If you are a strong believer in equality and have the view that everyone is born equal and has an equal right to the facilities of the nation then you should appreciate death and inheritance taxes. No person at birth, should be able to exclude others, by use of inherited wealth, from the use of the nation's facilities and resources. Death Taxes should exclude genuine family farms, family businesses, for their tradition and skills accumulated and passed from generation to generation are essential to the well-being of the nation and the feeding of cities.

Money hoarded in bank balances also creates instability. In the event of a financial rollercoaster, the Hoarded Money can rapidly spring back to life in a dramatic reappearance to cause financial havoc. Suddenly, the dormant money wants to purchase goods of somewhat limited supply. With a little luck, a hyperinflation can be avoided as a herd spend mentality takes hold like the first day of the new year sales. There is no mechanism to slow this panic use of Hoarded Money short of restricting conversion of Bank Credit into cash and daily Bank Credit spend limits. The spending of Hoarded Money has a potentially catastrophic inflationary consequence. It is advisable to prevent it's sudden withdrawal by reducing hoarding.

The rate at which money is spent is commonly called 'The Velocity of Money'. The velocity of money is calculated as the Gross Domestic Product divided by the money supply. This does not take into account the rate at which different components of the money supply move. Certainly it is false to calculate the velocity of cash as GDP divided by Currency and it would appear to be inappropriate to calculate the 'Velocity of M1' by this method. The Velocity of Money is low because we currently inhibit the use of money as a lubricant to transactions and favour its use as a store of money. This is entirely the wrong way round and extremely dangerous. Unfortunately, it is easier for an individual to stop the flow of money by hoarding than it is for the government to speed up the flow of money. The government, on the other hand, tends to spend extra money into the crucial circulating medium rather than encouraging people not to hoard. The Quran has spelt this out quite clearly. Do not let persons hoard money. Hoard something else and reduce the need to hoard with alternative schemes.

Velocity of Money in the USA

Velocity of Money in the Canada

Velocity of Money in the United Kingdom

Velocity of Money in the Eurozone

Velocity of Money Global

The Fourth Flaw of Economics

   Velocity is an indicator of the level of hoarding. Low velocity is indicative of a high level of Hoarded Money and a low volume of Circulating Money in the real trading economy.

In the carrot and egg example, it is not the total volume of tokens that influences trade, it is the volume of tokens that are in the Circulating Money. It is wrong to say the economy depends on the money supply alone. It depends on money supply AND velocity. You can say that the economy depends upon money supply and velocity or you can say that the economy depends upon Circulating Money. By economy one implies the GDP and that is equal to money supply times velocity, so the relationship was obvious in the first place. (For mathematicians, GDP and Circulating Money are directly related.) If there is a rise in money supply and a fall in velocity, then the increase in money was simply hoarded by persons with too much money. This happens frequently when those that believe they have the ability to control an economy, prescribe a medicine that makes matters worse. Velocity is an indicator of what proportion of the money supply is being hoarded.

Low velocity=High hoarding
High velocity=Low hoarding
 Velocity Circulating Money Hoarded Money
 12 100% 0%
 10 83% 17%
 5 42% 58%
 3 25% 75%
 2 17% 83%
 1.5 12% 88%
 1 8% 92%
 0.75 6% 94%
 0.5 4% 96%

The only source of credit to pay the money you owe my parrot friends is: guess who? Parrots! Trick question. We created credit which we lent you. We did not lend you money in the form of currency, we lent you credit. Just numbers in a book. You have to pay us back more than we lent. So how are you going to do that if we are the ones that create credit? We lent out 'x' dollars to all the people of the nation. You now have to pay back x plus interest. How stupid can you be?

Government Issued Money

Our money system has two types of money. One is the Currency created by the government. This is the orange part in the graphs. In modern times, this is typically less than 5% of the money supply. In past times, the government would create money at no cost and spend it into society. This had the effect of increasing the tokens in the Real Economy. To maintain a demand, the government would tax the money back out of society. Initially, one might assume that the government need not tax. The reason being that the government has the constitutional authority to create as much new money as it wishes. This exuberant spending creates a monetary disaster. There is so much money that money ceases to be in demand. There becomes a frightening excess of money. So the government taxes money out of society to create demand and to ensure that there is not an excess of money. However, this function is now taken over by banks and the collection of interest. When people have to pay tax or interest, they work hard to accumulate the money to pay their interest and taxes. The government does not need to tax to obtain revenue to spend as it has the authority to create money at no cost. I call this:

The Fifth Flaw of Economics

   Taxation is not Revenue.

A minor increase in the money supply is needed each year to cover for: population increase, increase in 'goods & services' available for purchase and persons hoarding money to spend later. In days gone by, the government would create and spend a little more than it taxed to maintain a slight increase in the money supply each year. Nowadays, it is the bank that removes money from the money supply by the collection of interest and repayments. A thumbnail guestimation for Canada suggests the banks remove $250 billion annually as interest [Canadian Dollars $5075 billion x 5% = in round figures]. (The OECD lists bank interest income for 2008 as $124C billion. However, total debt increased from $4443B to $4773C = $330C billion whilst M3 increased by $115 billion, suggesting interest of $215C billion) This compares to tax revenue of: $280 billion [2015] However, tax revenue sits in a bank account waiting to be spent by the government whereas interest to the bank disappears from the money supply. It is the banks that control the magnitude of the money supply and they do not do it well.

There is a deadly flaw in the current money system. The government does not use its own cash currency to pay its bills and finishes up in debt. The government uses bank accounts that use Bank Credit, misleadingly called Digital Money. So the bank has to build up Bank Credit before it can use the Bank Credit to pay bills. Here lies the rub: The government has to build up Bank Credit which it is not able to create itself. The government obtains Bank Credit by issuing Bonds, which is a polite way of saying it borrows money. It borrows virtual Bank Credit. To pay the interest, the government collects taxes and sells public assets. When the asset stripping is at its limits, taxation is destroying business and Bond issuance is at its limit, the banks or central banks have to lend more to stave off collapse. 'Bond issuance is at its limit' is termed 'collapse of the bond market' and you will see a central bank purchasing bonds to prop up the bank loans. This can be seen in the graph of UK debt. It is usually worded as the government's fault but in reality, the banks are protecting its mythical virtual money system from collapse. Banks can bankrupt individuals and business with comparative ease, but bankrupting a nation is not wise.

Bank of England purchases bonds

In the limit, the system collapses. There are not enough assets to sell, the nation becomes too inefficient for business to pay tax and the hoarders no longer want to hold government debt (bond market collapses) and the private banks through their patsy, the central bank has to take on more government debt that is both uncollectible and unpayable. The big error of banks is the lending of money to a government who will be ultimately unable to pay. As soon as the asset stripping reaches its limit, the government will default and you will not be able to extract your pound of flesh. My message to banks: Now that you have all the assets, let the government have a public bank and extricate yourself from the impossible collection from this debtor. The government can only pay the debts using Bank Credit created by yourself. You have no chance to collect on your debts.

If a government runs a public bank the situation is quite different. The government creates money and spends it into society on services and infrastructure. This procedure encourages transactions in the Real Economy rather than letting the money become Hoarded Money. An example is the Bank of North Dakota which helps make North Dakota the most solvent state with low unemployment, no budget deficit, and a thriving economy. It invests in the state rather than Wall Street.

The Cycle of Currency

Cash is created by the government through the Treasury or central bank. This cash is not used by the government to pay its bills. This cash moves from the central bank to high street banks who fill the teller drawers and ATMs. Citizens convert part of their bank-credit into cash and spend the money in shops. The shops deposit the money back in the bank, who then top up the teller drawers and ATMs. The cash is primarily used in the retail sector and for a few interpersonal transactions between citizens. The typical cycle is ATM to citizen to retail shop to bank to ATM. Cash is 3.5% of the money supply in Australia (3% of the money supply in UK and typically less than 5% for most countries). It is possibly less than 1% of the total value of transactions. [10063] Cash creates no debt. You either have cash, or you have no cash. Cash has a minimum of zero. Cash is debt-free money. We should use more of it, not less.

Double Entry Bookkeeping

Double entry bookkeeping is a very clever system of accounting. This bookkeeping system assists in the prevention of many types of errors and fraud. It has a background concept that money can neither be created nor destroyed which is all very good until we need to create new money. Under the principles of double entry accounting, if one business account is increased then another account is decreased. Double entry accounting system uses, at least, two entries for every transaction that takes place. For each transaction, one account is credited whilst another account is debited for the same amount. This, unfortunately, allows negative amounts to be created. The double entry accounting system allows new credit to be created as account entries provided that an equal amount of debt is created at the same time. This is what happens when a bank makes a loan. Equal quantities of credit and debt are created at the time of creating a loan. Plus one million and minus one million equals zero. The bank is capable of creating new credit for money without any external intervention. When a bank creates a loan of one million dollars, the money supply of the nation increases by one million and the total debt in the nation increases by one million. No transaction takes place at the central bank.

The Bank Charter Act 1844

In 1844, the government of England passed a law to prevent the banks from printing currency notes. From 1844, only the Bank of England was allowed to print currency notes. One would assume that this would stop the banks from creating money. The human is very inventive. It did not prevent the banks from running accounts for their customers in which they could 'deposit' Bank of England currency notes. The bank credits an account in the customer's name. This credit can then be moved from account to account using cheques and so payments can be made without physically moving real currency. The bank then allows persons to 'borrow' to pay for items such as houses. They do not give the borrower currency notes from the Bank of England. They write the agreed amount into an account of the seller and an equal but negative amount into the borrowers account. They can do this even if they do not have the agreed amount in currency on the premises as only numbers are changing not real money. The system becomes entirely virtual. Thus, the bank deposits become an alternative substitute for the Bank of England currency notes. Over the years, the proportion of this substitute Bank Credit has eventually dwarfed the volume of currency issued by the Bank of England by a factor of thirty.

Although this practice is widely derided, it has one interesting advantage. If banks were prevented from making instant loans without first obtaining real banknotes from the Bank of England, there would be a lot of businesses that would not be able to operate or operate to full potential. The demand for money is greater than the amount of money the Bank of England generates as currency notes. Money is a means of enabling transactions. Money goes round in circles. It does not matter that it cost nothing to create. People conducting numerous transactions only care that it is available when needed as they hold it for a very short time. Here today, gone tomorrow. It is the movement of money that moves goods and services from one person to another. If the government were to only create currency and spend it into society, you would have to work for the government to get your hands on some of it. A trader doesn't want to own the currency as much as let it flow past his hands so that goods and services are transferred to others. It is a huge failing of our money system that the authority vested with the supposed monopoly for creating money has no mechanism to release it on and as-needs basis to small time businesses. Banks, thankfully provide this service. They magic up money in the form of credit, instantly to fulfill the short term needs of businesses. The government is so inept, that it does not even provide enough money to satisfy the citizenry on a long term basis. The banks have grown to fill the void. The credit created by banks has become so easy to use that the use of cash has become relegated to small volume transactions in the retail trade. We are surprised when a villain in a James Bond movie opens a suitcase full of currency notes. The government money is so inadequate that is is not printed in anything larger than a one hundred dollar note. I can write a cheque for one million dollars.

Over history, governments have slowly moved with the times creating, first metal coins and then parchment notes. It is now necessary for the government to move with the times and create a more usable version of money. The system needs to be done the way government has always created money in the form of units and not balances as with banks. The government would print a range of large denomination currency notes that would be left in a vault. Each would have an identification number and an encrypted number and we can consider them as digital cash as they actually represent real cash notes.So I shall call them dash, being short for digital-cash. The government would spend these into society. A series of independent national computers would record each digital unit. Each person in the nation would have a smart phone or smart card which would be a list of the 'dash' units they own. Computers would keep a record of the latest owner of each dash unit in the form of transactions. I describe the system in detail in a while. Whether this scares you or not, there is no doubt that we are already digital in a dangerous manner. We need to make the digital system match the needs of society. This new digital money is created without debt. The government generates whatever it needs, within reason, and spends it into society.

The banks have provided a valuable service by providing a money substitute on demand that allowed business to prosper over the last few centuries taking us to the peak of technology today. The government is just too inept and inflexible to provide this service. Banks also created ways of paying for goods from distant nations through a network of working relations between banks of different nations. None of this would have been achieved if the 1844 act had prevented banks from creating credit to allow business to flourish.

It is here that we need to investigate the possibility that the government create digital currency with no attached debt and spend it into society. And here we need to have a look at the 'Positive Money' group in the UK. They do not have a workable formula at present but I am confident that with a little kicking and they will get to a workable formula. They lack a procedure for flexible loans to business. Their current proposal lacks the flexibility needed by business. The addition of a national public bank to their proposal would be a part cure and a modification to the use of digital units rather than balances. Digital units means that the money can operate independent of a central computer system. A digital unit only needs a genuine id and its transaction history to show that it is genuine. National computers would frequently update the ownership records of individual dash units.

The assumption that a government spends into society to satisfy the needs of society is sorely inadequate. It is the flexibility of bank overdraft facilities that allows businesses to increase their share of the money supply, independent of government policy, that has allowed the rapid rise of business entrepreneurship.

The government needs to catch up with the modern world and provide a money system that is as popular as the digital system of the private banks. The banks use a balance system but this is inadequate for a government system. A digital unit system is more appropriate as it exactly matches the cash money notes the government currently makes.

Money as Tax Credits

Money can be considered to be tax credits. Money has value because we need it to pay for things. The real decider here is the government and its tax department. There are two ways of draining money out of the circulating component of the money supply. One is the tax department and the other is the payment of bank interest. As should be abundantly clear, the tax department does not need to collect money so that it can be re-spent. It taxes to prevent a wild oversupply. Thus, taxation creates demand. It is thus possible to think of money as tax credits. One works jolly hard to earn tax credits with which to pay one's tax. It is also true that one works jolly hard to pay interest due to the bank.

It is feasible that my state government could issue tax credit notes and the same with my local council. My local 'Vincent Council' could issue tax credit notes, perhaps as Vincent 'Punts'. This alternative currency could help survive a collapse of the central bank dominated money system. At the time of collapse, they could make the local currency equal to, say, one thirtieth of one ounce of silver. It would thus be possible to feed the local population from the roundabout farms.

The second major way of removing money from the money system is interest. Interest is a payment on the total debt to banks. Thus, it is a type of money wealth tax not paid by the owner of the money but the person that had need and borrowed it. It removes vast sums from the money supply each year. A thumbnail guestimation for Canada might give $250 billion annually [Canadian Dollars $5075 billion x 5% = in round figures]. This compares to tax revenue of: $280 billion [2015]

Money removed from money supply by interest (guestimation)=$250 billion[Canadian Dollars $5075 billion x 5% = in round figures]
Money removed from money supply by taxation=$280 billion[2015]

Thus, it is also the banks that create demand by reducing the money supply. They very kindly lend more into society except when they get nasty and dry up the supply and cause a recession or depression. We are effectively renting the money supply of the nation at a cost to the nation of the order of $250 billion. Each one hundred dollars in a bank account is costing someone $30 in fees each year.

I put it to you that it is the banks that currently determine the magnitude of the money supply. The banks are recollecting interest and making new loans. The government only controls by default. If the government crosses swords with the banks, the banks have the ability to cut new lending and drive the government out of office on the public belief that the ensuing recession was caused by government incompetence.

Where does Bank Credit Come From?

The second type of money is Bank Credit. It is questionable whether it should be called money, but citizens have been conditioned to call it money. Some call it Digital Money. Let us work out what is in a bank account. You walk into your bank and hand over a one hundred dollar note. The note is put into the teller drawer and the teller types that the bank owes you one hundred dollars more than the minute before. The one hundred dollar note is then given to the next client in the queue who then walks out of the door with your note. Your $100 note is not held in a vault for you to collect at a later date. The bank does not hold cash to the value of the aggregate of all customer balances. The bank does promise to pay you one hundred dollars in government issued money at some date in the future. The bank keeps a small float to cover any difference in the rate that customers request cash to the rate other customers deposit cash. The total value of all account balances vastly exceeds the total money created by the central bank. Thus, the credit in banks did not come from the central bank. So where did it come from?

This is tied up with the practice of double-entry bookkeeping. I surprised a young bank employee the other day with this story: You enter a bank and ask for a million dollar loan. The bank looks at you and agrees to loan you the money to buy a house. On the day of the transaction, the bank credits the house seller with one million dollars with a plus sign and writes one million dollars into a loan account in your name with a minus sign. No transaction took place at the central bank. No cash moved. There is no one million dollars of government cash currency anywhere in sight. The bank simply creates ledger entries. There is now one million dollars more money in the nation and one million dollars more debt

Bank Credit is created when loans are made. The green section of the graphs represents the total of all loans created by the bank. Simple logic will end the idea that currency deposits created the green part. Currency is created by the central bank and is transferred to banks when paid for with adjustment of credit accounts at the central bank. From then on the money gets to the citizenry when they exchange Bank Credit for cash. This is completely balanced by the reverse process. So bank balances are not a result of deposits, partly because of the balance of movements and origin of currency, and partly because the volume of Bank Credit vastly exceeds the volume of currency ever created.

Transactions between bank clients are affected by internal bank transfers by adjusting bank balances. They simply adjust the volume of Bank Credit in the two clients' accounts. Transactions between clients of different banks are again affected by adjusting bank balances between banks. There are 18 billion of these transactions in the USA annually. [10064] Generally, the transactions between banks cancel each other out and minor adjustments are needed between banks to make up for any daily shortfall. These shortfalls themselves are just adjustments in credit accounts in each others banks and accounts at the central bank. No cash moves in the process.

Bank of Venice 1345

The story of the Bank of Venice gives us some information about the forces that could destroy current civilization. What occurred in 1345 was a comprehensive financial collapse.

The main family banks of Venice had branches in many countries including England, Netherlands, North Africa and the Middle East. They drew much of their profit from fees levied on the exchange of currency, which in modern times is the area controlled by the privately owned corporation calling itself the 'Bank for International Settlements'. The international nature of the Venetian banks facilitated trade between nations. Loaning of money is good business until the magnitude of the loans exceeds common sense and default occurs as asset stripping reaches its limit. The creation of credit with attached debt by double entry accounting until it someone calls their bluff by demonstrating that the credit is virtual. The author Fernand Braudel demonstrated that Venice, leading the Italian bankers of Florence, Genoa, Siena, etc., willfully intervened from the beginning of the Thirteenth century, to destroy the potential emergence of national governments. [10062] Fernand Braudel wrote this:

"Venice had deliberately ensnared all the surrounding subject economies, including the German economy, for her own profit; she drew her living from them, preventing them from acting freely. ... The Fourteenth-century saw the creation of such a powerful monopoly to the advantage of the city-states of Italy ... that the embryo territorial states like England, France and Spain necessarily suffered the consequences." [10062]

Many of the governments had effectively been 'privatised' by the actions of the banks and the conditionalities imposed are similar to the modern day conditionalities of the IMF and the current 'Free Trade' arrangements where foreign corporations have more rights than nations and their citizens.

An example of one of a few privatization arrangements, in 1325, a Venetian bank owned the revenues of the Kingdom of Naples which encompassed the southern half of Italy. This was a productive grain growing area. [10061] They owned and organised the King of Naples' army, collected his taxes, appointed the officials of his government, and sold the grain from his kingdom. [10061] They encouraged wars with Sicily to reduce Sicily's grain production. [10061]

In the 1330s, the big Venetian banks lent vast sums of Bank Credit to King Edward III of England. England was then, the equivalent of a third world nation. Their lending to King Edward III was done with brutal 'conditionalities' which enabled them to seize and loot his revenues. [10062] The IMF uses similar 'conditionalities' in its lending to current third world countries. By 1342, King Edward was effectively under bank servitude. The Venetian banks had also rigged the exchange rate against King Edward in much the same way as exchange rates destroy Third World Nations today. As is typical of usury, it is impossible for all to repay and the banks started to lend even more to prevent a collapse. These days this is called a 'bailout' rather than 'lunacy'. By 1343, as the war with France was not going well for Edward, he refused payment to the foreign bankers. His opinion was later shared by Shakespeare. The problem of lending to kings was overcome by revolution to replace kings with pliable parliaments that would happily follow instructions.

The population of Europe was suffering under this usury by Venetian banks. Food production was down and the impoverished were finding their way to the cities. In 1345, the world's biggest banks went under. It was more than a bank crash, it was a financial disintegration. All Bank Credit simply disappeared. Only the cash currency remained. Trade and exchange dried up.

The devastated society was starving and unable to protect itself from the plague when it arrived a few years later. Financial disasters are really human disasters and this one claimed the lives of more than 35 percent of Europe's population by starvation and disease. [10061]

The collapse of credit was caused by banks. When banks create credit out of thin air and demand greater amounts in return, it is impossible to pay. Eventually, the inability to pay exceeds the ability to asset strip the debtors. More and more credit is advanced until the whole system collapses. No food, no money for wages, no farm produce moves, savings are destroyed. It collapses suddenly, without warning. Suddenly may mean overnight. Everybody thinks everything is going swimmingly, and next morning the ATM's don't work, your bank balance is unobtainable. Only cash is accepted at shops and within days the shop shelves are bare. Rioting erupts. Food ceases to be transported to the cities. Martial law arrives. John Maynard Keynes stated in 1927:

We will not have any more crashes in our time.

We have a similar situation at present where the banks have encouraged nations and populations to use their virtual Bank Credit and are now lending money as bailouts to those that cannot make the impossible payments. One indebted nation could claim that the debts were invalid and repudiate its debts and the whole charade could collapse. If, for example, a government receiving Euro-denominated credit from the IMF, doubted that the money came from the authorized issuer, the ECB, the game could be over for the banks. Unfortunately, the world relies on Bank Credit for its operations. In 1994, Lyndon LaRouche's predicted in his '9th Economic Forecast' a blow-up of all major banks and markets in Europe. The authorities even locked him up to quiet him. The risk of ignoring his warnings is too great. Please do a Lyndon LaRouche  websearch on "Lyndon LaRouche" or 'larouchepac'. In Australia, the CEC carries his message. Get on their email list. They send fascinating updates. Please read the article 'How Venice Rigged the First, and Worst, Global Financial Crash by Paul Gallagher' to get an insight on how our modern world is rigged and how it may collapse.

Home Ownership

Home ownership brings substantial social benefits, not only for the family but also for the local community and the nation. It influences the performance of children in schools, physical health, psychological health, personal satisfaction, self-esteem, happiness, house maintenance, district maintenance, tidiness, family stability, reduces inequality, lowers housing costs in retirement, is an asset that can be liquidated in retirement and more. Homeownership will bring less dependence on the state and can be considered one of the essential elements of freedom. It gives a sense of personal ownership and a sense of ownership into the nation.

A high homeownership rate should be a national policy of high priority. Situations where the houses are owned by private or publicly owned enterprises, will result in less than ideal neighborhoods. It is inappropriate that some own extra houses to the exclusion of others. It is a house that is effectively priced out of the reach of a prospective house owner by the superior buying or borrowing power of speculators and this often occurs because of advantaged tax arrangements granted to investor-speculators. A house should not be used as an item to make a personal profit. A house should become a home for a family and become a physically and financially secure and safe environment to raise children. We can never be a prosperous, safe and trouble-free nation whilst houses are owned by other than those who are living in them. Homeownership is the key factor to make quality neighborhoods.

Before the land title system, land was available to all or was divided up by local consensus according to need. Where certain elements in society have no access to land, the whole of society will suffer. Where facilities are only available to those with access to money, you will find fringe dwellers on the street. This is neither pleasant for the fringe dwellers and is unpopular with the affluent. Over the years, common land for common use by all people has slowly been reduced or has disappeared and those living and toiling on the common land are driven off and become fringe dwellers. To use the 'get a job' attitude is also not logical on the grounds that there are not enough jobs to keep everybody gainfully employed.

People live and die, but land is perpetual and was created for the benefit of all living creatures. No activity should damage the land in a way that might alter its use for future generations. The land is to provide for the living and for those yet born. We are guardians of the land for future generations.

The aspiration to create a perfect a society will require an environment where people are happy and free and able to achieve reasonable goals. To own one's own dwelling will be fairly high on this list. To create and be part of a happy and fulfilling family in a stable home in an uplifting neighborhood would also be a common goal. A stable home environment requires security of tenure which is best achieved with homeownership. Homeownership also gives stability and security in old age. It removes the fear of a life of homelessness in old age that is a reality in rental dominated localities. Whilst people live under the demands of rent or debt repayments, no peaceful society is possible. The best cared for neighborhood of a city will be the areas with the highest house ownership rates. For a vibrant economy, it is necessary to have very high homeownership.

Buying five houses for personal gain, effectively robs five families of the opportunity of a home and by some means must be restricted or stopped. I have been heard to yell at the television when a man comes on to tell me that he can 'build me a property portfolio'. What an awful thing to do, to purchase homes out of the hands of young people, purely for personal financial gain. What an awful thing to do to use inappropriate taxation rules to price houses out of the reach of our young.

I have met and spoken with many 24-year-olds and one memorable comment was: "Andy, we despair at the thought that we may not be to buy a house." Homeownership has always been part of the "Great Australian Dream". We are failing our young by allowing houses to become unaffordable. You can blame the young for whatever you like, but it is not their fault that the adults have priced houses out of the reach of the young.

Buying houses on favorable tax arrangements is the very essence of exploitation by those that don't even realize they are exploiting those who don't even realize that they are being exploited.

The restriction on foreign ownership is not done on the basis of discriminating against foreigners, but on the basis that houses are homes for people residing in the nation. It must not be forgotten that houses are homes for people, not investments for gain.

What I've noticed in Australia since my arrival in 1976 is that house prices fall to giveaway prices in regions that have little employment. When I arrived in Perth as a backpacker in January 1976 and settled into a job as a mathematics and physics high school teacher, I was still a keen traveler. In our blue-and-white Holden EJ station wagon, we would travel this wide-open state. In Kalgoorlie, eight hours east of Perth, houses were very cheap and there was not a lot of employment activity. It was a mining town in heavy decline. A few years later, new mineral deposits were found and house prices rose to quite amazing prices. Same houses, same town, new employer, new house prices. The only difference was highly paid mine wages. Where did the money come from to buy new houses? Banks. Banks could lend more money to people with high wages, so the house prices rose to the limit of affordability. The bank became the main beneficiary of the mining boom. It can be argued that the availability of unlimited Bank Credit allowed the prices to rise. The high wages and limited supply allowed the bank to increase the availability of Bank Credit which causes the prices to rise to match the income of the purchasers.

There are other small townships in Western Australia, in the middle of nowhere, somewhere beyond Whoop Whoop, where people are incentivized to buy cheap houses on large housing blocks. Who is likely to move there, if there is no work in the town?

As a computer consultant doing work for the small government department, I had a fascinating conversation one day. Marianne, a wonderful middle-aged lady of Italian descent said to me: "Andy. I remember when we bought our first house. The bank would only lend money based on my husband, Victor's, income." It was in the days when it was common to talk about instances of inequality. I thought for a while and said: "Marianne. I bet the price of houses doubled, when they took two incomes into account". And she replied: "Andy. You're correct. They did double in price." I often recollect that conversation and I use as an illustration that the price of houses is more dependent on what a bank can gain in interest than on the supposed value of the house. Thus, we have a house pricing arrangement that raises the price of houses to the maximum level affordable by purchasers. If, for example, 30% of houses are going to speculator-investors purchasing with tax advantages, then approximately 30% of young people will be priced out of the house market. Those particular young people will be those on the least income. There will be massive pressure by the young to maximize the income to a level that makes house purchase possible. Irrespective of the joint effort, 30% will be priced out of the market. This will have social consequences. The ignorant affluent will happily complain about those lower down the economic ladder, without ever considering that they created the problem by supporting inappropriate policies such as Negative Gearing. Negative Gearing is a special concession to the affluent to subsidize their purchase of investment properties. This allows investor-speculators to outbid the lower one-third of income earners when buying houses. Houses appear so expensive to the young because they get outbid because negative gearing allows those with a slightly higher tax bracket to outbid them because the government subsidises the interest with a tax concession called 'Negative Gearing'. My little secret for the young. Buy a house and rent it out and get the same tax deduction. This will also stop you overspending on improvements.

The Two Types of Money

Thus, there are two types of money. Cash and Bank Credit. They are entirely different but they both have the same unit simply because Bank Credit is stated as being equivalent to government issued money. Bank Credit is credit for an equivalent quantity of currency. Banks are very clever to ensure you can very easily convert reasonable quantities of Bank Credit to cash to demonstrate the equivalence, but they are not the same. One is money and one is credit. The so-called 'money in bank accounts' is sometimes called 'Digital Money' but it would be more appropriate to call it: Bank Credit. Bank Credit can be positive and negative and thus is makes it easy to resort to Usury and unpayable debt. In my graphs, I use orange for cash (currency) and green for Bank Credit and Bank Credit vastly exceeds cash currency in all countries that have a bank.

It is a lack of understanding of the relationship between cash currency and Bank Credit that leads to governments being in debt for Bank Credit. It is because the government creates cash currency, but not Bank Credit, that causes the National Debt. So our solution requires that the government create Bank Credit by some means to avoid debt. Methods include:

The government creates more currency and hands it to a bank teller to build up Bank Credit in the same way that is available to other bank clients. This could be at a private bank or at a government-owned public bank. This can be called the 'Trillion Dollar Coin' solution.

The government creates a public bank which is owned and operated by the government. The public bank is capable of creating Bank Credit and debt in the same manner as any bank by the process of double entry accounting. The public bank loans money to the government for the purposes for which it is chartered to do so. This charter may have restrictions to prevent profligate spending and to channel money to projects that enhance national efficiency.

It is possible to arrange for the treasury to operate a computer system where Digital Money is created without corresponding debt.

The government may delegate the task to the national bank, or even the central bank. In this case, the treasury sends a note to the national bank to create a billion dollars, so the note itself could be considered to be the money generation. As the seigniorage needs to revert to the treasury, it might just as well be the treasury that creates the digital money and transfers it to the national bank or central bank. Why bother with this possibly flawed and untried procedure when the treasury could just mint a billion dollar coin on occasions. These billion dollar coins could have a registered serial number which would be track-able in the same way titles to land and vehicle ownerships are registered. All movement of billion dollar coins must be registered, which makes them digital. Like cash, the billion dollar coin can only be positive. When money is lent, only government numbered coins may be lent. There will be no more lending of non-existent as is currently the case.

The Debt

The debt created when Bank Credit is created magnifies at a rate called the interest rate. This creates the situation of More Debt than Money as shown in this graph:

The magic of interest. A graph showing how debt increases compared to money.

This is the same graph that is taught by school teachers as "Compound Interest". Unfortunately, the teachers do not teach that this makes the interest unpayable. Foreclosures become inevitable and there is a constant clamor for more money to pay interest which then leads to even more debt. How could so many educators not have noticed the impossibility of what they are teaching? Anything of limited supply that is magnified by interest creates an impossible situation. This has been regularly repeatedly through history but the logic is consistently ignored.

The Sixth Flaw of Economics

   Exponential interest is exponentially dangerous. Every effort should be made to avoid any person or organisation from getting into an exponential interest situation.

Moses about ~1440BC or maybe 1513BC

Moses said Moses said:

    Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury. [Deuteronomy 23:19]

It wasn't all good. Usury against what might be termed a 'foreigner' was allowed.

Moses Moses also said:

    For the Lord thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over thee. [Deuteronomy 15:6 King James Version.]

Moses proscribes lending at interest as a weapon of control and enslavement which led to the servitude and genocide of the Canaanites and might possibly do the same to us. The modern day method of controlling nations would be through corporations acting in a supra-national manner. The TPP and other free trade arrangements would facilitate this along with so-called 'world banks' operating as private corporations. Do not forget that India was governed by the British East India Company.

The next graph is a theoretical graph where money supply of a nation grows at 10%:

The magic of interest. A graph showing how debt increases compared to money.

Compare this to a graph of a Ponzi scheme. A Ponzi scheme is where past investors are paid interest with money from new investors.

The graph of a typical Ponzi scheme.

An anonymous quote on Ponzi schemes:

This cadre of bankers, investors and financiers are the modern equivalent of the money changers that the legendary Jesus allegedly drove from the temple. They are those who worship Mammon in churches such as the Federal Reserve, World Bank, International Monetary Fund, Bank For International Settlements, the City of London and Wall Street. They take unearned wealth through the crime of usury and employ a plethora of Ponzi schemes to assure that all profit fills their coffers whilst all debt becomes the burden of those who are actually productive. They privatise the profit and socialise the debt.

The current banking system uses newly created Bank Credit to pay past interest. If new Bank Credit is not created, then past interest cannot be paid and the system collapses. I leave it to you to decide if there is a similarity.

We Need More Debt

To create a vibrant economy, the Circulating Money component of the money supply needs a constant slow increase. This slow increase is needed to prevent commercial paralysis, commonly called a recession. To constantly increase the green, more credit needs to be lent by the banks. Thus, there is a constant need to find new areas on which to hang a debt. We are quite inventive about this. To keep the momentum of economic transactions, we need to create more green. To create more green, we need to find more areas that will hold a debt. Thus, the constant need for assets and items on which to hang a debt. Besides hanging debt on what nature freely provides for all to use (land), we now hang debts on other areas:

Debts are hung on those studying, even though we need trained persons to keep the nation efficient and productive.

Debts are hung on farmers producing the food on which we rely.

Debts are hung on our gullible young with credit cards.

Debts are hung on governments that have the authority to create their own money.

Debts are hung on phones.

Debts are hung on consumer items.

You are paying interest on money that did not exist until we lent it to you.

To pay the ever expanding debt, our governments flog off anything in sight, irrespective of whether it is nailed down. Anything the government can sell off is sold to cover interest on debts to banks. This is a bit strange considering that money is manufactured at no cost on an as-needs basis by banks. We are selling off national assets to pay interest on money that did not exist before we borrowed it. Assets are being sold for the use of money that could be created by the government.


When the activists discuss 'inequality' in the financial sense, they do not seem to be aware that it is inescapable. If the green part needs to increase steadily, the red part must also increase and new areas must be found on which to hang a debt. The gap between those in the green and those in the red must necessarily increase. We are forcing debt to increase to avoid a recession. Increased inequality is inescapable. A smaller number must necessarily own the assets and operate in the green and a larger number must operate in the red. The ability to pay is somewhat irrelevant provided the green constantly expands. Paying off the debt, if it were possible, would destroy the system.

We can modify the system to stop this. Changing the system to stop the debt is historically dangerous and often fatal.

To create a debt-free system

takes some mighty wisdom.

Many have tried.

Many have died.

There is a long list of dead people that advocated money reform. I had to wonder whether I would be put on the list writing this book. Recently an outspoken anti-globalization, economist, Bernard Maris 68, happened to die in the Charlie Hebdo killings in Paris. He stood against inequality, injustice and oppression.

The history of the world takes on a new dimension when you study the financing of war. Who financed Oliver Cromwell? The assassination of Caesar was all about the control of money. William of Orange was all about changing the issuance of money. Money matters were involved in the assassination of JFK. Jesus got nailed to a scaffold a matter of days after challenging the moneylenders from a different Hebrew sect. You will need to be brave to change our money system. You and I have a deadly mission ahead to fix this system.

Rate of Increase of The Money Supply

A simplistic view of the situation makes it appear that the Money Supply of a nation needs to increase slightly each year. However, what we really need to look at is the increase in the volume of Circulating Money.

Velocity of Money equals Two by Andrew Chalkley

Hoarded Money remains stagnant and adds nothing to the level of real economy. Hoarded Money includes savings by citizens and organizations as well as pension funds and money put into tax havens denominated in national currency. Increase in Circulating Money is needed for the following reasons:

  1. To cover money hoarded.
  2. To cover increased economic activity.
  3. To Encourage increased economic activity.
  4. To cover interest charged by banks.

For the mathematicians:

The calculations assume a cut-off of one month between Circulating Money and Hoarded Money:

Velocity=GDP / Money Supply
Circulating Money fraction=Velocity / 12(Using my standard one month cut off)
Circulating Money=Money Supply x Velocity / 12
Circulating Money=GDP / 12

I have no ideal figure for the annual increase of Circulating Money. Common figures appear to be somewhere between 1% and 15%. If one assumes a constant velocity, the annual increase in the money supply for the USA is about 5% and China releases about 15%, whilst UK is all over the place, but is about 7%. The Euro Area releases about 8%. Zero increase will generally cause a recession and negative increase tends to cause a depression with business closures and high unemployment. Using the rate of increase of Money Supply as a sole guide is a totally unfair as an increase in the velocity of money will make a similar difference. To raise the economy, it is necessary to increase the Money Supply or ... increase the velocity. Velocity is commonly neglected. To increase velocity, it is necessary to reduce impediments to movement of money. The taxation impediments include: income tax, company tax, sales tax, transfer taxes and stamp duty. The hoarding of money is reflected in the velocity. A decrease in hoarding is the same as an increase in velocity which will have the same effect as an increase in the money supply. The following graphs are typical figures for increase in money supply:

Fluctuation of the money supply USA by Andrew Chalkley data from Fred

China Money Supply Growth by Andrew Chalkley data from Fred

Euro Area Money Supply Growth by Andrew Chalkley

Circulating Money is shown in this graph:

Circulating Money USA by Andrew Chalkley data from Fred and TreasuryDirect

The change in Circulating Money is shown in this graph:

Circulating Money Annual Change USA by Andrew Chalkley data from Fred

Circulating Money Annual Change China by Andrew Chalkley data from China National Bureau of Statistics

Circulating Money Annual Change Brazil by Andrew Chalkley data from Quandl and Banco Central do Brasil

Money on Demand

There are reasons for wanting money. A family needs to feed itself. A family business needs money with which to trade before it can feed itself. It needs Circulating Money available to it for stock and equipment purchases and Circulating Money to pass through its hands to make income and employ people. Yet Circulating Money is never mentioned as an item in its own right. It is just assumed to be a part of the money supply. A simplistic assumption is made that an increase in the money supply is equivalent to an increase in Circulating Money. Nothing could be further from the truth.

A business trades to make a small profit to feed itself. So the money needs are different. A family needs money as an end user. A business needs money in two different ways. It needs money to purchase stock and equipment before it can start in to trade and it needs money pass through its hands to sell product or services from which it makes a small profit. The small profit is syphoned off to feed the family or it is reinvested to expand the business. The small profit may be irregular. The money needs are different. If these needs are not met by government, the economy and GDP will suffer. Unfortunately, governments constantly do the opposite of what it needed to bolster the economy.

There are a few ways of obtaining money. One is to earn it. Another is to borrow it. It can also be counterfeited, obtained as unearned income as interest or stolen. A family needs to earn to eat and thus, there must be enough 'earnable' money in society. This is generally associated with terms such as 'high employment rate' and 'job vacancy rate'. It is most convenient if the government spends money into society in a manner to ensure that there is always sufficient money able to be earned. Businesses trade and have no means of obtaining a start-up money or 'float'. These businesses, as a group, need a supply of money before they can trade to make an income. They need someone to advance them money or credit to start and operate the business. This has been provided by lending services of a bank. Sometimes, family and friends will advance money. Occasionally the government will run a National Development Bank chartered to ensure adequate credit is available to appropriate businesses at all levels. Private banks occasionally do this well but occasionally are dreadful. The stock exchange is a source for established businesses. Many of the issues faced by business could be alleviated if government taxation rules were not so harsh on business. The harsh tax rules stifle business and encourage businesses to scamper to the money-lenders to operate their business.

In the Middle Ages, the numerous mints of England allowed people to mint their gold into coin at any of numerous local mints all over England. This had the effect of increasing the local money supply on an as needs basis as trade or economic activity increased. The sovereign thus allowed the money supply to rise and fall on an as needs basis partially independent of the spending by the sovereign government. Thus, the English society had a way to supplement the volume of money created by direct government spending as modified by taxation. This was not a particularly good way of increasing the Circulating Money, but it did allow an increase. A modern equivalent is the local currencies like the ones used on communes or the time-based systems or the product based ones in trade circles. If the money supply were limited to government spending, the supply would be unlikely to match the need of the Real Economy. The Real Economy needs a more flexible supply that matches immediate need for carrot and egg trade. This money available for carrot and egg trade is badly affected by the stronger forces of hoarding and speculation. Under the current system, there is a tendency for the egg and carrot traders to scurry to the moneylenders for credit. Moneylenders will increase the Circulating Money immediately and in a flexible on-demand manner. The bank analyses the business and sets up a flexible overdraft with a fixed upper limit. This enables business to thrive and expand. The imposition of a small percentage in interest is a minor expense to a business. However, the flexible loan availability has also been extended to individuals for consumption purposes, housing, land speculation (re-branded as investment property purchase) and financial market speculation. This has enabled the loan to become the major source of money in the world. The banks now tend to favour lending to all other areas other than business. The flexibility of the bank loan, comes at a the huge cost to society, which becomes saddled with magnifying and unpayable debt. It does have flexibility and immediacy which a government is mostly unable to provide. The current money system was intended to be a government monopoly, but it has been augmented with a flexible private credit creation system of loans. However, this system has got out of hand and dominates money creation by creating in excess of 95% of all money used. A better balance is required, but it would be unwise to completely stop private credit creation because it adds a tremendous flexibility in line with business needs.

The Demand for 100% Backing

When a bank makes a loan, it creates positive and negative entries in its registers. The bank can make any amount of Circulating Money instantly to meet the needs of business. If the banks were to be required to have '100% Reserve Backing', they would be greatly restricted in their ability to increase the money supply in response to business demands. '100% Reserve Backing', as proposed, is not a workable solution.

There are also calls for 'only the government should create money'. This also will also create an inflexible money supply unable to meet the daily fluctuations in the money needs of business. Society would return to an almost permanent state of depression. Money would be hoarded out of use by those with 'more money than they can spend'. Humans would lose the permanent battle they have had with money since its inception. Hoarders would destroy the Circulating Money. Straight-out ignorance would win against those that operate the real economy that feeds the hoarders. Hoarders would unwittingly starve the businesses of money that the business need to feed the hoarders. It is as daft as the Californian gold rush where they forgot to grow food. It is as daft as pushing all the skilled farmers off the land in Uganda. Business without working capital and Circulating Money is not going to produce.

The only way '100% Reserve Backing' would work would be if the banks borrowed whatever money they needed from a national public bank. This might be at 1% or less or close to the operating cost of the national bank. The local high street commercial banks could then on-lend the money at a minor premium depending on risk. Some flexibility in the tax arrangements would help, as would a tax delay on expanding businesses and a removal of depreciation which would change business tax from a profit tax to a true income tax.

Only the Government Should Create Money

This demand appears to have a lot of merit, but I challenge you by stating that this would push the country into recession or even depression unless some extra considerations are added. You should support this move but it is not as simple as government creating money. There are some elements of madness in the proposition. Governments tend only to create cash currency, but the population has largely moved on to a crude form of digital money operated by the banking system. This crude digital money is in the form of a balance of what currency the bank owes the client. You do not physically own anything and if the bank goes belly up or its computer dies, your money disappears. Government needs to create a digital form of money in line with the currency notes it currently produces. The digital units need to be owned by the holder of the serial numbers. When it succeeds with this there is another large issue. If the government is the only agent able to create money, the supply will be too inflexible for business. When government creates money, it spends it into the society on infrastructure, goods and services. This serves the needs of the citizens by creating plenty of earnable money. Businesses have a different money need that is commonly overlooked. Businesses need money before they can trade to earn an income. Government rarely has a mechanism to cater for this need. Some National Development Banks provide this service. Businesses are often better served by banks. If a bank has confidence in the business owner, it will grant flexible overdraft facilities that allows the business to trade and create goods and services for the nation. Without money or credit, the business is a non-starter or is severely hampered in its ability to expand. Banks are excellent at enabling entrepreneurial activity.

If you were setting up a new state, you would set up a state bank to ensure that businesses have enough credit to operate and expand their entrepreneurial activities. This is what China is doing through its national development bank and sub-sets of the same. Spending 'government-created-money' into society does not serve the needs of business. Business is not a consumer of money, it needs money to trade. It needs money to be moving to enable the essential trade that feeds and supplies the nation. Government spending only supplies 'earnable' money. It does not supply money on-demand to allow businesses to trade and expand. Banks supply instant credit to business to allow business to trade. In the trading economy, there is a need for immediate local expansion of the money supply to allow businesses and individuals to be entrepreneurial. Government spending denies the opportunity for the people to increase the local money supply on an as-needs basis in line with their instant needs. I could not have started or run my previous business without credit advanced by a bank. The bank created an overdraft account for something like $100 000. This allowed me the flexibility to take on bigger contracts without worrying about cash flow. I could take on a $200 000 contract with big up-front expenses and not worry that I might not get paid for 90 days. This would not have been possible if I had to slowly build up my asset base to cover expenses. Profit gets taken by the government in taxation which makes it very difficult to build the asset base to acceptable levels because successful businesses get a tax punishment. Business cannot operate without a flexible money supply to bide the business over between the payment of expenses and the receiving of payment. The small interest fee was of no consequence to my business. This trading account could fluctuate violently between positive and negative. The bank was so reliable and accurate that we used its printed statement as the basis for our accounting. Commercial Banks provide a valuable service which allows business to function efficiently. Banks come up with new money very quickly. They check the bona-fides of the business and extend credit as needed within boundaries that they deem safe for that business. Consider the example of a farmer who needs credit in advance to purchase fertilizer and seed before he produces a crop. Without short term credit to purchase seed, the farmer is not able to feed the city people.

When government supplies all the money, there is a lack of flexibility. Short term desires for money are not available from the government. Banks are able to supply the instant credit that industry needs to operate. Banks allow the local money supply to rise and fall in tune with the local need for trading money. If all money is to originate from the government, the process will be too slow and unresponsive and business will suffer. However, the current situation is that more than 95% of the 'money' of the nation is created as Bank Credit and so the excessive bias toward Bank Credit needs to be changed.

Saving for a Rainy Day

Although my mother, Betty, believes in saving for a rainy day, she is not aware that the saving creates problems hidden from the hoarder. The Hoarded Money diverts money away from trade. Besides the damage to trade, there is a significant cost that is again hidden form the hoarder. Each $1000 sitting as Bank Credit in a bank account originated at the time of someone taking a loan and the loan has magnified to a debt of about $3000 held by someone else. In the graphs, each $1000 of green is balanced against $3000 of debt. That $3000 is costing interest of between $150 and $300 per year. The saver believes they are being a prudent and responsible but they do not realize that this is a burden to someone else bearing the debt and are stopping their Hoarded Money from creating thousands of dollars of wealth producing transactions and also preventing business persons from earning the money to keep their families in food.

As a society, we need to develop ways of saving that is readily usable but does not constitute a debt to someone less fortunate. It might be the use of precious metals or a government savings scheme or a local lending scheme on the lines of crowdfunding. Whilst the Real Economy freely moves money from seller to buyer to supplier, it is easy for one of these players to hold onto the money for long periods. The desire to hoard trumps the need for trade every time. Holding on to money is considered a right, but not having enough trading money to circulate is considered 'tough luck'. The trader has no right to chastise the hoarder. Nothing will force money to circulate when there is a determined hoarder. There is no recognition that the Hoarded Money could have enabled thousands of dollars of trade.

Keynes describes three reasons why persons might hold rather than spend money: They hold cash for waiting for the next transaction. They may hold money as a ready form of funds for an emergency. They may also hold money for speculative purposes.

Unfortunately, we have fallen into the error of believing that money has a real and long lasting value. Money has a value to the holder equal to the value derived at the next exchange. We ignore the value to the whole society which is the total value of all trades enabled by the money unit. We need alternative means for readily convertible storage of wealth and another way of ensuring that real traders have an adequate and flexible supply of money with which to trade. I can only give limited suggestions at this stage but one may be a flexibility in their tax account, allowing a percentage to be released for short term needs.

Neither is is recognized that Hoarded Money that returns to circulation dilutes the pool of Circulating Money unless an equal amount of Circulating Money becomes Hoarded Money. Any large move of Hoarded Money coming out of hiding destroys much of the value of the Hoarded Money. Thus, Hoarded Money is not a good as a 'store of value'.

The Nineteenth Flaw of Economics

   Money is not a store of value.

The Twentieth Flaw of Economics

    Hoarded Money is a money avalanche waiting to create hyperinflation.

How Money gets into and out of General Circulation

By General Circulation, I mean money that is used in the day to day trading between businesses and individuals. This is the Real Economy using Circulating Money.

Input #1 Government Spending

Money enters the General Circulation when the government spends on goods, services and wages. One has to work or supply goods to obtain this money, so only a portion of the populous has a direct avenue to this money. You need to do work before you have money to feed your family. Traders need money before they can feed their family. A trader's family gets fed from the small percentage profit on trading.

If you wish to create a mountain of bone china mugs for the Christmas rush, the government is not the avenue to obtain the unseasonal surge in money for materials purchase. Individuals and businesses need money for different reasons. To business, money just cycles from person to person moving product and service. A small amount, called profit, is syphoned off when available to feed the family. Government spending does not match the money supply needs of business.

Technically, with the banks creating the Bank Credit that the government uses, the money the government is spending already existed in a bank account. So they are not really increasing the money supply, but being a big spender, they influence the situation.

Input #2 Bank Lending

When the bank lends money, the money supply increases. This is immediate without having to work for weeks before obtaining the money. With bank loans, you work afterwards. You get a loan, you buy the materials, make the bone china mugs, sell the mugs and give money back to the bank with a small premium called interest. Bank loans generally go straight into circulation and benefit business enormously. The bank is very good at this and analyses the business viability. Businesses need banks to operate efficiently. The government does not cater for the money needs of businesses. The government is completely out of tune with the need for trading money in the Real Economy. Individuals need money to put food in their mouths and a steady job with the government is quite adequate at providing this. The individual can be drained of money by pay day and still live a healthy life. If the business has no trading money, it cannot operate. The business may be viable, but if it has no trading capital and cannot obtain credit, it has to shut its doors. Its need for trading capital fluctuates in a seasonal and unpredictable manner. The mechanism that the government uses to add money to the General Circulation is slow and tedious, inflexible and totally unsuited to business needs. Banks, on the other hand, are flexible and responsive to business needs. The bank evaluates the business and arranges a flexible overdraft up-to a specified limit. This flexibility allows businesses to thrive. However, it is not all good. Banks can be reticent to lend to business when they can get better return from speculative loans. An international accords called 'Basel III' requires banks to add compulsory unfavorable weighting to loans for business purposes. Besides the tax regime being unkind to SMEs, the bank system is also unkind. You can see the demise of small business due to lack of funds, lack of support and unfavorable treatment by the tax regime and unfavorable treatment by councils. You can see corporations and corporate chains expanding as they have better access to funds, manage to get round tax laws and push planning rules in their favour. Even the compulsory superannuation is clearly a massive slush fund for corporations.

Although one assumes the bank lends its money out, and thus it holds the collateral for the loan, this is not the case. When you buy a house, the bank uses your asset as the collateral for the loan. Businesses often have little more than a box of paperclips and so the bank charges higher fees and has a complex weighting system that prejudices the businesses that we need to feed our community.

Input #3 Government Currency Creation

The government creates new currency on a printing press. However, the government does not pay its bills with currency. The freshly printed currency gets into the money supply through banks. The bank credits an account of the central bank with Bank Credit and the currency is trucked to the banks and placed in ATM's. The cash then goes in a cycle: ATM to citizen to retailer to bank to ATM. The currency is paid for by the bank using Bank Credit, so I have yet to decide if additional printing adds to the money supply. However, the annual increase in cash currency is small enough to be irrelevant.

Input #4 Insignificant Other Inputs

Other avenues for money to enter the General Circulation includes: counterfeit money, government grants, direct government loans and, no doubt, something that I have yet to think of.



Businesses need money to trade.

Families need money to feed.

A family with no money goes hungry.

If businesses have no money, everyone goes hungry.

Businesses don't consume money, they pass it on in continuous cycles.

Items that reduce the General Circulation include:

Reduction #1 Taxation

For Canada, this is about $270 billion (Canadian Dollars) [Bank of Canada]

Reduction #2 Bank Interest

For Canada, this is of the order $250 billion (guestimate at 5% interest on public and private debt of $5075 billion.)

And some that can be ignored:

Reduction #3 Burnt and lost currency

Reduction #4 something I have yet to think of.

Consider the General Circulation Inputs:

Businesses sit at the heart of the economy. If business is starved of funds, in the form of working capital, we all go hungry. If workers are starved of earnable wages due to government cutbacks in spending, they will have less disposable income and businesses will cut back on production to match and lay off workers. So it is essential to maintain the two General Circulation inputs in appropriate proportions. If the government cuts back on its money input, demand will fall. If banks cut back on lending, supply will fall.

Consider the General Circulation Reductions:

Reduction #2 Bank Interest

Money exits the money supply by payment of interest to banks. Those paying interest would generally be those that have no accumulated money (Bank Credit) sitting in a bank account or currency under a pillow. So interest will be paid out of wages or income. It will not be coming from Hoarded Money in the bank. Hoarded Money was saved by those with more money than they need. So interest is paid from the non-hoarded portion of the money supply which is the section of the money supply that is used for trade in the Real Economy.

Reduction #1 Taxation

Taxation reduces the money in circulation and most of this is taken from Circulating Money. Sales tax is taken from transactions. Income tax is taken from wage transactions. Business income tax is taken from profit derived from transactions. The money that is in the hoarded section of the money supply escapes taxation.

So both forms of 'General Circulation Reductions' hammer the transactions in the Real Economy. So if taxation increases, the Real Economy is hammered and the effect is magnified. Increases in bank interest hammer the transaction side of the economy.


Government austerity is often requested after a country has problems paying its debts. Government cuts back on spending. Banks will then often cut back on lending. Austerity is code for reduced government spending and increased taxation. A better method of destroying an economy would be hard to invent. No effort is made to take money from the Hoarded Money belonging to people with more money than they need. And none of them are bright enough to spot that increase in tax rates often decreases tax collection.

The Conspiracy Theorists

The Banks Manufacture Money out of Thin Air

This has an element of truth but is not entirely correct. Banks operate under the strict rules of double entry accounting. If one account is credited, another account is debited. When they make a loan, the bank adds one million dollars to one account with a plus sign and one million dollars to another account with a negative sign. It is true that there is one million dollars more money in the nation and one million dollars more debt. They do not just create one million dollars and spend it to their own advantage. The main advantage is gained by the recipient. The business is able to trade and the young couple can buy a house. The bank only gains from the interest charged.

A sovereign government, on the other hand, creates currency by printing. The government creates money out of thin air and spends it for the benefit of the nation.

I have noticed that the IMF creates its SDR out of thin air in the same way a sovereign state creates currency. They create SDRs and exchange them for national currency. Here is the IMF description:

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is currently based on a basket of four major currencies, and the basket will be expanded to include the Chinese Renminbi (RMB) as the fifth currency, effective October 1, 2016. SDRs can be exchanged for freely usable currencies. As of November 30, 2015, 204.1 billion SDRs had been created and allocated to members (equivalent to about $285 billion). [10008]

The Goldsmiths Fraudulently Created Receipts for Gold That Did Not Exist

The story of the goldsmiths is usually told like this: The goldsmiths of Amsterdam allowed people to store gold in their vaults for safekeeping. The issued receipts for the gold. These receipts were passed as payment for goods from citizen to citizen without taking the gold out of the vault. The goldsmiths learnt that very few people actually collected their gold and so they lent receipts to persons for a fee. Although this might well be called fraud, it had the interesting side-effect of causing a gradual increase in the money supply, where it was needed, which allowed trade to flourish which was for the benefit of all society. It made Holland a powerful nation. As mentioned elsewhere, the money supply of a nation needs to increase slightly each year for a prosperous society. Sometimes it is only the banks that supply this increase.

The Government is Printing Money.

This is not correct. Economists often suggest that money is being printed. The government only creates cash currency and that only rises slowly and steadily. If they mean that there is an increase in the money supply then it is caused by someone somewhere borrowing from creditors and this involves the creation of Bank Credit and debt in equal amounts. No printing of currency notes occurs.

The Government Loses Seigniorage on the Money Created by the Banks.

Not quite. Seigniorage is the benefit the sovereign money creator gets from creating the money. If the government creates $1 billion and spends it into society, the government gets a gain of $1 billion. This is called the seigniorage.

Banks use a different method to create Bank Credit. They strictly adhere to the principles of double entry bookkeeping. They create a credit of one billion and a debit of one billion. They do not simply create one billion and use it for their own benefit. The bank derives its profit by charging interest on the debt thus created. There is no seigniorage involved when banks create money.

Wayne Dyer 1940 - 2015

"The ultimate ignorance is the rejection of something you know nothing about and refuse to investigate." [10082]

Origin of Conspiracy Theory.

It is a remarkably effective way to end an intelligent conversation to say to me: "That sounds like a Conspiracy Theory". It happened the other night. All conversation on the topic ceased immediately. It is like calling some one a fool for believing something. The term was popularized in the 60's and effectively culled conversation about JFK's assassination. The 'establishment' tends to describe it as:

"A conspiracy theory is an explanatory or speculative hypothesis suggesting that two or more persons or an organization have conspired to cause or to cover up, through secret planning and deliberate action, an event or situation typically regarded as illegal or harmful." [10067]

The term 'Conspiracy Theory' has acquired a derogatory meaning, and is used to dismiss or ridicule beliefs that are different to those coming from the government and the media.

There was significant public skepticism toward the Warren Commission's report on the assassination of President John F. Kennedy. The CIA created a directive to all of its bureaus, titled 'Countering Criticism of the Warren Commission Report'. This effectively "weaponized" the term 'Conspiracy Theory'.

The CIA Document 1035-960" was released in response to a 1976 FOIA request by the New York Times. This memorandum gives a list of actions and techniques for "countering and discrediting the claims of the conspiracy theorists, so as to inhibit the circulation of such claims in other countries." The CIA instructed its members "to employ propaganda assets to [negate] and refute the attacks of the critics." This was a hugely successful campaign which made conspiracy belief a target of ridicule and hostility. 'Conspiracy Theory' became a term to smear, denounce and defame anyone who dares to speak against any activity of the state, military or intelligence services. [10069] Anyone harboring such thoughts can be dismissed as a victim of irrational paranoia and mentally unbalanced. Edward Snowden changed this. Anyone claiming that there is a total surveillance of internet and phone traffic would have been called a conspiracy nut. [10069]

"Today, the CIA-designed propaganda seems to be wearing off ... those who do not believe government accounts of such events as 9/11 and the JFK assassination outnumber believers by more than two to one." [10068]

Unfortunately, this does not allow for civilised discussion of historical events in modern history.

I started to wonder when a Polish friend, Kris, said derogatory things about Winston Churchill. Australians also tend not to hold Churchill in high esteem, but my native British friends tend to call him the 'hero of the century'. Kris asked me three questions:

"What reason did Churchill give for declaring war on Germany?"

My answer was:

"Because Germany was about to invade Poland"

His second question was:

"What happened to Poland at the end of the war?"

The answer was that Churchill gave it to the new enemy: Russia, to come under an unpleasant communist domination.

His third question:

"How can you claim that you won the war?

My mother Betty in the UK has a two-foot high pile of 'War Illustrated' in a cupboard. This is a war magazine with dates going back to 1896, but mostly from the first world war and second war. On a holiday to the UK, I sat and read these by selecting one from each year. this gave me the flavour of the time and transported me back to the thinking of the time. I remember an article in one of them in the late thirties written by Churchill, and it read along these lines:

"The Russians have moved into Finland and parts of Poland. The dirty Hun [Germans] has threated to invade parts of Poland."

Churchill had described the unwarranted and violent invasion of Finland and Poland as 'moved into' with the implication that this was acceptable. This was an advance towards German soil. Yet Germany was the bad guy! This was so illogical. One could understand the Germans wishing to militarize. On visits to the Czech Republic and Slovakia, I have had people challenge me on this issue again. Basically asking why we gave their countries to Russia. If the war was fought over freedom for Poland and Czechoslovakia, why were they subjugated to another nation afterwards? They claimed that the areas Germany wished to invade contained ethnic Germans being harassed and that the areas were former German Territory. Further studies revealed that around one million German soldiers perished in most unpleasant conditions after the cessation of hostilities and somewhere between 100 000 and 900 000 German women were raped by allied forces during and after the war. Some estimates put the rape figure in the millions with a very high rape/murder rate. Daniel Johnson, in The Telegraph, reports that about two million women had illegal abortions every year between 1945 and 1948. [10071] Do your own research. Websearch 'Eisenhower's death camps' and 'rape ww2'. You may learn not to believe the official narrative.

There are more rational studies that show there is a growing sentiment that the government may not be telling the truth. Some studies by psychologists and social scientists suggest that those labeled "Conspiracy Theorists" appear to be saner than those who accept the official versions of contested events. [10070] Please do a web search on: "origin of conspiracy theory" and make your own mind up. You may also notice that Wikipedia tends to get edited in favour of the 'establishment'.

You may also notice that persons in conversations and media sources tend to deride an item as a 'Conspiracy Theory' without explaining why is so. I have seen the moon landing modules in the Smithsonian Museum in Washington and I still cannot reconcile how they got those light weight aluminum modules through the Van Allen Radiation Belt. The day I was mocked by a physicist for believing that they got through the Van Allen Radiation Belt without the protection of six foot of lead, made me question many of my fixed beliefs. I watched the moon landing on television as a young teenager and it was most inspirational. I now look at the moon and wonder whether man actually walked on the moon. I still like to believe that they did. As a teacher, I used to tell students that their homework was to go out and look at the moon and realise that man had walked on the moon. Now I wonder whether I misled them.

If there is a conspiracy, I am beginning to think that it is the government and the media against the people. There are many so-called 'Conspiracy Theories' that turned out to be true - including Operation Northwoods, a plan by the US Department of Defense to create fake acts of terrorism and to blame them on Cuba to justify the invasion. Fortunately, President Kennedy stopped that plan. Try a websearch for  : 'conspiracy theories that were true'

Components of the Money Supply

The money supply can be considered to be in two portions. The Hoarded Money portion and the trading portion which we shall call Circulating Money. They are not fixed or accurately measured and it is difficult to decide how long money has to be held to constitute hoarding. There is a constant small portion of the Hoarded Money gets that gets spent into Circulating Money and vice-versa. My task is to try and estimate the magnitude of each. I have little data on which to make calculations to obtain an estimation. A simple approach is to estimate how long Circulating Money stays in trade. If I get a twenty dollar note, it may stay in my wallet for two weeks before I replenish it with fresh cash from an ATM. Many people report that they are close to broke when their next wage arrives. This might indicate a cut-off of between two and four weeks. It is difficult to draw a line between holding money in preparation for the next transaction and hoarding because you have more money than you can use. I will use a cut-off of four weeks as being the difference between money retained for the next trade and money hoarded. (Results are in round figures.) I assume a Velocity of Money = 2. This equates to money being spent once every six months.

Four weeks retention for trading is a velocity (52weeks / 4)=13(Money enacts 13 transactions per year)
Official velocity=2(Money enacts 2 transactions per year)
When Velocity of Money = 2
Fraction of money supply used in trading (2/13)=15%
Fraction of money hoarded for more than four weeks=85%

A silly calculation, but each $1000 in circulation requires $6000 in money supply which holds $18000 in debt which at 5% interest costs $900 in interest per year.

Supranational Government

This would be achieved by having a corporation or corporations controlling nations. The East India Company was one such company that controlled India. The modern scenario would be to have a money and banking system that was independent of any nation. There might be some international tax. There has been talk about an international tax in the form of a carbon tax, but a transaction tax would suffice. There is already a transaction fee imposed on currency conversion by a supra-national corporation (international bank) and a supra-national corporation decides exchange rates (Bank for International Settlements). Next, would be a set of rules that would allow regular corporations to become supra-national and sue governments and these would be dressed up as 'free trade agreements' (TPP, TTIP and TISA). These supra-national trade agreements would operate through supra-national courts who were presided over by representatives of corporations. These supra-national corporations would be independent of the jurisdiction of any nation (TPP, TTIP and TISA operated by corporations whilst excluding nations) and pay no tax to any nation and would not give audited accounts to any democratic authority.

We already have supra-national corporations in the form of the World Bank, IMF and Bank for International Settlements that pay no tax and are above any national law. The Bank for International Settlement already controls the central banks of all but a handful of nations and the TPP, TTIP and TISA will be a corporate control system masquerading as free trade agreements.

The Government Goes Digital

Since the time that humans invented money, various mediums for money have been invented. Some have been physical forms and some involve registers. Physical items have been many, now reduced to coin and paper. In other times, ledgers were kept of who had what and who owed what to whom. Sometimes these ledgers were carved into stone. The system of ledger money has propelled us into an amazing few centuries of development and innovation as businesses had ready access to credit. The innovation and development were also spurred on as individuals became indebted to banks and worked extra hard to pay off debts, mortgages and tax. These banking innovations have also created a host of problems. Exponentially expanding unpayable debt is the foremost, but a host of greed and financial instability issues have arrived, followed by environmental damage, pollution and resource depletion. There is also an army of people working on schemes to make money from money and another army of industrious people working through complex taxation systems that besides being manpower inefficient are detrimental to an efficient use of money.

Clearly, digital money is the money of choice backed up with a small percentage of cash currency. The Chinese invented paper money. King Henry the first invented tally sticks which lasted around seven centuries. It is time for the government to move on and operate a money system in line with modern technology. The private banks have developed a highly refined digital money process. As private organizations invent, government learns to utilize and regulate. The process might be as follows:

Only the government may create money. A small part of this will be cash and the larger part will be digital in a government computer. Digital money shall be made by the treasury. The government spends the money into society by giving details of the digital units transferred. My most understandable explanation follows:

Imagine the government creates numbered notes as it does at present, but these notes can be large denomination. Instead of carrying the notes, you have a record of the serial numbers. You then reassign the serial numbers to another person. Bank lending would then require the bank to list the numbers of the notes that have been issued. Although the money was created as paper notes, the records are digital.

In reality, we don't have much choice but for the government to go digital. Not totally digital, just 95% digital. We retain the function of cash, but the government issues digital cash notes as well. Quite clearly there is a public preference for digital money. To have this digital money entirely in the realms of private corporations is not acceptable.

The procedure will be as follows. The government produces larger denomination notes which you can have and hold if you so desire, but the government will store them if you wish. Each is numbered in an encrypted fashion and a series of computers, each and separately track the ownership of the e-cash notes. The e-cash can belong to an individual, company or anonymous card as in a metro swipe card. When you pay for something, a terminal takes note of the e-cash note numbers, the old-owner and the new-owner. Periodically the data is transmitted to any of many national transaction computers, which add the updated ownership record to the particular notes. These networked computers update each other constantly just as domain records are updated on the internet. When the e-cash note is transferred to the government as tax payment, the e-cash note can be eliminated. The government spends new e-cash notes into circulation with a blank transaction record. This will be close to the current cash currency system that has been used since we started using money five thousand or so years ago. It is the digital equivalent of most money units used throughout monetary history. It ensures that only the government can create money. It ensures some control over the money supply.

The main part missing is the need for a flexible and immediate supply for business. Banks will operate as usual but when they loan money they will need to list the serial numbers of the e-notes that they lend. However, the local banks will be able to borrow e-notes from the national bank at negligible interest, provided they loan to approved areas which includes business but avoids speculation.

To reduce the need for business to scurry to the moneylenders, the tax system will get some flexibility to allow early payment of tax and to delay tax where a business applies for business expansion delay. The system will be implemented gradually and e-notes will gradually pay off the national debt.

How to Control the Economy

In days gone by there was a simplistic assumption is that the economy was controlled by adjusting the money supply. That simplistic concept still prevails. It is correct that a fall in the money supply damages national turnover. However, it is a fall in Circulating Money that is causing the damage. So a decrease in velocity will cause the same effect.

Velocity of Money equals Two by Andrew Chalkley

A velocity decrease is the same as an increase in hoarding. So damage to the economy is related to the magnitude of the Circulating Money. So we need to work out what might cause a fall in Circulating Money and a rise in Hoarded Money. A fall in the money supply will primarily be taken from the Circulating Money because that is the money that is moving.

Money Supply is reduced by Andrew Chalkley

Hoarded Money is static and is owned by persons with more money than they need. You would have to be very inventive to get this off them. They will already have adjusted the thinking of the political parties to tax anything else than their Hoarded Money. There are other things that may reduce the Circulating Money and the major culprits are Sales Tax and Income Tax, both of which take money when it is doing what it was designed to do.

The effect of Sales Tax and Income Tax on Money Supply by Andrew Chalkley

Another is bank transaction taxes. The bank pays you if you leave money hoarded but add fees if you spend it. From a national benefit point of view, this is the wrong way round. There may be some side issues that impact the fall in Circulating Money. Excessive red tape may discourage business. A paper cup company may get their cups made overseas if the inspectors are around ever week inspecting the cleanliness of the toilets or generally making business difficult. Unpleasant business conditions such as restrictive planning rules, change in tax regime, credit refusal, wage rules and onerous employment rules can be included. So a fall in the money supply may have been caused by business switching itself off, not lack of money switching business off. So forcing money back into the money supply will not necessarily crank business up to previous levels. Excessive Hoarded Money is also a hyperinflation risk:

The gray can avalanche into the light blue causing a massive rise in circulating money triggering hyperinflation. In times of crisis, Hoarded Money comes out to play causing a massive increase in Circulating Money. Hoarded Money is 'hyperinflation waiting to happen. (Andrew Chalkley)

Although it is completely correct that a fall in the money supply will deplete the Circulating Money which will harm the economy. It is hideous to assume that a rise in the money supply will increase the economy and Circulating Money. An increase in the money supply is quite likely to give money to those that are skilled at hoarding money. Assuming that business will rise to the occasion and start producing is wrong. If business has been abused by government for too long, many will hang up the work-clothes and living off other proceeds. Business will not expand if employing people becomes unpleasant. I sometimes ask jokingly: "If you won Lotto, would you buy a factory and employ people?" and the answer is always negative with a comment about not wishing to tolerate the hassle. The general attitude is that: Employer = Exploiter. Besides the reluctance, it can take a long time for the skills and infrastructure to be built up in a business sector. If you foolishly damaged an economy and sent numerous businesses to the wall, they are going to be extremely unlikely to take on the risk again.

Forced spending as a way of increasing the Circulating Money does not work. (Andrew Chalkley)

Witness the fall in velocity after the quantitate easing in 2009. Those in charge managed to lift the money supply but much of it became hoarded.

Velocity of Money for Canada showing fall after quantitative easing. (Andrew Chalkley)

Canada Circulating Money showing the fall after quantitative easing. (Andrew Chalkley)

The money was given to those with more money than they could spend. Forcing money into the money supply is not the way to increase business. It is better to improve items that encourage business. Make it easy to employ. Make sure business has credit available. Have mentors not inspectors. Reduce tax on expanding business by removing depreciation requirements. Extend Sales Tax payment dates. Encourage local investment through small regional stock markets. Increase Land Tax and reduce Income Tax. Tax unearned income more than earned income. Reduce income tax on start-up businesses. Add a Transaction Tax of less than $1 per $1000 on all transactions to specifically catch the high-frequency trading. Reduce Sales Tax rate to zero except for chewing gum and plastic bags. Forcing money into the Money Supply is no guarantee of an increase in business activity. If the hoarders get hold of it, you will not see it again and you will have a huge debt with everlasting interest just to benefit the hoarders.

What Causes a Fall in the Money Supply

The next task is to work out what causes a fall in the money supply. The Australian government has issued a total of $67 billion in cash folding notes. The Reserve Bank list $1760 billion as the money supply of which about ~$1700 billion is the Bank Credit in bank accounts. This clearly did not come from cash deposits. Banks are collecting loan payments on a daily basis. The are making loans on a daily basis. If they make more loans than they collect in loan repayments, the money supply rises. If the reverse is the case, the money supply falls. So maintaining the money supply depends upon the loan making habits of banks.

   The government has no control over the Money Supply. The Money Supply relies entirely on the lending habits of the banks. When the banks lend less than they collect in repayments, the Money Supply falls with devastating consequences for the Circulating Money and business.

The lending by banks is done for the purpose making profit for the bank and not with the aim of maintaining the money supply. Attempts to control the money supply, with the central bank playing with the interest rate, is going to be problematic because it will not greatly affect the willingness of people to take on more debt, and it will have other unintended national and international consequences. A fall in interest rates tends to push up house prices as more can be lent because borrowers can borrow more. Same house, same location, same money system same wages but the house price rises. The central bank has no way of forcing more money into the system as the banks make their own lending decisions. If the populous is reluctant to take on more debt, there is no easy way to increase the money supply. Because the cash currency created by the central bank is such a small portion of the money supply and because the government does not use cash currency to pay its bills, the government has to obtain Bank Credit before it can spend Bank Credit. The government obtains Bank Credit by taxation, selling government assets and borrowing Bank Credit. It borrows Bank Credit with a process involving printed paper certificates, called bonds that are printed in a similar manner to banknotes, except that they pay interest and have a maturity date. When the bonds are sold, they are purchased by citizens or super-citizens who deposit Bank Credit in a government bank account. So the bond is purchased with Bank Credit that already exists. Thus, government borrowing does not create fresh Bank Credit and the money supply does not increase. If a bank, or more likely the central bank purchases new or existing bonds, it does so with freshly created Bank Credit and so the money supply increases.

When the government sells bonds, it does not increase the money supply unless they are bought by a bank.

When a bank or central bank purchases new or existing bonds, it does so with fresh Bank Credit and the money supply increases.

When there is an increase in the money supply, it is difficult to work out whether the fresh Bank Credit will go into the Hoarded Money or into the Circulating Money.

Bond sales are likely to be paid with Hoarded Money. Government spending will tend to go into the Circulating Money.

This is a poorly documented area. I have yet to find this in any economics texts.

When the government obtains Bank Credit by bond sales, taxation or from the proceeds of asset stripping, it spends the pre-existing Bank Credit in a manner that puts it into Circulating Money. The spent money is earned by established businesses that are adept at filling in government tender forms. This creates earnable money throughout the business world but it does not create credit for business expansion. It does not create a flexible money supply. There is plenty of earnable Circulating Money but no money for expanding businesses. This currently is only available from banks. Here is where a good public development bank steps in. A Public Development Bank or similar can be chartered to ensure that business has capital for start-ups and expansion. The growth in China has been heavily encouraged by the China National Development Bank. Documentation on this is elsewhere in the book. This China National Development Bank goes to great lengths to help and assist businesses from the remote farmer to big industry, both with credit and assistance.

Pay back Debt

The only country paying back debt is Greece and in so doing, Greece is destroying its economy and its ability to pay. Paying back debt requires destruction of the money supply and the section first drained will be the Circulating Money. Trade in the Real Economy causes money to move. No attempt will be made to remove Hoarded Money which is the ideal money to be used to pay back debt. Paying back money will thus cause a fall in the money supply and destroy the economy and its ability to generate further money to pay back debt. The nation would be sent into a depression very rapidly. Hoarded Money would stay hoarded.

Greece Money Supply.

Greece GDP.

Debt usually exceeds the money supply by a factor of two or three. One solution to pay back the debt is for the government to create extra currency in what could be called the Trillion Dollar Coin solution. The freshly minted Trillion Dollar Coin is then used to pay off the debt. The next solution is for the government to create a national public bank. This public bank lends money to the government. Thus, the government owes money to the government. The debt is now irrelevant and interest and charges become payable to itself. This clears national debt but it does not clear the private debt the people owe to the banks on mortgages, personal loans, cars, student debt and more. The next stage is for the government to reduce the borrowing needs of citizens and business. Borrowing needs are reduced by adjustments to the tax system as I will explain elsewhere. Even tax accounts could become flexible enough for individuals to deposit in advance and withdraw in times of need.

False Proposals

There are false proposals that are made out to appear like solutions so that if change must occur, we get another bad debt system. To move from one debt based system to another debt based system is change masquerading as an improvement. If forced into a change situation, the money people will change from a 'manipulated debt system' to a 'manipulated debt system'. 'Return to a gold standard' and 'End the Fed' are all such false changes.

The 'Fed', short for US Federal Reserve, produces only the currency component of the money supply, which is such a small component of the money supply as to be irrelevant. The issue is the vast quantity of Bank Credit generated by regular banks. We are running our nations on credit rather than money. The 'fed' is the fall guy. This is not to say that the 'fed' should not be nationalized and its directors prevented from being generously cared for by banks whose behavior they are supposed to control. Nor should this same group play revolving doors with treasury and act as 'advisors' to the politicians.

The gold standard means that the value of money can be related to the fictitious value of gold by those that control the gold. Where gold has been used as a true commodity money, there has been an almost permanent depression. The supply of gold is inelastic and will not allow a slow but steady increase in the money supply. The money supply is usually augmented either by the government producing fiat money based on the value of the gold, which can be called 'gold certificates', or private entrepreneurs issuing gold certificates in excess of the gold they hold. In reality, gold only holds a high value because it has the potential to be used as money and because it has some popularity as jewelry. It has some minor commercial use but would otherwise be used as fishing weights

National Development Bank

Your National Development Bank is a bank wholly owned by the government (public bank) with the express charter to provide finance to develop the nation. I give you this policy from the Development Bank of China as an example of national development bank policy:

The mission of the State Development Bank of China consists in raising the competitiveness of Chinese economy and citizens' standards of living. The main spheres of the Bank's activity are as follows:

- Development of infrastructure;

- Support of basic industrial sectors;

- Support of new, modern economic branches, including the promotion, development and application of new technology and innovation;

- Assistance in a balanced regional development, urbanization of rural areas;

- International cooperation, support of the activity of Chinese companies at foreign markets.

The State Development Bank of China functions in the form of a state joint-stock company fully owned by the state.

The Bank's activity is directly subordinate to China's highest state executive body - the State Council.

In 2011 the State Development Bank of China created six rural banks, the main purpose of which consists in supporting agriculture and developing China's rural areas. [10078]

Another National Development Bank from Russia:

Vnesheconombank of the Russian Federation was established with the aim of raising the competitiveness of Russian economy, its diversification, stimulating its investment activity. The Bank provides investment, external economic, insurance, consulting support for projects in Russia and abroad aimed to develop infrastructure, innovation, special economic zones, to protect the environment, to support the export of Russian goods, labour and services, as well as to support small and medium-sized enterprises. [10078]

And the Brazilian National Development Bank:

The BNDES is the main financial support instrument in Brazil for investments in all economic sectors. The Bank allocates special resources, preferably in the form of long-term funding and shareholdings, in addition to supporting undertakings that contribute to economical and social development.

The dynamic nature of the modern economic system encourages the BNDES to invest not only in large-scale projects, but also in undertakings by micro, small and medium-sized companies, individuals and public administration agencies. However, owing to the fact that the BNDES does not have agencies, the majority of operations are carried out indirectly through a partnership with a network of accredited financial institutions located nationwide. These agents may be commercial, public or private banks, development agencies or cooperatives. In indirect operations, the Bank reallocates financial resources to accredited agents, which are responsible for credit analysis and approval. []

The role of National Development Banks is particularly important for growth and development of business. National Development Banks are needed to provide affordable long-term financing, as well as technical assistance, to areas and sectors not adequately serviced by the private sector. This includes facilitating access to finance for micro enterprises and SMEs. National Development Banks played an important role in the Industrial Revolution and generally provide large amounts of financing to growing industries. Regional stock markets can play a similar role. National Development Bank may also take up share and loan capital and the underwriting of issues of shares.

Towards a Solution


There are numerous factors that make our financial system vulnerable to collapse. A collapse has a potential to cause a complete disintegration of our society. One person killed in a city causes riot situations. A total failure of the bank payments system will cause way more strife than this. ATMs cease to function. Bank balances disappear. Food ceases to be transported. Shops cease to have food stock. Historical monetary collapses have caused in the order of 25% population loss. Our best protection is the only known and proven stabilizer which runs under the name: Glass-Steagall. This first vital step will help to prevent a collapse of the risk taking Investment Bank system from bringing down the Commercial Bank system. Investment Banks are risk taking speculative banks that of recent times have taken risk to levels that exceed the total volume of money in the world. Commercial Banks are the high street banks that deal with citizens day to day banking and the needs of business. Commercial Banks operate the fabulously efficient payments system on which we rely. Commercial Banks mostly operate in the eggs and carrot Real Economy. Commercial Banks are very much the 'good guys'. Investment Banks are speculative in nature and thus prone to huge profits or huge losses. Glass-Steagall was a set of rules instituted by Roosevelt during the Great Depression that required banks to state whether they were Commercial Banks or Investment Banks. Amongst other things, Glass-Steagall would prevent a collapse of the risk taking Investment Banks from bringing down the Commercial Banks and the payments system. Glass-Steagall is the first vital step toward a solution. Another benefit of Glass-Steagall is that it would encourage if not force the Commercial Banks to invest in local business and industry. Only deposits in Commercial Banks would be considered for government support. There would be no more taxpayer subsidies of Investment Banks saving taxpayers many billions.

Public Banking

This will allow the national public bank to provide credit to the government and allow the government to operate within the bank payment system. All government departments bank their money and pay their bills from the Public Bank. The Public Bank lends money to the government on an as needs basis. This makes debts somewhat irrelevant as the debts are owed by the government to the government. The graph of China shows significant debt that is owed by the government to the government. The China Development Bank can make loans to potential industries without even being concerned about receiving any repayment. A loan can almost act as a grant, if needed. This China Development Bank has allowed China to develop itself from an impoverished nation incapable of making an acceptable razor blade to an international manufacturing power in less than half a lifetime. Public Banking has been a major feature of China's rise to prominence.

At this stage of the book: Glass-Steagall, followed by Public Banking, with a modified tax system, will give the best solution available, if the excesses of the money and war industry can be kept at bay.

Margrit Kennedy

    And profits in the military sector were far beyond any profits made in the civil sectors of our economy. While capital investments in the latter often have returns around 2-5%, the military sector often averages returns around 50%. [10066]


A system is needed to reduce or even eliminate hoarding. The reasons are:

To reduce the risk of hyperinflation as all the Hoarded Money becomes Circulating Money during a crisis with highly inflationary consequences. If for any reason inflation rises to double digits and perhaps the interest rate falls close to zero, there is a risk that Hoarded Money will get spent all at once. The sudden movement of money has the same effect as a massive increase in the money supply.

All money at present originates at the time of creation of a loan. So all money in a bank account has a debt held by someone else that is paying interest on the debt. As there is more debt than money, the repayments are excessive. This is a very expensive way of providing the money of the nation.

Hoarded Money inhibits wealth creating transactions. It strangles the Real Economy.

Although the talking heads suggest that Hoarded Money is a store of wealth, the logic is flawed. Each significant release of Hoarded Money decreased the value of all money as it increases the circulation component of the money supply. Hoarded Money is not a store of wealth. Hoarded Money only retains its value if it is converted to Circulating Money (spent) at the same rate as Circulating Money becomes Hoarded Money.

   Hoarded Money only retains its value if it is converted to Circulating Money (spent) at the same rate as Circulating Money becomes Hoarded Money.

How the Government Gets Into Debt

The Government creates cash currency. It does use cash currency. The government pays its bills from bank accounts using Bank Credit, deceptively called digital money. Before the government can pay bills, it needs to build up Bank Credit. It can build a small amount Bank Credit from the tiny amount of cash it creates. The rest it builds up by selling bonds. Bonds are a promise to pay an amount in the future and pay interest on this amount. The bonds imply a promise to pay both the principal and interest in Bank Credit and the bonds are purchased with Bank Credit. The government id 'borrowing credit'!

These bonds involve interest which is effectively the future tax of the people which the people pay in Bank Credit. Bond purchasers credit a bank account in the name of the government with Bank Credit. A bond is effectively a loan of Bank Credit to the government from persons and organizations with more Bank Credit than the government. The government pays all its bills using bank accounts using Bank Credit. Tax is collected by a tax department and arrives in bank accounts as Bank Credit. People cannot even pay their tax in the form of cash. Only transfers of Bank Credit are taken. Any difference between tax received and government expenditure is no longer covered by government creation of money and thus the need to borrow. So the government needs increased volumes of Bank Credit each year to cover what is misleadingly called the 'Deficit'.

I have stated that:

A government need never be in debt for its own money.

The situation of debt arrives because the government does not use its own money. It does not use the cash that it created, it uses Bank Credit, of which it has none (unless it runs a Public Bank).

The solution is for the government to be in the loop of the creators of Bank Credit. For this, the government needs its own Public Bank or a mechanism for the treasury to create Bank Credit in a bank like procedure. The Public Bank is the main item of a solution. No solution will work without a government Public Bank. All government departments bank their money and pay their bills from the Public Bank. The Public Bank lends money to the government on an as needs basis. This is particularly helpful with infrastructure projects and great examples of this exist in history as listed in the book. The Public Bank lends for infrastructure. It is run by appropriately skilled professionals who verify the proposals to check the appropriateness of the project. When one argues that the treasury might create Bank Credit (digital money), it could be argued that the treasury is hereby acting as a public bank and I do not wish to rule out this possibility. Do remember that expenditure on infrastructure is an investment, rather than an expense. Every cent of the expenditure stays in the country, creating many jobs, raising national efficiency and lifting the standard of living.

What is fascinating about a government Public Bank, often called a National Public Bank, is that all proceeds revert to the government. The debt is a government debt owed to the government and any interest is also government-owned. So no build-up of unpayable debt is possible. The government is lending money to itself for the benefit of the nation. Thus, fresh money is created without unpayable debt. Nations that run National Public Development Banks tend to have big surges in their financial prosperity as well as dramatically reduced government debt or a debt that is irrelevant.

   Ban the government from borrowing money from other than a public bank.

Debt puts the government and the people at the mercy of the lenders.

State Public Banks

This is the next item in our financial solution. A State Public Bank is a bank that is wholly owned by one of the states of a nation on behalf of the people and lends on an as-needs basis for the betterment of the state. The state government and all its departments organize their payments through a State Public Bank. The State Public Bank also lends to the government for public works. The State Public Bank may also be mandated to lend to businesses and individuals within the state or it may support smaller banks around the state. Thus, the money of the state remains within the state. The State Public Bank is chartered in a manner that it does not lend for speculation, which includes land speculation. Land speculation usually hides behind the softer description of 'investment in property' when in reality it is rampant usury of land taking advantage of the young and less well off by using government subsidies in the form of a tax rebate on interest, a rebate not available to those with lower purchasing power. The State Public Bank also supports a network of small community lenders and the like. I usually tell the following story:

"Imagine you are starting a new state. You start a new State Public Bank. A migrant from far away walks in and asks for a loan of ten thousand dollars to buy a sausage machine. The bank says: "If we lent you one million dollars, would you build a sausage factory?" "We will find you land at a nominal land tax and arrange for assistance to get you through the bureaucracy. Interest will be 2%."

The State Public Bank is created to assist the development of the state and this requires easy credit to all small medium and large entrepreneurs from the school boy wishing to make surfboards to the old lady who wants to run a roof-top beehive for honey production. You can find this attitude in the reports on the English version of the Chinese National Bank website. They discuss how credit is to be made available to all levels of society. An impoverished farmer may find a way of improving farm practice. Private banks are purely profit driven and often go for the greatest return which is often speculation. Public Banks are state development driven and avoid speculation. Speculation of land drives up business costs and housing costs in the vicinity of business to the point where business becomes unviable.

The Public Banking Institute is very strong on this issue. They don't explain why a Public Bank is necessary for a nation, however, they base their argument on a significant body of evidence about successfully functioning public banking systems. Their direction follows the books by Ellen Brown called "The Web of Debt" and "The Public Bank Solution", both of which are essential reading. I recommend that you get on The Public Banking Institute email list.

How Money is Spent into the Money Supply

Almost all money enters the money supply as Bank Credit arising as the result of loans. Where that money is first lent greatly affects the economy. If the banks lend for the purpose of speculation in land or shares, then significant extra money is put into areas with inflexible supply. This has an inflationary effect in the particular area. The loans continue until the market peaks. Loans cease and prices fall. Loans for speculation tend to cause bubbles and market crashes. If banks generously loan for new houses, the building industry flourishes. If the banks are reticent to lend to small business, then small businesses struggle and become despondent and corporations take the slack. Corporations have a much different money supply mechanism and are much more sophisticated in their tax arrangements. We are even forced to add to their money supply slush fund through superannuation.

Public Banks can be chartered to avoid speculation and to assist local business with credit. Private banks often loan for speculation more readily than loans to small business and may favour international lending and speculation rather than loans to local industry and agriculture. As the majority of money in our nations is created when loans are made, where those loans are spent has a massive influence on the economy. Public banks have some chance of directing it to where it will most benefit society.

Tax and Business

Businesses that purchase assets used to expand their business are required to claim the expense over numerous years in a process called depreciation. An example: A small business purchases a sausage machine for $10 000. The business has spent $10 000 but can only claim it as a tax deduction over numerous years. That is $10 000 less the business owner has to spend as income. This tends to push expanding businesses towards bank borrowing. For example: A business has a profit of $30 000 and pays $10 000 tax (33% tax rate). The business used $10 000 from the $20 000 to buy the sausage machine late in the year. The business owner only has $10 000 to feed the family, yet he is trying to expand the business to feed the village. The current income tax is misnamed and is actually a 'profit tax'. This stifles small business expansion and thus employment opportunity. The reverse needs to happen. Not only should the expanding business be able to charge the $10 000 sausage machine immediately, the business should get a tax deferral to encourage expansion and thus employment. The government nor the people gain by destroying the hand that feeds them and in this case, it is the village butcher who will not expand in line with the needs of the village. The sausage machine is counted as profit by bean counters and those walking zombies who sit in tax offices destroying businesses. I used to express this as 'You cannot eat wheel nuts.' to people working in the transport industry. When I had an expanding business, I was always short of money. As soon as I got older, and wound things back somewhat, I had spare money. Quite ridiculous. It effectively means that the only businesses that expand are the ones playing tricks with their profit tax, misleadingly called income tax.

The government also suffers. If SME's are not encouraged to be vibrant, grow and employ, the government receives less tax. Besides tax sensibilities, other assistance should be given to young entrepreneurs by way of older retired business people. The whole society gains when there is plenty of work for the young and the government gets to claim more tax and pay less welfare. The whole attitude of government toward SME's is wrong.

Tax and Individuals

Progressive income tax is a strange beast. It is almost as if it was designed to be corrupted. It ensures that the poor and middle class will pay tax, whilst the affluent will find ways to pay little tax. The tax rate is so high that it spawns an army of bean counters to find ways of avoiding the tax. The affluent consistently encourage political concessions on their speculations. The most glaringly obvious is negative gearing. This is a procedure where land and property appreciation is ignored until well into the future which gives investors a large taxpayer subsidy to their speculative and hoarding activities. The same concession is not given to the egg and carrot merchants as their assets only get tax deductibility in the future forcing them to the moneylenders if they wish to expand rather than operate at an assumed steady state. So the affluent manage to accumulate great wealth with minimal taxation to any increase in their wealth and the wealth itself is completely untaxed. This not only creates a large and increasing inequality in the nation, it also means that a very large quantity of money tokens are hoarded by the affluent. This is reflected in the very low velocity of money. A very low wealth tax is required on all wealth not being used in the Real Economy.

Wealth Tax

The value of this wealth tax needs more study that I have time for but it could be as low as $1 in $1000 (0.1%) on assets. (A millionaire would pay $1000 per annum wealth tax.)

Demurrage Tax

Tax on Hoarded Money is called Demurrage Tax and would be a small monthly tax on money holdings at a low rate of between $1 in $1000 (0.1%) and $10 in $1000 (1%). It would apply to holdings above $1000 held for more than one month. It would be removed from bank accounts monthly. To stop persons screaming, just remind them that income tax will be reduced by far more than this amount and sales tax will be reduced to 0% for almost all items. (Sales will stay for chewing gum and jet fuel)

In historical times, rulers often renewed their currency every few years with periods between two and eight years. Over 150 years, Anglo-Saxon and early Norman rulers changed the design of their coinage at least 53 times. [10065]

Rev. Henry Swabey

Much has been made of these bracteates of late, as well as of tallage - a medieval tax on coinage - on the ground that they prevented hoarding. The man with money was at no advantage over the man with perishable wares, and so the velocity of circulation was speeded. Yet only a few of this kind of Demurrage Money have been found, owing, doubtless, to their friability. Tallage, the other devise that speeded the circulation of money and prevented hoarding, was imposed from 1140 onwards in England and elsewhere. The holder of coins would be eager to pass them on to avoid the tax. [540]

Tax Resources

It is better to tax that which occurs naturally. Taxes should have a higher bias toward taxation of land and resources. These taxes are more difficult to avoid, are less damaging to the real economy and tend to reduce speculation.

Tax Rates

Users of simplistic logic might assume that an increase in a tax rate would increase the tax collected, but this is erroneous thinking. Common sense should tell you that raising income tax rate or sales tax rate is more likely to cause the opposite. I shall divide the money supply up into two parts: the Hoarded Money and the Circulating Money. The Hoarded Money that is parked in bank accounts will stay hoarded for a long time. The Circulating Money is the money that is constantly moving. We shall assume that small quantities of Circulating Money will become Hoarded Money and vice-versa. This will not affect the study. The only money available for egg and carrot transactions is Circulating Money. Money removed from the egg and carrot transactions will immediately adversely affect egg and carrot trade. Income tax and sales tax rapidly destroy trade because they tax Circulating Money. On the other hand, reducing sales tax rates and income tax rates will encourage trade and will be likely to increase tax collected.

The Seventh Flaw of Economics

   When income or sales tax rates are increased the Real Economy is damaged and tax collection will likely decrease.

Transaction taxes remove money from the Circulating Money component of the money supply that is vital to trade. When money is removed from the economy at the time of transaction it cannot lubricate further transactions. If Hoarded Money is taken out by taxation, the effect would be different. This is crucial if we wish our nations to be competitive. It is better to tax Hoarded Money or land. A Transaction Tax of very low rate on ALL transactions is the only viable transaction tax. The graph below is difficult to understand, but I feel confident that if you stare at its ups and downs long enough you will see where the talking heads have made big mistakes:

The influence of taxation rate on the taxation collected. and

In this graph, you can see that income tax collection was falling before the Reagan tax rate cuts in the 1980s and then rose afterward. After the first tax rate increase of the nineties, the tax collection changed very little. After the second tax increase of the nineties, tax collection increased for a few years but then fell for three successive years. After the 2003 so-called 'Bush tax cuts', where the tax rates were lowered, tax collection increased significantly. This continued up until the crisis of 2008. This was a human crisis caused by the financial industry, misleadingly called a financial crisis. A big recession brought the tax collection down significantly. [Concept from:] [10009]

The Eighth Flaw of Economics

   Income tax and sales tax should never be used to collect significant quantities of tax. They are economy-damaging taxes.

I give this example to show that all is not what it seems in tax collection. If you collect tax in a manner that damages the economy by destroying the ability of citizens to conduct transactions, then the total tax collection will fall. The converse is also true. When income tax rates are reduced, the economy will improve and tax collection will rise rapidly as businesses create more jobs. Income tax is an economy-damaging tax. Almost all taxes are better than this damaging tax. Better to collect taxes where they will not damage the economy. These taxes include; Robin Hood FTT tax, land tax, wealth tax, death tax and a few others. The economy will not work if you chop off its legs.

Never forget that money was designed to circulate, not to be accumulated. Take tax when it is taken out of circulation and anywhere else but from circulation. If you tax circulation, your country will become inefficient and uncompetitive. Ensure that all sections of society have money circulating and that money does not just circulate amongst the affluent.

Land Tax

Land was provided freely by nature for all creatures to use. Man tends to draw lines on a map so that civilization can operate with individuals having some certainty over the use of land. The rights granted in the land title are not true ownership as such, but they do allow exclusive use of the land and the right to exclude others, but there are many restrictions as to use. The land title does not give rights to anything below ground nor in the air above. The ability to pass the title to others for money then allows money to be borrowed in a manner that capitalizes future potential rental income or land price rises into a current price. With limited availability of land, large debts can be hung on the land. The land price tends to rise to the maximum that can be extracted from people's income. So the drawing of lines on maps allows the hanging of debts onto the created titles. The level of debt increases wherever there is employment making industry financially inefficient as interest payments to banks takes a major portion of the income of the business and its employees. A better system is to lease land at sensible prices in a land tax system. Land is effectively rented from the government on very long term leases. Thus, speculation is curbed but not stopped. Under a land tax system, persons do not buy land in the hope that the land appreciates. They only buy land if they are going to do something with the land. Singapore, Hong Kong and to a certain extent, Australia used a Land Tax system to develop their nations. Taking tax from land reduces the effect of the capitalization of the future income of the land. It also allows the reduction of anti-productive taxes such as income tax, company tax and sales tax.

You should be aware of the system used for pegging of mining plots as a method of allocation of resources. The government grants mining leases on the basis that the minerals are going to be mined by the prospector and royalties paid on the minerals removed. Thus, no one can peg ground and on-sell the rights for profit. Similar should be used for land and resources. You do not grant land that is to be rented to someone else for profit. You lease the land at close to its rental value. This then becomes a major part of the tax take which then allows you to greatly reduce the economy-damaging taxes (income tax, company tax and sales tax.).

The best-known proponent of land tax is Henry George (1839-1897). He proposed that his land tax should be a single tax, but my current thinking is that land tax should provide 20% to 50% of your tax take.

Please do some significant background reading on Henry George and also on land tax generally. His book, "Progress and Poverty" is available as an audiobook which you can play whilst driving your Mustang.

George explains how the poor distribution of wealth in a free enterprise society is caused by the private ownership of land and natural resources. He advocated a tax upon the value of land, so that its annual worth or economic rent would be taken into the public treasury in lieu of taxes on labour and production.

Robin Hood Tax Logo

A Robin Hood Tax is also called a Financial Transaction Tax FTT. My version of the Robin Hood Tax is a very low tax on ALL transactions. My thoughts are towards a tax rate between 0.02% and 0.05%. This equates to 20cents or 50cents per $1000. My version of a Robin Hood Tax would include all bank transactions, including speculation, hedge funds, share transactions, derivatives, foreign exchange transactions and other financial transactions, many of which entirely escape taxation at present.

The FTT would raise would raise hundreds of billions of dollars annually. Be very wary of international corporations demanding an international tax paid to them. It will disguise itself as a tax to the World Bank which is just a private corporation masquerading as an international bank giving an illusion that is somewhat like the United Nations. The World Bank is simply another profit-driven multinational corporation.

In the UK, financial transactions are approximately £2,000,000 billion. In 2014 - 15 UK tax receipts equaled £513.6 billion. This is very close to 0.025% of the total transactions. Thus, an FTT of 0.025% would produce exactly the same tax as all the currently collected taxes combined. Thus, an FTT of 0.025% could completely replace the whole of the current UK tax regime. Thanks to Simon Thorpe, again, for his brilliant analysis. [10010]

There are numerous estimates of the tax collecting ability of a Robin Hood Tax and they depend rather heavily on the magnitude of the tax and the number of items that are excluded. I list a few examples mainly sourced from the websites of the Robin Hood organizations around the world:

The UN Secretary-General's Advisory Group on Finance (the AGF) reports that between US$2 and 27 billion could be raised by an FTT annually by 2028 [10011]

The Austrian Institute for Economic Research estimates that a mid-range tax rate of 0.05% on financial transactions would collect an annual tax of $US650 billion.[10011]

A US study has given estimates of between US$117 and $353 billion.[10011]

The IMF (2010) has given estimates of $200 billion annually from a 0.01% FTT.[10011]

There are significant advantages to an FTT over other taxes:

It is comparatively easy to collect

It is so low it is negligible.

It is difficult to evade.

It creates a large tax take.

It significantly damps speculative and fast trading.

It does not affect the Real Economy.

John Maynard Keynes 1936

Economist John Maynard Keynes suggested that a transfer tax on securities transactions might reduce financial market speculation. The idea emerged in the wake of the great depression to counter speculation in the market.

Critics say that investors may pull their money out of the countries that apply the tax. However, Britain has a minor tax on share trades that appears not to have dented the market in shares. This tax of 0.5% is significantly higher than any proposed FTT but has not significantly hampered one of the largest stock exchanges in the world. [10012] And a point against the FTT detractors is that the tax is UK specific and has not caused the flight of capital from that stock-market.

Schmidt of Canada

Mr. Schmidt found that "a currency transaction tax of 0.5 basis points (0.005%) in the major currency markets would reduce transaction volume by 14% ... A 0.5 basis point CTT would raise at least $US33 billion every year, probably more."

Ralph Nader

    A good start would be a tax on financial speculation... It has the potential to curb risky speculative trading that contributes little real economic value. [10014]

Tobin Tax 1972

This was proposed by Nobel laureate economist James Tobin in 1972. He proposed a currency transaction tax (CTT) and revitalized his ideas in the mid-1990s. The Tobin tax is an FTT on currency transactions.

The trading on financial markets has grown dramatically in recent years. The volume of financial transactions is now many times higher than world GDP. In 1990 financial transactions were 15 times GDP. In 2015, they are 73 times higher. [10011] The volume of foreign exchange transactions is about 70 times greater than the volume of world trade and this is mostly due to a dramatic increase in derivatives. Just as currency speculation far exceeds the requirements of international trade, the derivatives market vastly exceeds any requirement for hedging and insurance. An FTT may be the only way of curbing this dangerous activity. Boom and bust cycles that have dangerous international consequences would be softened. Don't expect any support for the high-flying big spenders.

With the advent of rapid trading, the world's finance sector no longer performs its social function in a satisfactory manner. Trading has moved towards the gain of a quick profit rather than the serving of the Real Economy with a secondary effect of creating instability.

High-Frequency Traders account for 70% of US equity market, whereas at the London Stock Exchange it is 30 to 40%. The UK has a 0.5% stamp duty on share trades.

Tax Components

Tax is collected to prevent an oversupply of money tokens in society. In the original village eggs and carrots situation, it is unwise to tax the egg and carrot transactions that form the Real Economy. The better alternative is to tax the hoarders and their financial games. Also, tax that which occurs naturally such as land and resources. Avoid or reduce taxes on transactions which include income tax, company tax and sales tax. Preferred taxes include: land tax, local government rates, fuel taxes, resource taxes, taxes on things that are harmful to the economy, taxes on items that are harmful to health, taxes on Hoarded Money, wealth tax, death tax, inheritance tax and unearned income tax. A Robin Hood Tax on transactions is acceptable as it is of such a low percentage and affects the speculators more than the traders.

Taxation Australia.

You might see, in the above graph, the inappropriate way that tax is currently collected. The first four taxes are an impediment to the ability of money to perform transactions. These four need to be progressively and dramatically reduced and other taxes introduced and increased. Currently we heavily tax transactions that involve goods or labour but charge no tax on transactions that involve speculation or hoarding.

Tax Removal USA

USA Tax Collection

Government Revenue Details: Federal State and Local for 2014

United States Federal, State and Local Government "Revenue"
Fiscal Year 2014 in $ billion
       FedState and LocalTotal
Income Taxes 1 716 392 2 108
        Individual Income Tax 1 383 339  1 722
        Corporate Income Tax 333 53  386
Social Insurance Taxes 1 031 499  1 530
Ad valorem Taxes 195 1 073  1 268
        Excise Taxes 53 53 106
        Sales Taxes 0 444 444
        Property Taxes 0 447 447
        Transportation 52 70 122
        License 0 47 47
        Other 90 12 102
                Customs Duties and Fees 39 0 39
                Estate and Gift Taxes 13 0 13
                Other Receipts 38 0 38
                Tax - Death and Gift 0 5 5
                Tax - NEC 0 7 7
Fees and Charges 0 440 440
        Education 0 118 118
        Health 0 132 132
        Transportation 0 42 42
        Natural Resources 0 12 12
        Utilities 0 63 63
        Other 0 73 73
Business and Other Revenue 92 368 460
        Utility and Liquor Store 0 162 162
        Other 92 206 298
                Federal Reserve Deposits (FFD) 92 0 92
                Miscellaneous - Special Assessments 0 7 7
                Miscellaneous - Sale of Property 0 4 4
                Miscellaneous - Interest Earnings 0 50 50
                Miscellaneous - Fines and Forfeits 0 18 18
                Miscellaneous - Rents 0 4 4
                Miscellaneous - Royalties 0 6 6
                Miscellaneous - Donations From Private Sources 0 21  21
                Miscellaneous - Net Lottery Revenue 0 24 24
                Miscellaneous - General Revenue, NEC 0 71 71
Total Direct Revenue 3 034 2 773 5 806
        Total Revenue 3 034 3 572 6 606
        Intergovernmental Revenue 0 -799 -799
Federal "Deficit" 744 0 744
Gross Public Debt 18 247 2 965 21 212
USA Population: 319.6 million        GDP: $30 565 billion

Tax Take OECD Average

Who Controls the Money Supply?

The money supply is the green and orange area above the axis in my graphs. Rises and falls in the money supply seriously affect the economy. The proportion of the money supply that is cash currency is less than 5% and it generally stays at about this percentage. This is created by the Central Bank which is completely out of control of the government. Senseless statements such as 'keep the central bank free from political interference' keep the populace fooled. The rest of the money supply is the so-called 'Deposits' in banks. Simple logic will stand testimony that these 'Deposits' did not come from the central bank as the central bank only creates cash currency. So we can deduce that: The growth of the money supply equals new loans less loan repayments. If these two are equal, the money supply remains unchanged. If new loans exceed loan repayments then the money supply increases. If loan repayments exceed new loans, the money supply decreases. So the magnitude of the money supply is a function of bank lending habits. If banks sniff financial danger, they will restrain their lending whilst still collecting loan repayments. We put a government in power to look after our interests, but they have utterly no way of adjusting the magnitude of the money supply. Yet we freely punish them for financial mismanagement.

Banks, themselves have the ability to increase or decrease their lending rates but they are guided by the need to make a profit. Thus, a return on lent money is more important than the economic needs of the nation. We have a counter-productive feedback loop. When house and asset prices are rising (inflation = high) they may lend more and when prices are falling they are prone to cut back on lending. About as daft as it gets.

Let us consider where the money is going when they lend: When prices are rising, assets appreciate in value at a greater rate than the prevailing interest rate or better than the interest rate after tax concessions. So money goes into speculation on assets causing further inflation of asset prices. When the asset prices peak and no further rises are likely, a bubble is burst. Loans dry up and prices fall. Lending for asset speculation tends to get passed on to 'those with more money than they can spend' and may well become hoarded. Then new loans are restricted and loans repayments exceed new loans causing a fall in the money supply. The money for repayments is likely to come from the portion of the money supply where persons have insufficient money which heavily curtails business activity which is witnessed by a fall in the velocity of money. Velocity gives an indication of the balance between Hoarded Money and trading money. Velocity figures are scant and I often have to compute them from other figures but they are an important indicator of the level of hoarding.

It is really not appropriate that private organizations should control the magnitude of the money supply.

The ability of the bank to collude on interest rates set by a central bank is not a method by which the volume of new loans is ever going to be controlled. This is witnessed by the constant drama of the central bank charade where they attempt to control the money supply by adjusting the interest rate. It is like trying to change the weather by talking to a thermometer. The former Federal Reserve chairman, Alan Greenspan made it quite clear:

    Quite frankly it does not matter who is president as far as the Fed is concerned. There are no other agencies that can overrule the action we take.

On the Fed website it states:

    [The Fed] is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

What is constantly missing from the conversation is the influence of velocity which is really a measure of the magnitude of Hoarded Money. The government could have some control over that if it modified the tax regime. It does modify the tax regime every few years in a manner that favours hoarding.

The next issue is the government directly influencing the money supply. To do this it should issue the money supply itself. For this, it has a few avenues. It will require the government to create digital money. This digital money could be of the 'balance' type as used by banks or a 'unit' type which is closer to the current cash currency issued by the government. The Digital Balance generally involves the creation of debt as in the bank system. Digital Units are created in the same manner as cash notes are created with a serial number. I discuss this shortly. Digital Units of currency are created by the government as paper notes which are stored in a vault. Each note has a unique serial number. Instead of passing paper notes to another, the serial numbers of the notes are passed.


Usury is a term that is not used commonly in the modern world. In times gone by, it was the name of a sin. To most people, it was a crime. Dante considers usurers to belong to the inner ring of the seventh circle of hell. Jain in 1929 had these harsh words:

    It is Usury - the rankest, most extortionate, most merciless Usury - which eats the marrow out of the bones of the raiyat [cultivators] and condemns him to a life of penury and slavery [10013]

Quite conveniently, for those wishing to practice usury, the term 'interest' came to replace the word 'usury'. The definition of usury has also suffered. Previously, usury was defined as lending at any rate of interest. The definition was gradually softened to mean lending at an excessive rate of interest or an illegal rate of interest. With the advent of credit cards and payday loans, usury rates in excess of 20% are not uncommon, and no furor occurs. You have to look quite hard to find a Christian pastor discussing the difference between 5% and 20% interest rate. The Muslims are much more vocal on the subject. Please try a search on YouTube for "riba".

The arguments in Europe, around 500 years ago, were along the lines that 'moneylending at low rates of interest assisted business and trade'. There is some common sense in this. Governments tend to spend into society which creates 'earnable' money. However, business needs money before it can commence earning. Money has to be supplied to a business before it can produce services and goods. Credit is one way to do this. Governments often not respond to this need. Banks are good at this most of the time. In the words of Alister E. McGrath:

the lending of money at interest was essential to the emergence of modern capitalism. [10060]

This required a softening on the stand taken by the church in Europe. As the church opposition to usury relaxed, the practice of usury increased. Business expanded leading us to our era of technical revolution, but a host of other problems have visited us as well. This readily available credit has been the cause of the modern era of capitalism that has brought with it the need to work hard and the need to produce more products in a more efficient manner. The available credit encouraged business and the general increase in the money supply allowed an expanding economy whilst the increase in debt made people work extremely hard chasing their dreams. However, it is also brought in a level of personal, national and international debt of a level never seen before on the planet. The debts have become so huge that there is actually insufficient money in the world to pay off the debts. A worldwide Impossible Contract has been created. Economic academia is encouraged to follow economic texts that support the system of usury. The banking system encourages governments to use their superior money payment system without the politicians being aware that they have joined money system that will generate a majestic National Debt that is ultimately unpayable. The media talking heads suggest that the debt is the fault of the politicians without realizing that no economic policy or procedure exists that could ever nullify the National Debt. The banks fail to realize that their money lending practices, with their uncollectible debts, will cause a collapse in which they will also suffer.

To add further lunacy, modern moneylenders, called banks, are reluctant to lend to businesses. A high proportion of lending is in the form of mortgages, personal loans, car loans and credit card usury. Much of the lending is for the purpose of speculation which pushes up land prices which makes business less price competitive. Manufacturing moves to countries and areas where land prices and employee rents have not been pushed up by usurious lending practices. When the land rises in price, the owners of the land title receive a great big unearned bonus which raises their net worth but stymies business and makes it very difficult for the next generation to establish homes and families. This denial of land and homes to the younger generation becomes a destabilizing factor and generally leads to a less cohesive and productive society. For it is only when the young are fully engaged in the productive capacity of the nation that the nation will flourish. Even the rich will suffer when there is a disgruntled and dysfunctional component in society.

As borrowing has become normalized and socially acceptable, citizens have been persuaded away from using government cash currency to using Bank Credit masquerading as digital money, with its associated debt and interest payments.

We can possibly say that there are three types of borrowers. There is the borrower who can make a profit from the use of the borrowed money as in a business. There is also the borrower that borrows for personal indulgence, which we might term as consumption. There is the borrower that borrows through desperation often with no hope of ever repaying. It is the second borrower and third borrower that are likely to fall prey to the usurer. It is this consumer that is likely to have problems with the inability to pay. There is likely to be a reason for the inability to pay which may be illness or loss of income. However, the very nature of usury in a money system means that the debts magnify to exceed the money available to repay the debts. So the rate of failure amongst the citizens will approximately equal the interest rate, under a steady-state situation. The rate of failure will be a little lower than the interest rate because the citizenry keeps borrowing more and more money. When the lending slows down or ceases the rate of failure will jump. Then the creditor class will be able to take ownership of the real wealth of the citizenry. By real wealth, we mean the physical assets of the nation including the land.

Here are some clever words from some notable people from times when debt was not normal:

Aristotle (384BC - 322BC) Greek Philosopher

The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice.

Thomas Edison (1847 - 1931), American inventor

It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges, at the hands of men, who control the fictitious value of gold. Interest is the invention of Satan.

Rev. Henry Swabey (1826 - 1878)

King and Church worked side by side for many centuries and not only kept out the Usurer but held the price level steady - an achievement that has baffled the modern specialists and experts. [10006]

For there can be no question but that Modern Banking is an adaptation of the Usurer's craft. [10006]

In spite of this clear code, money lenders were largely responsible for the social changes that altered Palestine from a land of small farmers, in the time of the earlier kings, to a series of large estates worked by slaves in the time of Jeroboam II. For the difficulties of the small farmer drove him to the Usurer and all too often their mortgaged goods, families and persons were sold, which meant slavery. [10006]

...Roman Empire, riddled by usury ... [10006]

Usury pressed hard on all provinces of the empire, and Dio Cassius said that the Revolt of Boadicea in Britain, in 61 AD was caused by Seneca's usury. He forced a loan of ten million drachmae on the people (about £400,000) at a high rate, then suddenly withdrew his money and brought intense suffering. 70 000 Romans were killed in the rising. And the Empire itself was crumbling into moral and economic ruin. [10006]

Clearly the Usurer was looked on by the Church as a pretty loathsome swindler. [10006]

So usury has provided us with our modern way of living but created a swathe of problems at the same time. So it is necessary to understand how to tame usury and run our money system in a sustainable manner that benefits all.

Definition of Usury

The modern definition of usury runs along these lines:

Usury is the charging of excessive interest or illegal interest rates for the use of money.

I suggest that the correct definition of usury should be:

Usury is the practice of lending money and expecting a greater amount in return such that unpayable debts occur.


Usury is the practice of making a loan and demanding a greater amount in return such that unpayable debts occur. The practice creates an Impossible Contract that involves unpayable debts.

If a private organization, separate from the government creates its own money tokens and lends it to individuals in society or to the government, taxation becomes a money harvesting operation for the benefit of the private moneylenders and a never-ending increase in debt to the private organization will occur.

However, if a government lends money then unpayable debt does not occur because the government is already moving money between the people and the government in the form of government expenses and taxation.

Public Banks do not create unpayable debt.

Private Banks create unpayable debt.

In Latin the word usuria means:

Usuria: demanding in return for a loan a greater amount than was borrowed.

Usury Centralizes Wealth

Usury has the tendency to concentrate wealth into a group of people of ever decreasing size. Usury not only tends to enslave the borrower and oppress the poor, but amongst the rich, it tends to gather the wealth into fewer and fewer hands. The centralization of wealth continues as smaller fortunes get absorbed into one colossal financial power. It may be impossible to stop this centralization. The rate of interest does not affect the resulting centralization but affects the rate at which the wealth becomes centralized. Where the usurers manage to gain a monopoly on the issue of money or a monopoly on the issue of a type of money, the usurers will have gained a win-win situation. The monopoly ensures that the debts must be repaid in their brand of money which then enables them to purchase the real assets of the nation. Where the usurers issue the money, the only source of money is money borrowed from the usurers that create the money. This gives no avenue to pay the interest on the money borrowed without taking further loans or selling them the real assets of the nation. The usurers will have large shareholdings in corporations, who themselves will be lobbying the government to favour the system of their shareholding owners. Democracy is a good way of hiding this system, as the people believe they have a say in a government that is actually controlled by lobby groups and corporations, both of which are influenced by those who gain from the entrenched system of usury. Currently, there are three high-level bank lobbyists for every elected member in Washington. Moreover, the New York Times article of 21 October 2011 said the banking industry had spent $2.3 billion on campaign donations from 1990 to 2010. Lobbying is legalised corruption and bribery.

The centralization is aided by periodic changes in the volume of available Bank Credit extended by the usurers. Borrowed money is plentiful for a while. Borrowing binges occur inflating various assets. Borrowing slows down. Business dries up and foreclosures occur. The usurers finish up with more assets. In the USA, commercial disasters occurred in 1809, 1818, 1837, 1873, 1893 and regularly ever since. This cyclical nature of depressions and recessions tends not to occur when the government issues debt-free currency either from the treasury of through a public bank.


The graphs tell an interesting story. Have a look at the Private Sector Debt for 2008. (The yellow line going through the red.) This is the house mortgages, personal loans and credit to business. It is most noticeable in this graph:

USA graph of debt and money

USA graph of Circulating Money and Hoarded Money

In 2009, there is a dramatic fall in the credit issued to the private sector. Private Sector loans are being repaid but few loans issued. Bernie Madoff failed because more people left his Ponzi scheme than entered it. Our private credit system will fail if people do not keep increasing the volume of loans. Constantly increasing loans keeps the money supply expanding. The 2009 fall in the volume of Private Sector loans issued should have caused a dramatic fall in the money supply. You can see a leveling of M1, deposit accounts. It was a possible trigger for money system collapse. However, the issue appears to have been recognised and action is taken to prevent damage to the economy. The chosen remedy was given a fancy name but was a bit of a disaster. The ill-chosen solution boosted the money supply by boosting the government debt. The money supply was increased but the Circulating Money did not increase and the economy was not boosted. You may see why after studying the following graphs:

USA graph of Circulating Money

The general public were not taking on debt and so the money supply faltered. The government was brought in to bolster the money supply by taking on debt to boost the money supply. The government spent money which rapidly became hoarded by those 'with more money than they could spend'. So the government spent money which did not enter the Circulating Money. The whole folly was dressed up as 'Quantitative Easing' and, in Australia, we were told by the treasurer: "I saved you from the GFC". We were not saved, we got massive increases in national debt and a damaged economy from a failed understanding of the nature of money. This problem was blamed on a Global Financial Crisis, as if it were a weather phenomenon and not on the real culprits, the banks and their total inability to control both the money supply and its important component, Circulating Money. The banks insist that they create the money supply and that the central bank should be kept free from political interference. The one thing that they clearly cannot control is the money supply and its magnitude and the term 'free from political interference' is a convenient diversionary phrase to ensure that private banks and the Bank for International Settlements control the central bank. The size of the money supply entirely depends on the difference between the rate of creation of new loans and the rate at which repayments are collected. Some influence can be effected by adjusting the interest rate but doing so creates secondary problems. If the interest rate is decreased, repayments are reduced, and loans can be more attractive. The lower interest rate is prone to cause issues with house price inflation and to cause international investors to play hardball with your financial position.

USA graph of Hoarded Money

The government has no way of influencing the money supply. The money supply can only increase when the general public takes on loans at a faster rate than loans are being repaid. The government obtains money to operate by asset stripping, taxation and selling bonds. When it sells bonds to the citizens, Bank Credit owned by citizens is transferred into a government bank account. No new Bank Credit was created and so the money supply does not increase. Although some beneficial effect may be obtained if the Bank Credit came from the Hoarded Money and is spent by the government into Circulating Money. However, if a bank or the central bank purchases bonds, then it does so with freshly created Bank Credit and so the money supply increases.

If the central bank buys existing bonds the money will likely become Hoarded Money and be unhelpful to the economy.

If the central bank buys new bonds from the government, the government will spend them into circulation and the Bank Credit will likely become Circulating Money.

Fresh thought is needed on these matters. The assumption that an economy can be boosted by forcing up the money supply is conceptually wrong. If it is desired to boost an economy, it is necessary to look at the areas that might assist business owners to expand. This includes the availability of money or credit, and a reduction of punitive taxes and restrictions. Whilst running businesses myself, at times I felt like I was treated more like an enemy by the bureaucracy. In industrial relations, it felt like the employee could do no wrong and everything I did was wrong. Yet I was supplying a service to society and employing people in a complex web of rules where employees could call tribunals to take me to task, but nothing the other way round. Under such circumstances, only tasks that have to be done are done and anything that can be done overseas gets done overseas. I sometimes joke to people: "If you won a million dollars on a lottery, would you buy a factory and employ people?" The answer is commonly: "No way. Too much hassle." Which suggests that employees are not giving reasonable service to employers.

USA Velocity of Money

There really is no solution but to ensure that the understanding of Circulating Money within the money supply is improved. Policies founded on a flawed understanding of the money system will only make future crises more likely. Relying on the bank industry to control the money supply is dangerous. The control of the money supply should be looked after by a mixed committee set up to specifically control the money supply. The government should also take a stronger role through a network of public banks. It is feasible that only the government should create the money supply, but the issue of credit to business so vital to the economy needs to be addressed. Without adequate access to money or credit, business will be severely hampered. With government created money, a large portion of the money could be allocated to banks purely for lending to business. New bank restrictions in the form of 'Basel Three' will further hamper the availability of credit to business.

Underlying this had been a rise in US interest rates between 2004 and 2005 from 1% to 5.35%, resulting in high levels of default at the "sub-prime" end, which is to say, the high-risk end of the housing market. Because mortgage lenders had sold on their debts via hedge funds to other financial institutions, the consequence of irresponsible lending spread contagiously through banking systems, especially in the West, as house prices started to fall and the real estate asset value underpinning the loans became negative. When BNP Paribas told its investors that they would not be able to draw money out of two of its funds owing to a "complete evaporation of liquidity" it was the start of a domino effect, forcing governments to step in and avert potentially catastrophic runs on major banks.

The GFC was triggered by the collapse of a large international bank. This is not what caused the crisis. The crisis was caused by a lack of loans to the private sector. What one could call a 'Credit Crunch'. There had been a rise in US interest rates between 2004 and 2005 from 1% to 5.35%. This created high levels of default amongst the most vulnerable. Many of the vulnerable mortgages had been diced and spliced and on-sold via hedge funds as respectable investments. As the interest rates rose, the value of houses fell. House prices are artificial values that are designed to take as much interest as possible from house mortgagees. The house price fall meant that the mortgaged value exceeded the house resale value. This was a credit bubble that burst due to a change in interest rates. The deregulated financial system has created an atmosphere where irresponsible lending became normalised. An atmosphere existed where people believed property prices would continue to rise without realising that it was caused by a constantly increasing supply of credit to the housing industry. It was a selective expansion of the money supply available to the housing industry. When the interest rate rose, the wheels fell off. House prices fell and the bubble was burst. The madness of allowing the money supply to be influenced by lending to make money out of money in a profit-driven banking system revealed itself in a crash. The affluent (effluent) got out in time but the less well of suffered dreadfully.

I am yet to puzzle out whether this was banks declining loan applications or the citizenry refusing to borrow. Either way, credit dried up and the money supply receded as repayments were collected at a greater rate than new loans were granted. The result was a fall in the money supply which was catastrophic for the circulating medium. This is difficult to see in a money supply graph but easy in the 'Hoarded Money' graph a few paragraphs previous. The government in collusion with the private banking industry tried to rectify the economy using an inappropriate assumption that a boost in the money supply would boost the economy. A fall in the money supply will damage the Circulating Money and thus the economy but this does not mean that the opposite is true. It takes more than a boost in the money supply to boost the economy. A boost in the money supply is more likely to boost the Hoarded Money rather than the Circulating Money. Economists completely ignore the role of Circulating Money. Unless money gets into the hands of citizens that are going to make use of it, the effort is useless as hoarders have greater powers than traders. Traders circulate money and it only takes one hoarder to get hold of it and it ceases circulation and there is no current way of getting it off them. Governments also take advantage of the business community's habit of 'keeping money moving', by removing tax at each transaction, whilst leaving Hoarded Money untouched.

If we continue with government policies based on a flawed understanding of the causes of the financial crisis, we will only make future crises more likely and more severe. The financial crisis was caused by an increase in the interest rate. Where there is more debt than money, the weakest link is going to break. Someone is not going to be able to pay. So when lending slowed down, the weakest link broke. It will happen every time there is a slowdown in lending. The money supply will fail to expand. The music will stop and someone will lose their chair. Someone won't be able to earn enough to pay the usurers. Shifting the blame to the victim does not fix the problem of inadequate money to pay the piper.

The whole concept of making money from money is rotten to the core. No money system where this is a core philosophy is sustainable. Even the incredible wealth that is amassed by the super-wealthy is not usable for everyday purposes because there is only a limited availability of everyday goods that are produced. The wealth of the super-wealthy has to stay in real-estate and offshore havens to maintain its worth. Just imagine all the money in havens, suddenly trying to buy food and everyday items and everyday services. Tremendous inflation would occur destroying the value of their incredible hoards. Their hoardings only maintain value if the money remains in tax havens.

Basel Three

Basel Thee is supposed to toughen up the banking system by imposing lending weightings. It is supposed to toughen up the banking system to prevent another 2008 crisis. Unfortunately, the area most punished is the one area that is essential to a vibrant trading economy. Basel Thee is particularly hard on business. All loans to business are weighted in an unfavourable manner that strongly discourages business support. The rules will also treat smaller banks in an unfavourable manner.

 Websearch 'Basel 3'

'The National' (Abu Dhabi) wrote this:

"The Central Bank governor yesterday warned that Basel III banking rules could curb the growth of small and medium-sized business worldwide." [10072]

Sultan Bin Nasser Al Suwaidi said:

"Job creation in emerging economies really depends on finding a way outside Basel III restrictions on SME financing that will not contribute to job creation and will probably contribute to creating problems in many emerging and developing economies," said Sultan Bin Nasser Al Suwaidi at the Global Financial Markets Forum in Abu Dhabi. [10072]

Mr Al Suwaidi said that in many emerging markets, which are set to grow at faster paces than developed countries, there are no strong programs to finance and support SMEs. [10072]

UAE policy makers have been counting on smaller businesses to play a key role in the development of the Emirates’ economy. SMEs account for 86 per cent of the workforce in the private sector, according to the Ministry of Economy. Nearly 300,000 companies can be classified as part of the SME sector, ministry data showed. [10072]

Even in Germany, this is of concern. Asmus Angelkort and Alexander Stuwe write:

"SMEs, with an annual turnover of up to 500 million euros, make up more than 99 per cent of all German companies and employ more than 70 per cent of all workers (see KfW Bankengruppe 2011). SMEs are therefore the growth engine of the German economy. Consequently, the financing of this sphere, in particular in the form of investment and working capital, must be ensured." [10073]

These smaller banks specialise in lending to SMEs. In 2009, they issued almost 60 per cent of all SME loans in Germany (see DSGV 2009: 7). [10073] These small banks did not cause the financial crisis and their solid standing was a source of stability that enabled the recovery. Basel III will significantly impact these smaller banks and impede their ability to supply the credit so vital to a functioning economy.

Usury of Land

Land is fascinating stuff. When we purchase land we claim that we own the land but we only own down to a certain level and we do not own the air above the land? In most cases, we are highly restricted as to what we can do with the land. Effectively we are purchasing exclusive use of the land and the right to exclude others. When we changed from existing as hunter-gatherers to living in fixed locations, not very long ago, we divided up the land and had mechanisms to apportion the land amongst people. When money became the means of trade, land could be given to those with the ability to pay rather than on an as-needs basis. A farmer would be allocated land so that the village would get food. When credit became available from the creditor class, competition for limited supplies of suitable land drove up prices and enabled debts to be hung on land. Thus, some will rent property from the affluent and others will rent the money from the creditor class. Land prices rise wherever there is gainful employment or wherever there is income to be made from the land. The land price effectively capitalizes the future income and asset value increase. The effect it to take the bounty of the land as rent or interest. The affluent gain from that which was provided free for all mankind by obtaining a monopoly on the use of the land. Human-competitive nature pushes land prices up so that the interest takes a large portion of the income of the purchaser. A house price is dependent on what a purchaser can pay and that depends on what a bank is prepared to lend which depends upon the capacity of the purchaser to pay the interest. Land and house prices are dependent on the interest rate and on what the earning potential is in the district. Thus, it is local wages that determine land prices. House prices approximately doubled when two incomes became common in families.

The term homeowner is a misnomer as the house is effectively owned by the bank until the last repayment. When a new state is started, land is usually given away at no cost. When banks are introduced into this new state and Bank Credit is lent to buy land, the bank effectively starts to own all the land in the state by creating Bank Credit by bank entries. Land only goes to those with the ability to pay bank interest. Farmland only has value if there is a food transport system to a city, whence it acquires value, and its value escalates when banks arrive. The value of a farm depends upon its capacity to produce and should the farm be hit with a drought, mortgaged farmers will have their farms seized. This seizure is backed up by a legal system geared to favour the creditor class. The farm is classed as unviable, not when it will not feed the city, but when it cannot pay the interest on the loan that itself depended on the expected output of the farm. However, we need to keep farmers in debt as they would only grow sufficient for themselves to eat, if there was no debt to service. Debt is a driver of work. Never forget we need food and farmers. We need farmers that are in debt and not dead. By keeping farmers in debt, we force the farmer to sell produce to feed the city. Unfortunately, the financial demands of the bank take precedence over the food needs of the city.

The bank uses deceptive language by suggesting that the purchaser is the landowner, when, in fact, the purchaser is only a mortgage note holder. The bank likes you to have a loan period of thirty years. Sometime during that thirty years, you will have a financial problem or possibly a marriage problem or you will move. Thus, the mortgage will terminate and the property is recycled to the next mortgage note holder.

I sometimes say that we've gone from landlordism of renting the land from a landowner to a system where we rent the money for a similar purpose. Both systems take the advantage out of living in that area and transfer money to those that make money without toil.

Towards the end of the Roman Empire, peasants were moved off the land to make way for the large landowners. The peasants became fringe dwellers and subsistence dwellers in Rome. In America, the Indians were pushed off the land to make way for the invaders with their European farming techniques and in modern times, tent cities have arrived as people cannot pay money to the lenders whilst the land that nature gave freely to all living things, sits vacant. Australia was similar. The government enforced land title system displaced the original Australians from the land that gave them their sustenance. Much land is vacant, not because it is uninhabitable, but because the usurers want interest on money that did not exist before they created it for the purpose of purchasing the land which was given freely by god or nature or whoever, for all mankind to use. It is usury that gives land its price and speculation that then lifts the price above that affordable by working people.

Imagine a land far away where the locals can only use land if they pay the local hitmen. The hitmen want as much money from you as possible leaving you just enough to live. Only those with the ability to pay the hitmen get to live on land. The hitmen create their own tokens for the purpose. To save printing the tokens, they just keep records in a computer. If you fail to pay the hitmen, they organize for government agents to do the dirty-work and throw you out. And then they sell to the next bunny. To maintain a short supply, planning laws and land restrictions are instituted. Who is the modern hitman?

To alleviate the usury of land, it is better for the government to collect the tribute in the form of a land tax. Competition for land is fierce and without a system of allocation by favour or need or hereditary or other, the selection mechanism will be by the ability to pay. We have no mechanism to alter citizens keen-ness to pay all they can afford for land and so this payment is best collected as rent in the form a land tax or land lease fees. Thus, the government should lease land or charge land tax on all land.

Land leasing or land tax will dramatically reduce the need to borrow from the money-lenders and give a second bonus that other anti-productive taxes can be reduced.

The Burden of Interest

Various calculations by a few wise economists suggest that around 30% of everything we spend goes to banks as interest. I have done a thumbnail calculation for Australia and again I came up with the figure of about 30% of everything we spend goes to banks as interest. Every level of production tends to have an interest component and the sum of all the interest expenses of a product comes to 30% of the final sale price.

Margrit Kennedy

    On the average we pay about 40% interest in all the prices of our goods and services. In medieval times, people paid ?the tenth? of their income or produce to the feudal landlord. In this respect, they were better off than we are nowadays, where almost one half of each Euro or Dollar goes to serve people who own capital. [10079]

If you wish to run a factory operating in a region under this land title bank mortgage system, you have to pay high wages so that the employees can afford to live in the area. You have to pay a high price to purchase the land on which to build your factory. It is ironic is that it is your factory that is creating the work and paying the wages that causes the land prices in your area to appreciate. Thus, it is the usurious bank lending system that makes our production inefficient. It eventually makes the manufacturing process so uncompetitive that the manufacturing collapses. Go visit Detroit to see what it looks like.

Annual interest (at say 10%)= $5400B * 10% = $540B
Interest per person (at say 10%)= ($5400B * 10%)/23M = $23000
Interest per person (at say 5%)= ($5400B * 5%)/23M = $12500
Debt per person= $5400B / 23M = $234 000
Unpayable debt= $5400B -$1760B = $3640B
Unpayable debt per person= ($5400B -$1760B)/23M = $158 000

Another interesting calculation is the cost of Bank Credit.

Annual interest (at say 10%)= $5400B * 10% = $540B
Cost of Money Supply at 10%= $1700/$540 = about 30%
Cost of Money Supply at 5%= $1700/$270 = about 15%
 The provision of $1700B of Bank Credit probably costs us between $270B and $540B which is between 15% and 30%.


The Glass-Steagall Act of 1933 was a law that Franklin D. Roosevelt used to get the Unites States out of the Great Depression. The act forced banks to choose between being a Commercial Bank which serves the Real Economy or being an Investment Bank dealing in risky speculative activities. Commercial Banks are the high street banks in which families and businesses place their deposits and run their cheque and savings accounts. Investment Banks are City of London and Wall Street and large international banks that trade, bet and gamble on large international investments. The Glass-Steagall Act stopped local high street type banks (Commercial Banks) from engaging in risk-taking speculation with customers' deposits. It stopped Commercial Banks from gambling away people's life savings. A rarely talked about side-effect was that it encouraged high street Commercial Banks to invest in local business. Wall Street Banks successfully lobbied the regulators to chip away at the Glass-Steagall rules in the nineteen eighties. Congress finally repealed the Glass-Steagall Act in 1999. Many believe the repeal of the Glass-Steagall Act lead to massive investment speculation that caused the financial crash of 2008.

The Glass-Steagall Act is the only tested and proven economic stabilizer.

The American Financial Crisis Inquiry Commission, under the chairmanship of Phil Angelides, has published the results of its study on the causes of the 2008 financial crash. The report gives the main reason for the crisis as the gradual removal of the measures aimed at protecting citizens set up by Franklin Roosevelt in the nineteen thirties, including the Glass-Steagall Act. [10014]

Malcolm Fraser 2014

I am firmly of the view that Australia should not adopt the European policy of 'bail-in' of depositors in order to save failing banks. Instead, Australia should fully separate retail banking from the speculative activities of Investment Banks, which the Glass-Steagall law did in the United States so successfully from 1933 until its repeal in 1999. It is appropriate for the government to back the retail banks that serve the community, but it should make it clear to Investment Banks that they are no longer too big to fail, and therefore responsible for their own losses. [10016]

Glass-Steagall Summary

A Glass-Steagall style type law will force banks to decide whether they are 'Commercial Banks' or 'Investment Banks'.

We need a Glass-Steagall style type law to stop risky investments in derivatives and the like that helped create the 2008 crash.

You need a Glass-Steagall style type law to encourage investment in local businesses and communities.

We need Glass-Steagall, to prevent banks trading for their own profit.

Redirect the investment to where it benefits society most.

Limit the volume of speculation with its bubble and crash creating tendencies.

Return money to where it does the task for which it was invented: enable transactions and trade.

The Glass-Steagall is the first important step towards the solution.

A Spiel From a CEC Newsletter of December 2015

Without Glass-Steagall, looming defaults spell global financial disaster.

The warning by Moody's Investors Service on 3 December that the oil & gas and metals & mining sectors are facing a large spike in defaults early in 2016 underscores the urgent need for a full Glass-Steagall banking separation to protect the Real Economy.

Glass-Steagall is the 1933 US law that completely separated everyday commercial banking, which services the Real Economy, from risky, speculative investment banking. For the 66 years Glass-Steagall was in place there were no systemic banking crises in the US economy, but within a decade of its corrupt repeal in 1999 the global financial system melted down.

Instead of reinstating Glass-Steagall, the City of London and Wall Street's too-big-to-fail banks conspired with governments and central banks to prop themselves up through taxpayer-funded bailouts, zero interest rates and injections of printed money (QE-quantitative easing) that only served to loot the Real Economy - including through the vicious austerity that European governments especially have imposed on their most vulnerable citizens to pay for the bailouts - and fuel an expansion of global debt by $57 trillion [57 000 billion] and of the toxic global derivatives bubble to more than $2 quadrillion [2 000 000 billion].

Consequently, the financial system is teetering on the edge, vulnerable to any number of events that may tip it into another meltdown. One such event could occur this month, if US Federal Reserve chairwoman Janet Yellen gets her way and finally raises interest rates from zero.

In terms of the default threat, Moody's reported that in the period since 2010, companies in the resources sector have issued approximately $2 trillion in high-yield debt - meaning junk bonds and high-yield loans - much of which is now being further downgraded and in which a default wave has started. Standard & Poor's Financial Services had made an essentially identical warning one week earlier, on 25 November.

Moody's managing director Daniel Gates was quoted in the 2 December statement, that "Many [commodities] companies were temporarily cushioned by hedging programs and fixed-price contracts in the early stages of the downturn. Others have been sustained by cash balances that are eroding. Diminishing liquidity and restricted access to capital markets are now pushing more firms closer to default." The 7 December Wall Street Journal, in a front-page article "US Junk Bonds Flash Economic Warning Signs", added that "The declines are worrying Wall Street because junk-market declines have a reputation for foreshadowing economic downturns.".

The Moody's warning echoes that of financial consultant Jim Rickards of the Strategic Intelligence newsletter back on 22 October, who reported in the Daily Reckoning blog that there is in fact $5.4 trillion in debt associated with the recent fracking boom in the US, which cannot be serviced at current prices and is therefore in danger of default..

Whether $5.4 trillion or $2 trillion debt is at risk, this current threat dwarfs the $1 trillion US sub-prime loan market in 2007-08, of which a 20 per cent default rate was enough to trigger the bankruptcy of Lehman Brothers and the meltdown of the global financial system.

The issue is not stopping the crash, which is inevitable; it is protecting the Real Economy from the fallout when the crash happens, and the way to do that is clear. Glass-Steagall. Bankers oppose Glass-Steagall because it makes them pay for their own gambling losses, instead of letting them pass those losses on to ordinary people. The politicians who oppose Glass-Steagall are in the pockets of the bankers.

..... the US Democratic Party's presidential pre-candidates are having a fierce debate about Glass-Steagall, with both Martin O'Malley and Bernie Sanders championing its restoration and showing up Hillary Clinton as the candidate who is beholden to Wall Street. UK Labour Party leader Jeremy Corbyn and his shadow Chancellor of the Exchequer John McDonnell are also staunch supporters of Glass-Steagall. Meanwhile former Citibank chairman John Reed, whose bank was largely responsible for the repeal of Glass-Steagall in 1999 - for which it spent $300 million lobbying US Congressmen so that it could merge with insurance giant Travelers, wrote in the 11 November Financial Times that it was a mistake, and that merging commercial banking and investment banking is "unstable and unworkable": "No amount of restructuring, management change or regulation is ever likely to change that," Reed wrote.

The need for Glass-Steagall is more urgent than ever.

Can We Live Without Debt?

Genghis Kahn did so.

Genghis Khan was a strong leader who enforced a rigid discipline. Gunpowder came in useful. However, his secret weapon was debt-free paper money that enabled his prosperous trading empire. His paper money was as good as gold and trade thrived for many years. So long as the Mongols controlled the issue of the money, they could ensure that trade continued and thus they remained in control. It was the plague that traveled along his trade routes that brought his successful trading empire to an end.

King Henry the First did so with the tally stick.

This system lasted seven hundred years. Tally sticks were created and spent into society and taxed back out. Other currencies came and disappeared during that time. It was a very successful system. The king insisted that taxes be paid in Talley sticks. Ability to pay tax is an important part of a currency system. It creates demand for the money and prevents oversupply with consequent inflation.

Germany did so.

People were and starving and penniless. The national currency had been destroyed. This wiped out people's savings, destroyed their businesses, and ruined the economy. Germany created interest and debt-free government money. It was a success and Germany turned from a debt-ridden nation with starving poor, to a strong and prosperous nation in about three years. Measures were introduced to limit foreign speculation and to limit excessive use of Bank Credit. Germany built the autobahn system, railroads, ports and factories. He turned the country into a nation of hard working and industrious people. Germany changed from the poorest nation in Europe to become the most prosperous and wealthy nation in three years by issuing its own Debt Free Money.

Napoleon Bonaparte did it for France.

He created the Banque de France which was a national public bank which created and spent the money into the nation and made the nation prosperous.

Abraham Lincoln

Abraham Lincoln created debt-free money with his Greenbacks. He got shot.

The government should create, issue and circulate all the currency and credit needed to satisfy the spending-power of the Government and the buying power of the people. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is in the government's greatest creative opportunity. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.

Abraham Lincoln financed the Civil War by issuing $400 billion in debt-free Greenbacks. In 1864, Lincoln was assassinated.

Benjamin Franklin

In 1750, Benjamin Franklin issued debt-free money. He was asked by officials in London to explain the prosperity in New England:

We have no poor houses in the Colonies, and if we had, we would have no one to put in them, as in the Colonies there is not a single unemployed man, no poor and no vagabonds. It is because, in the Colonies, we issue our own paper money. We call it Colonial Script, and we issue only enough to move all goods freely from the producers to the Consumers; and as we create our money, we control the purchasing power of money, and have no interest to pay.

Libya created debt-free money.

Gaddafi got himself killed.


Wörgl in Austria created debt-free money in 1932 and successfully countered the effects of the hyperinflation in its town. When other towns went to copy this demurrage local currency, it was stopped by the central bank.


JFK did it in a small way. He got shot.

Caesar did so.

He got assassinated. 48BC Julius Caesar took back from the money changers the power to coin money and minted official Roman coins for the Roman Empire.

Commonwealth Bank 1911 (The Peoples Bank)

Australia was one of the most prosperous nations in the world, with no foreign debt. It had a large middle class, inflation was close to zero, and had extremely low levels of taxation. Around 1924, the activities of the Commonwealth Bank were curtailed and the economic prosperity of the nation declined and soon entered the Great Depression. [Larry Hannigan] [10017]

China Today

China has risen to become an economic superpower. This is largely because it creates money without creating debt. China runs a China Development Bank, which lends the money of the nation into circulation promoting business and industry.

Theodore Roosevelt

Issue of currency should be lodged with the government and be protected from domination by Wall Street. We are opposed to...provisions [which] would place our currency and credit system in private hands.

Theodore got himself shot but did not die.

The best money system is actually a Fiat Money system with no debt attached. The Fiat Money systems that get the bad reputation are the corrupted Fiat Money systems that have debt attached. The debt is often attached by lending a substitute for the government issued Fiat Money as is currently done by private banks.

It is imperative that there is a Public Bank in any chosen money system, whether it be Fiat, Representative or Commodity. The Public Bank is able to create Bank Credit in the same manner as the private banks, irrespective of whether it is Fiat, Representative or Commodity Money. The Public Bank enables the government to create the same Substitute Money (Bank Credit) as the banks. This has many advantages, one of which is that the government can owe the National Debt to itself.

The issue of usury is not an issue with a Public Bank as no unpayable debt accumulates. The act of the government spending and tax collecting within the system prevents the build-up of unpayable debts and the typical asset stripping. Usury will still occur in the private sector where a proportion of the mortgage holders will be unable to pay. This will only send a few hapless peasants and businesses to the wall, which is somewhat better than having central governments in the death-grip of unpayable debt. We cannot stop the current Bank Credit system of payments, so it is essential for the government to be in the payment loop. It is difficult for a treasury to do this, but a government bank can create Bank Credit. A treasury can create money, but only of the paper or coin variety. Digital Money is a euphemism for Bank Credit created by Double Entry Accounting. I may be proved wrong, and it may be possible to have a government controlled computer that by-passes Double Entry Accounting to create Bank Credit, but I have yet to conceptualize how that would be done. My thinking is that the treasury would be acting as a bank and so it might as well be allocated to a government-owned bank operating under the authority of the treasury. It may be possible to have the treasury create large-denomination notes and pass these to the national public bank which would store said notes and credit the government with government created Bank Credit which due to the bank payments system would be compatible with private bank created Bank Credit. Private banks are only lending to the hapless peasants and inflating land, house and share prices, besides providing credit to business and the government would not suffer the indignity of the asset stripping currently occurring to pay interest on private Bank Credit that did not exist before the government borrowed it.

When there is a public bank in the system, the government debt can be eliminated. The mechanism is by a combination of:

The public bank accepts cash or currency created by the treasury. (This is effectively the mechanism of the Trillion Dollar Coin solution.)

The public bank lends to the government.

A public bank lending to the government is a situation where the government owes the national debt to the government. This makes the debt somewhat irrelevant as it is interdepartmental lending. This is the Public Bank Solution. The best information on the is at the Institute of Public Banking.

Spend the Money into Society

There are ten people and myself in a room and you are one of the ten. You represent the people of the nation and I am the Treasury. I will spend the money into society. I pay you to build a bridge. I contract others to build roads, hospitals and schools. I spend $1000 into society. The nation has new infrastructure and there is no debt. This is a debt-free society. China has modelled its system on this formula with great success. This is the system that made Australia the most prosperous nation in the world between 1911 and 1923. In 1911, the Andrew Fisher government set up the Commonwealth Bank of Australia, which spent the nation's money into society.


It built the Trans Australia Railway, effectively at no cost to the people. It was quashed in 1923 soon after the City of London learned of the practice. A few years later, Australia went into the Great Depression.


The Great Depression ended and money suddenly became plentiful so that we could have another war.


What is Digital Money?

What people call Digital Money is the balance in a bank account. This is Bank Credit, so it is questionable whether it is money. It is certainly credit for currency. It can also be used to enable transactions and potentially, it can be used as a store of value, so it appears to satisfy the definition of money. Digital Money disappears when it is used to pay off debts. If I owe a million dollars on a house loan and I pay off one thousand, there is one thousand less debt in the nation and one thousand less money. Digital Money currently only exists when debt exists. Unfortunately, there becomes more digital debt than Digital Money by the magic of usury. I have yet to fathom how anyone can create Bank Credit simply by typing numbers into a computer. It may be possible for the treasury to run the nation's Digital Money computer and periodically create a digital entry lifting its digital volume. However, to me, it appears to violate the principles of Double Entry Accounting. I can foresee some heavy discussion on this topic along the lines: Can Digital Money aka: Bank Credit, simply be created without corresponding debt? The IMF does it with its SDRs. The IMF claims that it creates SDRs under a separate accounting practice. Is it thus possible for Greece to create SDR's? If the IMF can create Euros, can the ECB create SDR's by the same process that the IMF creates Euro?

Digital Money can be converted to currency and currency can be converted to Digital Money. A divide is evident when the banks close their doors during a money crisis and the conversion of Digital Money to currency has some daily limits and notification requirements. If the banking system collapses, the Digital Money evaporates but currency continues as valid money. When a banking system collapses, Digital Money evaporates and so it follows that Digital Money is not equivalent to currency. Digital Money represents currency and is credit for currency, but it is not currency which leads me to a dilemma. I am not convinced that Digital Money is money. I will leave you to make your own decision.


Deficits are natural, normal, necessary and should be expected. It is entirely wrong to think that deficits should be zero. It is natural to spend a little more than is collected in tax. The word 'deficit' implies that there is some fault or problem. This is completely wrong. If there is no deficit, government spending would be restricted to tax collection. In a correctly functioning money system, the government would spend a little more each year than it taxed. This is the way that the money supply would expand. However, the government operates using Bank Credit which it obtains by issuing IOU's on future tax collections which it exchanges for Bank Credit. Thus, the deficit manifests itself as an increase in debt each year. The magnifying debt is reflected in the volume of bonds issued in exchange for Bank Credit which is shown as the National Debt. Deficits are a necessity. Excessive deficits are a problem. My thinking is that 5% is natural, 10% is high and 20% is excessive and 30% is dangerous. 0% is likely too restrictive. Unfortunately, under the current money system, deficits cause increased debt. It makes it impossible the operate the nation with financial efficiency. The least sensible situation is a 'Budget Surplus'. Until the government resumes the creation of the nation's money, a deficit, although natural will create increased debt. The two obvious solutions that spring to mind are:

Government creates money as is its sovereign right.

Government creates a public bank which lends to the government. The debt will be somewhat irrelevant.

The Second Flaw of Economics

   Balanced budgets are a nonsense.

Ratio of Deficit to Expenditure
Nation GDP Revenue Expenditure Surplus or Deficit Deficit/Expenditure %
US (federal) 14526 2162 3456 -1294 Dangerous   -37%  
Japan 4600 1400 1748 -348 High   -20%  
China 1600 318 349 -31 -8.9%
Germany 2700 1200 1300 -100 -7.7%
United Kingdom 2100 835 897 -62 -6.9%
France 2000 1005 1080 -75 -6.9%
Italy 1600 768 820 -52 -6.3%
South Korea 600 150 155 -5 -3.2%
Spain 1000 384 386 -2 -0.5%
Canada 900 150 144 6 4.2%
Data:U.S. Treasury, OECD and IMF
Adapted from

Deficit Spending

Mr. Keynes, 1883 - 1946, told us that the government could spend its way out of a depression or recession. This is entirely misleading for a number of reasons:

To get out of a recession or depression it is necessary to boost trade and business. It is the Circulating Money that needs to be boosted as well as anything that boosts business activity including the reduction of business imposts.

Under a Bank Credit money system, to increase the money supply it is necessary that moneylenders issue loans faster than they withdraw money as loan repayments. If the public is reluctant to take on more debt, the government needs to become the bunny to take on debt. So government spending helps by ensuring that there is plenty of earnable money, but it is the increased debt that boosts the money supply. If the government spends on items that create income for people with 'more money than they can spend', money is likely to be hoarded. The government needs to spend so that it boosts the Circulating Money. Those with low or no income will return money to the Circulating Money immediately.

For the economists: GDP = Velocity x Money Supply, so a boost to the money supply will increase GDP provided the velocity does not fall at the same time. My contention is that it is the Circulating Money that is important to business, so it is important to boost Circulating Money at the expense of Hoarded Money.

Other items that will get a nation out of a recession or depression:

Reduce business imposts particularly for expanding businesses. Delayed depreciation arrangements need to be removed. Small businesses are at the same tax rate as individuals which is higher than the company tax rate. Where a business employs and deducts tax, they are an unpaid tax collector. A contribution needs to be given for the effort.

Delay sales tax payments to at least match typical invoice payment timings.

Allow a flexible tax payment regime running the tax accounts like bank balances allow extensions of credit where a business demonstrates expansion in acceptable trades.

Free business from excessive red tape. Some silly items come to mind. Buses need to be tested annually. In a remote region, a bus may have a 600km round trip to a testing centre with an overnight stay and a replacement bus sent in the reverse direction. Then the certificate takes time to issue which is to be paid at a government office which again may not be local to the business. A beggar is 'moved on' by police but the same beggar with a shoe-shine box is financially threatened. Some councils do no allow persons to run a business from their home, forcing them to take on a rental property from speculators.

Whilst the nation used Bank Credit as its money system, deficit spending will increase the Circulating Money but will increase government debt. The only way of getting more money into the Money Supply is to increase debt. Thus, Keynes reasoning is more to do with increasing debt and less to do with spending. He played straight into the hands of the money-lenders and did not give us the cheaper alternative. The clear alternative is to boost to Circulating Money at the expense of Hoarded Money. Methods might include:

Taxing 'those with more money than they can spend'.

Reduce sales tax on items that are purchased by people with little money.

Reduce tax or delay tax on business.

Reduce tax on expanding businesses.

Increase tax on unearned income whilst reducing tax on earned income.

Add a minor monthly demurrage tax on Bank Credit holdings.

Temporarily boost welfare payments. - They spend it quickly.

Encourage state and local government to spend any Hoarded Money on local public enhancement.

Encourage early payment of tax. This will come from 'those with more money than they can spend' and thus, it will harvest Hoarded Money.

Avoid money getting into the hands of 'those with more money than they can spend'.

The increase in business will increase the tax collected and should hopefully create a 'revenue neutral' situation.

What is required is increased Circulating Money for the Real Economy and less for the hoarders and speculators. This will be reflected in an increase in velocity. If the money is created by the government at no cost to the people, then Mr. Keynes is correct. New money should be spent into the society on physical asset building of a type that makes the Real Economy more efficient, generating employment and increasing the flow of money. It has made me wonder if Keynes was trying to encourage debt to banks.


Bail-Out is a sign of a failure of the system. It is an attempt to prop up a failed system for as long as possible. Interest has reached a level where the repayments cannot be made with tax collected from citizens, nor by asset-stripping of the nation. The creditors have to issue fresh credit which is given straight back to the creditors as interest on past debt. A Bail-Out will be given when a government is unable to find money to service previous credit. I love having a go at the Irish. On a visit I would taunt with:

So the banks said "You have a problem with too much debt. We have a solution: More debt!" And you Irish fell for it.

To which my Irish friends say "Yes, Andy. We fell for that one."

So the solution to its current debt is deemed to be more debt. Further credit has been given to pay interest on previous loans that could not be paid. In a usury system where there is more debt than money, someone is not going to be able to make repayments unless there is a constant supply of fresh loans. When an individual or company is unable to pay its bills, it is declared bankrupt or a foreclosure occurs. The same cannot occur with a government. Asset stripping can only proceed a certain point. After that, more loans will be required to keep the nation going. The creditors are effectively singling out a particular country for a shake out because all loans cannot be paid out because there is more debt than money. The least performing nation will fail. Any nation not offered more debt will fail. The new loans are called a Bail-Out, which conveniently makes the victim of usury look like the bad-guy. So the advent of Bail-Out is an indicator that the nations cannot dance to the tune of the usurers. Usury works well at asset stripping and pauperizing individuals and businesses but it does not work so well with nations. Usury is good at asset stripping a nation and skimming taxes from the people, but when the limit is reached there is little chance of foreclosure and bankruptcy of the nation. Bank lending practices have a problem with nations because it is nations that hold the infrastructure together so that usury can occur against the people. The nation provides the legal and enforcement regime that allows usury to occur. If the lenders destroy the fabric of society, the game is up for the usurers. The moneylenders rely on a system of birth certificates, police and court systems to lend money and practice usury on the people. When the usurers take their craft too far, the nation collapses and their game of usury ceases. The vultures destroy the host. The usurers tend to escape to another region and start the usury practice again.

Currently, Greece is effectively calling the bluff of the Euro Area system. The Euro area has a centralized creation of the cash currency with the ECB and its subordinates forming around 10% of the money supply. [€1082B/€10659B] Private banks create Bank Credit which forms about 90% of the money supply of the Euro Area. This Bank Credit did not come from the ECB. Neither does the Euro denominated Bank Credit created and lent by the IMF. The money that the IMF lent to Greece did not come from the ECB. All these governments are in debt. It is not that half are in debt and half in credit. They are all in debt and to whom? Private debt. How can this be when the ECB is supposed to create the money of Europe? The total debt of Europe exceeds the amount of money ever created by the ECB. The ECB has only ever created €1082B in cash currency yet there is a total of nearly €30 000 owing to banks.

Bail-Out is a sign of failure in that a nation has become so indebted that it cannot collect enough taxpayer's money. The Euro Area is almost an example of a group of nations using a money token (Euro cash notes) created by a foreign entity external to and out of the control of the nations themselves and then borrowing virtual tokens from moneylenders to continue in operation. There is only one outcome and that is they all become so indebted to the moneylenders that some will start to default. Desperate efforts will be made to keep an unworkable system going by giving un-payable bail-out loans to the defaulters rather than fix the impossible system. The part solution is for each nation to run a public bank and only borrow from the public bank and a more complete solution is for each nation to generate its own Euro cash notes, on an as needs basis, similar to the king of England issuing coining rights to over one hundred towns and cities, ensuring adequate money supply in regional areas.

War as a Creator of Debt

War is the ultimate challenge for a government. The government will sacrifice the citizens and the assets of the nation just to survive. To maintain or expand government debt, it is useful to involve it in activities that involve increased debt. Banks do not sell debt. Debt has to be given to those that need money, so the bank needs to arrange for the people to need money. Just as an oil company cannot 'sell' oil. It has to get another business to create the need for its oil by selling cars. Housing and consumer advertising works for people. War is extremely good at increasing government debt. A government will go to extremes to win a war and will expand its debt to the limit. To have a war, it is necessary to have enemies of similar might. If the enemy does not exist, it is necessary to create one by supplying money to a potential enemy in sufficient quantities to become well armed. You may notice this on the media. Whilst the word peace is used regularly, the hidden game is permanent war.

Australia financed the Second World War using a public bank with the name "Commonwealth Bank of Australia". This was not good for banking interests and this once mighty institution was progressively neutered after the war, eventually being degraded and sold off as a regular high street bank. Gone are the days when it propelled the nation from an undeveloped colonial backwater to the most prosperous nation in the world. Although still prosperous, Australia has since degraded itself to become one of the most debt-ridden nations in the world. Its people are clueless on this issue.

Nationalize the Banks

The banks are the centre of economic life, yet the voters assume the economy is controlled by the elected government. To control the economy means significant control over the issue of fresh money, the granting of credit and where credit is spent. Yet all these are out of the control of the elected government or any department of government. By design or accident, the banks have such a level of control, they are in a position to control the elected government using real or implied threats to damage the economy by withholding credit, intentionally or otherwise. The credit the banks create has become the major portion of the money supply. It is the green part in my graphs. When private banks cut back on lending, the money supply falls and a recession ensues which the talking heads blame on the government. The lending practices of the banks control which area of the economy expands. If they are reticent to lend to small-medium business the corporates win in a situation where banks hold shares in corporations.

As things stand, the banks are the permanent government of the country, whichever party is in power. [Lord Skidelsky, House of Lords, UK Parliament, 31 March 2011]

There is effectively no control over the activities of the banks. Some pretense at control is made by the central bank. It is often claimed that the central bank is owned by the government but, like my daughter's car, this does not mean the government has any control over the central bank. If the central bank is populated with persons from the private banks, then the central bank is as an agent to those it controls. If the treasury is also populated with persons from the banking industry, it too becomes and agent of the banking industry. To suggest that the government 'regulates the economy' is to feed fiction to the people. It is so remarkably easy for the group of banks to generously fund political parties that favour the debt banking system and donate to politicians that innocently or otherwise believe in the debt banking system and then generously employ them as lobbyists and advisors at the end of their political career. Whilst in government, the group of banks can impose capital controls and cause a credit crunch which has the effect of making the government unpopular until the government follows the 'advice' of the banks or it falls. In this manner, no government is a free agent to operate without following the precise advice of the banks.

More significant than the control, is the origin of money in the nation. Where central bank currency makes such a small part of the money supply of the nation, the volume of Bank Credit in the money supply leads to debts, initially of the same magnitude to the issued Bank Credit, but magnifying to many times the initial debt. The banks have no mechanism to correct this except by soaking up the assets of the nation or by devaluing the money. In the case of a public bank, a government has a constant and adjustable flow of money between itself and the individuals in the nation and so unpayable debt is not an issue as an adjustment in the rates of tax collection and government expenditure will counter any differences between fresh credit, fresh debt and interest on debt. If there is a shortage of money in society, the government may create more new money or borrow its own money from itself and spend into society. Private banks do not have the luxury of the movement of money affected by government tax collection and expenditure to balance the unfortunate magnification of debt, and thus, the debts magnify to make the banks insolvent leading to a collapse.

More significant than control and then the origin of money in the nation is the unpayable nature of the debts. With private banks, debt will always increase to exceed the volume of money. This makes the debts unpayable and uncollectible and puts the citizens in and impossible contract and the banks in a position of insolvency because their listed assets are debts that are impossible to collect. This makes the economy unstable and unsustainable.

The Ninth Flaw of Economics

   For most nations, the volume of debt owed to private banks exceeds the volume of money available to pay those debts.

Sustainability can only occur when the government takes its rightful place as the issuer of money. And so we add instability and unsustainability to the problem list where private banks are the issuers of the credit of the nation.

Nationalization of the banks is necessary to the extent that at least one pubic bank belongs to each taxing agency. These taxing agencies include the federal government and each state but may also include cities, towns and municipalities. Private banks can operate more securely and sustainably when public banks exist.

To effect such change, nationalize any bank that becomes insolvent. Never give bailouts or bank guarantees. These insolvent nationalized banks can be given to states to operate if necessary. Run the nationalized banks on the principles generally accepted for a public bank: No lending for speculation and all lending is to be for the benefit of the nation or state.

A public bank system shall be run so that economy is geared towards meeting the needs of the people and not as a means of making more virtual money from existing money. Money was invented to serve mankind, not the other way round. To do so, it should meet its requirement of enabling transactions and not stifle the Real Economy by taking it out of circulation into a network where it circulates amongst the wealthy. Never forget that the origin of all virtual money was a loan and someone somewhere is holding that loan and paying interest on that loan. The loan holders will have problems repaying their loans if money circulates only amongst the affluent in money making schemes.

Do not nationalize all banks. This takes us to the difference between private and public organizations. Government organizations tend to become horribly inefficient to the point that they do not provide the service that they were set up to provide. They lack innovation and foresight and care little for costs and expenses. They become a bloated bureaucracy that eventually consumes itself with supporting itself rather than the provision of service. It becomes a very expensive way of providing a service. On the other hand, private organizations tend to be money wise and financially efficient delivering service in a cost efficient manner. They are more flexible, responsive to feedback and innovative. However, after a while, they tend to take advantage of inept governments by creating monopolistic environments and escalating charges whilst reducing services. It is the constant dilemma in the balance between private and public provision of services. When a government runs a service it becomes inefficient. When a private organization runs a service, the government fails to regulate it adequately. However, we accept that the government is capable of running schools, roads, libraries, police force, army, navy, broadcasting, vehicle registration, vehicle insurance, vehicle testing, telephone networks, rail, hospitals, airports and numerous other services reasonably efficiently without the talking heads squawking 'communism' and 'socialism'. We would not be so happy if government ran our farms, food supply system, house construction, shops and factories. Some items are better run by government, some by the private sector and some by various combinations of the two.

Control of the issue of money should rightfully be under the control of government. However, private banks are much more adept at evaluating the creditworthiness of clients and are much more responsive to the immediate money and credit requirements of business. It is this credit system that has allowed the technological revolution of the past three centuries. Credit is essential for an efficient business sector and government is not efficient in granting credit to small fish, so it is necessary to have a private banking sector working in conjunction with national banks. Total issue of money in the hands of the private sector is extremely problematic. So nationalization of the banks should only occur when they become insolvent. More generally, where public banks are needed they should be set up by the government.

Under the current private bank arrangements for interbank transfer, there is a tendency for the very small number of private banks to adjust to being of similar size so that the interbank transfers operate efficiently. Inter-bank transfers occur when a client of one bank transfers credit to another bank for the purposes of settlement of monies owed. This small number of private banks operating in cooperation constitutes a group monopoly where it is convenient for the bank leaders to unite in the way they deal with the government bureaucracy enabling them to milk the state and the citizens for excessive profit and maintain their group monopoly on the creation of the money supply of the nation. In this regard, the central bank is a red herring, which gives the appearance of being the creator of the money of the nation, where in fact almost the total money of the nation is in the form of Bank Credit which is effectively rented from the group of private banks at an astounding cost. My calculations are as follows:

Money issued as Bank Credit:$1760 billion
Debt owed to the banks:$5400 billion
Interest on debt at say 5%:$270 billion
Cost of Bank Credit per annum ($270 billion / $1760 billion):15%
If interest is 10% the cost of money is:30%

This is a very expensive way of providing the money supply of a nation and the money does not go to the government but to a group of private banks. These figures make many government taxes look irrelevant and much of our taxes go to the government creditors as payment of interest.

It may be possible for the private banks to be restricted to 100% reserve requirements or the Positive Money alternative where only the government creates the money of the nation, but this may be too restrictive for business to flourish. It must be remembered that it is the slow expansion of the Circulating Money part of the supply and the availability of money to business entrepreneurs that enables the advancement of society. At the fall of the Roman empire, the money supply appears to have dropped to one twentieth of its former value. It is this fall that sent us into the dark ages.

Sensibly managed, government created money could be allocated through a national public bank specifically for private banks to on-lent to small-medium business, for innovation and start-ups.

What the banks don't realize is that if the economy collapses for one of any number of reasons then they suffer also. If they chop off the legs of the economy that feeds them, they also go down. To make the banks remain sustainable, it is necessary to have national public banks in the system. The Greek situation is one such scenario. Where the government owes excessive money and is unable to harvest sufficient tax to pay the creditors, a sovereign default is said to happen. In the Greek situation, credit from banks dried up which damages the economy and the ability to harvest tax which causes the inability to pay interest to creditors which is then blamed on the ineptness of the government rather than the refusal of credit by the banks. A Greek Public Bank would solve the issue by lending to the government to clear past debts. The Greek government debt would then be owed to the Greek government.


A Derivative is a security whose value is dependent on the value of another asset. This could be the future value of bonds or oil or anything else. Common underlying assets include bonds, commodities, stocks, currencies, market indices and interest rates. Derivatives often involve high leverage (borrowed money). The derivative is a contract between two parties and does not involve ownership of and asset. It has some similar characteristics to a bet or an insurance. It is effectively a bet on the future value of something. This can have an advantage in hedging against fluctuations in exchange rates or interest rates but finishes up being like one huge betting casino system of a size exceeding world GDP. Banks make large profits on derivatives often at the expense of their own customers, national governments and the taxpayers. Derivatives can be considered as virtual assets as they obtain their value from other assets. Bizarrely, they can be traded even though they are virtual.

Total outstanding value exceeds a $1000 000 billion which significantly exceeds world trade. They do not appear on accounts as assets and are thus 'off balance' making the analysis of the asset standing of a financial institution difficult. They are a useful instrument for fleecing unsophisticated investors.

Derivatives add a lot of risk to the financial system and should be banned. The level of risk to the world financial system is excessive and a collapse is quite possible. Derivative played a large part in the 2008 financial crisis. The lesson was not learned and the system now has and even greater level of derivatives. The banks are betting with people's money rather than investing. You may not be able to stop the betting because of its intra-national or even supra-national nature but you could re-introduce the original Glass-Steagall laws to prevent a collapse of risky speculative banks bringing down the commercial banks with the payments system upon which we rely.

I have one xls document open in front of me, called 'Derivatives triensurvstatannex.xls' for 2013 that lists a total of 'All contracts for all nations' as 81 025 billion $US.

Adele Ferguson - The Australian. 18 October 2008

The world financial system is leveraged beyond comprehension. It is estimated that between $US500 trillion ($732 trillion) and $US700 trillion worth of derivatives are outstanding.

Compare this with the total economic activity (GDP) of the world, which is about $US50 trillion, and even a 5 per cent drop in the value of the derivatives is beyond the rescue capability of the world's central banks, according to financial author Bert Dohmen....

The latest Reserve Bank Bulletin reveals that Australian banks have more than $13 trillion in off-balance-sheet derivative exposures, ... If just 1 per cent of these blew up because third parties at the other end got into trouble, the whole shareholder wealth would be wiped out and the banks could be broke...

To put it in perspective, Australia's GDP is about $1.3 trillion, our pool of investment fund assets is $1.2 trillion and the freely floated market capitalization of the stock market is $1 trillion. [10021]

Collapse by Usury

The mechanism for collapse of a civilization by usury would run something like this: The use of sovereign money would be discouraged by the moneylenders. People needing money would borrow it from the moneylending bankers. The government, in need of money, will conveniently forget that it has the sole authority in the nation to create money and use money from moneylenders. It creates a bond document agreeing to pay interest at regular intervals and repay the principal on a maturity date all of which is payable in Bank Credit, not cash currency. The interest is payable to whoever is the holder of the bond. In other words, the creditor is the person who was holding the bond. In the USA bonds are held by Social Security 16%, Federal Reserve 12%, other federal government entities 13%, foreign countries 34.4% and various others. Bonds are effectively loans that are transferable.

The money the banks lend is entirely different to the money created by the government. It is denominated in the same unit but it is simply numbers written in accounts. It is merely bookkeeping entries. It should be called Bank Credit. It is fully convertible to cash in moderate quantities. Both can be used to settle accounts. Government issued cash currency notes are convenient in the retail area but Bank Credit has a significant advantage in all other areas. However, the Bank Credit is entirely virtual and has become so successful that it vastly exceeds the volume of currency by a factor of twenty or thirty to one. Currency commonly occupies a measly slice of the money supply of less than five percent.

Interest is payable on the bankers virtual Bank Credit, payable in national sovereign money or in virtual Bank Credit. By this means, some interesting things happen:

The volume of bankers' Bank Credit becomes very high compared to sovereign money (cash currency).

The volume of debt owed to the moneylenders becomes way higher than the volume of Bank Credit available and way way higher than the volume of sovereign money (cash currency).

The government, the media, the judiciary, the politicians, the police and the religious people all support this system of virtual Bank Credit believing it to be equivalent to government issued currency.

Because the volume of debt vastly exceeds the volume of Bank Credit as represented by bank accounts, the borrowers en-masse cannot repay the debts.

To keep the system going and to maintain a constant minor increase in the money supply, the bankers lend more money. To the bank administrators, this appears as good business as their lending portfolio, turnover and income appear to increase. What they don't realize is that these debts are not collectible. They have listed the interest as income and the loans as assets. The bank is listing assets that do not exist. Never mind, along the way, the banks purchase vast quantities of national assets and shares and whatever else it deems useful. The people are so desperate to obtain these digital receipts (Bank Credit) to pay off imaginary debts that they work very hard to get the money to pay the interest.

As the system continues and the ratio of debt to Bank Credit increases, a point will be reached where a minor default may cause an avalanche of defaults. I cannot give you the exact point of collapse but we might be reasonably sure that the ratio of Bank Credit to genuine sovereign currency might exceed 20 to 1 or even 30 to 1. We might also expect the ratio of debt to Bank Credit to exceed 2 to 1 or 3 to 1 or even 3.5 to 1. The Roman Empire appears to have had a ratio of about 20 to 1 Bank Credit to genuine sovereign currency when it collapsed.

At the time of the collapse, the only money that will be usable will be national sovereign cash currency (Legal Tender) and a few gold and silver items. This will cause one of the items that enabled humans to create civilisation to disappear. Money will disappear, other than the small quantity of cash currency. This massive contraction of the money supply will cause a collapse of civilization because it effectively places humans back to our time as hunter-gatherers. It is impossible to live in a city without a money system.

During the early stages of the collapse, as people realised that Bank Credit is not a store of value, Hoarded Money come out of hiding to become Circulating Money which started the avalanche as people ran from hoarded Bank Credit to anything more useful. This drives down the value of money as the volume of Circulating Money increases dramatically. Hyperinflation is started.

Hyperinflation is monetary collapse. Sometimes it cannot be stopped.

The Nineteenth Flaw of Economics

   Money is not a store of value.

The Twentieth Flaw of Economics

   Hoarded Money is a money avalanche waiting to create hyperinflation.

We issue credit for money that does not exist.

As inequality grows, the money and assets accumulate in fewer hands. This is aided by usury, a tax system favouring capital accumulation and a lack of wealth and inheritance tax. The populace becomes renters rather than homeowners, they lose motivation when they take no part in the ownership of the nation and the tax system stifles productive effort. The government expands and increasingly the populace become dependent on the government and welfare becomes the norm. The poor become dependent on the government which progressively leads to the collapse of civilization. To avoid such a disaster it is necessary to stop or operate under 'controlled usury' and make people more self-sufficient. Home ownership is an important part of this.

I give you this little story as told by Calvin Elliott about the collapse of the Venetian republic. Venice is the city in the northern part of Italy. This is the Venice that Shakespeare talks about in the Merchant of Venice. Unfortunately, people read Shakespeare as a literary work rather than a warning. It is now time for you to read the history a written by Calvin Elliott in 1902. You can change the dates to 2016, if you wish:

The Collapse of Venice by Usury

The first bank of deposit and discount was the Bank of Venice, in the republic of Venetia. It continued its existence for six hundred years until the government, that gave it life, itself perished. From its long continuous business, and its success as a bank, it has been spoken of in every work on banking as a model. It began its association with the republic [194] in 1171, and dominated it, sapping its life, and assuming its functions, until the bank practically ruled the state, and when one fell both perished in 1797. The usurers received their hold on the state in a time of the greatest need. The republic had been impoverished by the crusades, and was in dire financial straits. Advantage was taken of this by the usurers to so bind the bank and state together that when one lived the other must, or both must die together. Stock in the bank was a loan to the state at four per cent. annual interest. The union seemed to promise great prosperity for a time, but really absorbed all the republic's vitality during the last hundred years of their life.

Venetia was at the first a pure democracy. The Doge was elected by the people and administered the government, himself being the responsible head. He, later, chose advisers, or a cabinet, to be associated in the responsible duties. After this, and about the time of the association with the bank, a representative council was elected by the people, and the government was administered by the Doge and this council. This was gradually transformed from a government of the people to an oligarchy; and as the years passed there were no steps taken toward a return, but the authority and power was more and more centralized. The ruling class was, in a hundred years, limited to those families enrolled in the "Golden Book." In another hundred years the [195] government was in control of the "Council of Ten." Later the secret tribunal of three was the terror of the people and the instrument of their oppression. The republic was only such in name, the people were deprived of all voice in the government, and the Doge became a puppet to obey the ruling cabal. ...

The contest between the usurers and the people of the Venetian republic was a struggle for the life, but the usurers never relaxed their hold. They dominated until the end. [10022]

Now I give you another passage by Calvin Elliott (1902) about usury in Greece in days gone by:

The Collapse of Greece by Usury

Greece: Greece had no laws forbidding usury. The trade in money was left, like the trade in every thing else, without legal restraint. The law declared that the usurer should not demand a higher rate than that fixed by the original contract; it also advised "Let the usury on money be moderate." One per cent. per month was the usual rate.

There were among the Greeks at various times thoughtful men, who violently opposed the taking of [259] increase. Solon, of aristocratic blood, but with strong sympathies for the oppressed classes, led a Nehemiah-like reformation. Solon was wise and patriotic. His name is a synonym for unselfish devotion to the public good. He was given authority in Greece in times of great financial distress. Debts were increasing. Mortgage stones were erected at the borders of each tract of land, giving the name of the creditor and the amount of his claim. The interest could not be paid. Interest taking had concentrated the wealth and power of the state in a few hands. The farmer lost all hope and was only a labourer on the farm he once owned. The debtor who had no farm to work for his creditor was yet in a worse condition; he was the mere slave of his creditor and could be sold by him. The free farmers were fast disappearing. The most of them were struggling with miserable poverty. Solon at once came to the relief of this suffering class. He released those who were enslaved and brought back those who had been sold abroad. The great work of Solon for this oppressed class has caused his name to be revered by all who have studied the history of his times.

Plato opposed usury, but he does not give extended reasons. Also the philosopher, Aristotle. His name is yet illustrious in the departments of natural and moral science and economics. With regard to usury he said: "Of all modes of accumulation, the worst and most unnatural is interest. This is the utmost [260] corruption of artificial degeneracy; standing in the same relation to commerce that commerce does to economy. By commerce money is perverted from the purpose of exchange to that of gain; still this gain is occasioned by the mutual transfer of different objects; but interest, by transferring merely the same object from one hand to another generates money from money, and the product thus generated is called offspring (toxos) as being precisely the same nature as that from which it proceeds. [10022]

Now I give you a piece by U.S. Monetary Commission of 1878:

The Collapse of the Roman Empire by Usury

At the Christian era, the metallic money of the Roman Empire amounted to $1800 000 000. By the end of the 15th century, it had shrunk to $200 000 000... Population dwindled, and commerce, arts, wealth and freedom all disappeared. The people were reduced by poverty and misery to the most degraded conditions of serfdom and slavery. The disintegration of society was almost complete. History records no such disastrous transition as that from the Roman Empire to the dark ages. The discovery of the New World by Columbus, restored the volume of precious metals, bought with it rising prices, enabled society to reunite shattered links, shake off the shackles of feudalism, and to relight and uplift the almost extinguished torch of civilization. [10023]

Usury and the Collapse of the Roman Empire

Towards the end of the Roman Empire, most land and many other assets had come under the control of a creditor class. The ordinary people had been encouraged to borrow from this creditor class. Even the government started to borrow from the creditor class (moneylenders) which required an increase in taxation. The creditors from Rome plagued foreign lands with their debts. Enforcers ensured payment of this tribute to the creditor class. Taxation and the debasement of the currency, brought about by usury, led to an inability and a lack of will to repel barbarian invasions. The money changers had influence over the politicians and debt had become pervasive. When the credit money system collapsed, the money supply shrank to about one twentieth of its former value. This suggests the ratio of credit to money was around twenty to one. Europe went into the dreadful times of the dark ages. History has taught us it is not wise to rely on credit for finance. We currently have a ratio of credit to money of thirty to one. History has a habit of repeating itself.


In a system that generates unpayable debt, someone somewhere is going to default and that country was Greece. The talking heads call it a 'sovereign-debt default'. Greece cannot pay the interest on its national debt. This turns out to be the biggest default ever by a country, significantly larger than the default by Argentina. Although the talking heads talk as if it is the government at fault, it was predictable that at least one nation would default. When there is more debt than money, at least one country is not going to be able to pay. The banks can asset-strip the nation but this reaches a limit. The banks have lent so much money and charged so much interest to almost all the nations in the world that if they don't keep generating new Bank Credit and lending it, then there will be defaults. Let us consider where the money came from. What did the banks lend to Greece? Just computer entries. No trucks full of fresh Euro cash notes from the ECB were driven to Greece. No great printing exercise took place at the ECB. It was computer entries that enabled the IMF to lend thirty billion Euro to Greece. The IMF wrote thirty billion Euro with a plus sign in an account for Greece and thirty billion Euro with a minus sign in a loan account. The minus thirty billion Euro along with the plus thirty billion Euro kept the IMF accounts in balance. No transaction took place at the ECB. From that moment, there was thirty billion Euro more money in the world and thirty billion Euro more debt. The IMF then magnified the debt with interest such that Euro debts became more unpayable. Greece was unable to borrow further and Greek debt became 'unpopular'. With a fall in the circulating medium, GDP fell dramatically, making it even more difficult to escape from usury. The foolish advice of the IMF was to implement austerity which is exactly the opposite of what was needed to improve the economy and for the private money lending corporation, called IMF, to extract their interest.

Greece Money Supply.

Greece GDP.

The IMF charged interest on thirty billion Euro of Bank Credit that did not exist until it lent the money under the benevolent charade of a bailout. In reality, it was a bailout of the banking system, not the nation. If Greece defaulted on payment and the money it owed to creditors was canceled the whole virtual-debt system might collapse. The debts would have less value than a discarded teabag. Which might amuse some conspiracy nuts but the resulting collapse of the payments system would be far from funny.

The solution is embarrassingly simple. If you can't beat them, join them. Greece should create its own national public bank and lend euro or drachma to its own government using the same double entry bookkeeping used by the IMF to create the money it lent to Greece. (The option of the treasury creating euro is not valid as all Euro countries agreed that currency could only be created by the ECB.)

When the euro system was created it was agreed that all currency would be created by the ECB, but no restriction stops banks from creating euro-denominated Bank Credit. (The same occurred in the UK in 1844 when the Bank Charter Act prevented banks from creating banknotes and gave the banknote monopoly to the Bank of England. However, this did not stop the banks creating Bank Credit which was transferred from person to person with the aid of cheques.) All banks in Europe create euro-denominated Bank Credit as can be seen from the graph of the money supply and debt for Europe. This Bank Credit did not come from the European Central Bank (ECB). Only the orange came from the ECB and its national subsidiaries.

Euro Area Debt and Money Supply

Another valid, but more dangerous, alternative is to call the bluff of the banking system and expose the fact that the Bank Credit extended to Greece did not come from a sovereign authority such as the ECB. The problem with declaring the debt invalid is that it makes other debt invalid which all sounds good until the payments system collapses along with the insolvent banks. Which brings us back to the public bank solution. However wrong the bank debt situation is, it would not be fair on humanity to take us to the same situation that occurred at the end of the Roman Empire when the credit system collapsed and the populous was left with a miserably small volume of coin with which to trade. In that era people lived closer to the land and still they suffered horrendously during the various credit system collapses. Like it or not, the Bank Credit system is here to stay, being essential to the modern civilization. The error humans have made is the lending of credit to governments. It is entirely predictable that collapse of the credit system will bring down the nations that support the banking system, for, without national enforcement, judicial systems and national armies the debt banking system cannot operate.

So much as you may hate the banking system and walk around cursing family banking dynasties and yelling fraud and Ponzi, a collapse of your hated system will damage you as well as them. The payments system is fabulous but the debt horrendous. Credit to civilians is self-correcting but debt to nations is unsustainable and will ultimately collapse. The solution for the banks is to allow public banks. Without public banks, the private bank debt becomes: firstly unpayable, then uncollectable, then worthless.

One government default will put all other debts in doubt and, in the limit, when the debts lose their commercial value, the house of cards collapses taking with it the bank payments system and the credit facilities necessary for national and international trade. The lesson for the banks is to stay out of government lending and let the governments run national public banks. Private banks should use their skill at lending and scalping the civilian population. The foray into lending to government is massive short term gain with guaranteed future failure.

If Greece defaults, the confidence of the sovereign debt and bond markets would be damaged due to fears of more defaults, which would lead to greatly increased yields on the sovereign debt of other nations, particularly those with high debt levels. The higher interest levels would make payment even more difficult. Confidence in the whole system could collapse. An end to the national debt issue would be welcome but not at the expense of a complete collapse of the system.

I wish to stress the extreme urgency for the implementation of a full Glass-Steagall separation of real banking from financial speculation. We must protect our government, citizens and businesses from a very possible global financial meltdown.


Hyperinflation is commonly described as 'extremely high or out of control inflation' and 'the government printing excessive money'. This description will mislead you from a sensible understanding of hyperinflation. The term 'hyperinflation' implies a very high rate of inflation. In the latter stages of the process, a rapid rise in prices of food is the characteristic most noticed by the public. In the latter stages, it is food that hyper-inflates in a period of panic spending where there are daily increases in the price of increasingly scarce food supplies. Many other items fall in price. Money is changing hands rapidly so velocity has risen from single digit to double and triple digit figures. In 1938, the Greeks held a drachma note for an average of 40 days. By November 1944, this holding time had reduced to 4 hours. [10025] This is a Velocity change from about 9 to about 2000. This 'Hyperinflation of Currency' is the last stage of the hyperinflation collapse of a national money system.

There are stages that precede this 'Hyperinflation of Currency'. The citizens and government have given up on using Bank Credit because the banks have long since closed their doors as people lost trust in bank credit and converted to the use of cash currency. We shall look at the final stage of collapse first.

In normal times, a typical twenty dollar note is lucky to complete ten transactions in a year. During the latter stages of collapse, it may manage that number of transactions in a day. A reduction in the volume of currency is needed which is the designed task of taxation by government or interest by banks. However, tax is collected annually through bank accounts, and the banks have long since closed their doors and people have long since stopped using Bank Credit. There is no existing mechanism to tax cash currency notes out of circulation. At this stage, cash currency is still operating as money by enabling transactions, but it is failing as a store of value for the short time to the next transaction. People are still using government cash currency and have not regressed to barter, but bank credit has been degraded back to where it came from: thin air.

Let us go back to the very start of the hyperinflation process when the money system is operation quite normally. Financial issues are beginning to show. The government has a high level of debt in excess of 80% of its GDP which requires a high level of debt repayments and a high tax collection. The foolish government is wholly using bank credit to operate and is not making use of its sovereign right to create the money of the nation. The government is having problems collecting sufficient tax to pay interest to the moneylenders. The moneylenders are the bond holders. Tax collection is 40% below the level of government expenditure. Rather than create money, the government resorts to borrowing via the issue of bonds. These government IOUs (bonds) are becoming unpopular partly because the inflation rate exceeds the interest rate and because there is a general lack of trust. So bond interest rates rise and the central bank has to step in and purchase bonds to maintain their value as well as purchasing fresh government bonds, to keep the machinery of government working. This stage is usually called the 'collapse of the bond market' but, in reality is is a collapse of the trust in the bank credit that is supported by government bonds. The moneylenders have lent so much to the government that the government cannot repay the interest, let alone the principal. It is a collapse of usury as lending has reached its mathematical limit where it is impossible to repay. The graph of the recent Bank of England purchases of bonds is shown in a graph a few pages from here. By this time, the nation is suffering moderately high inflation as the government is borrowing heavily to fund its expenditure. With the lack of trust in the general situation and the mildly high inflation, Hoarded Money comes out of hiding to become Circulating Money which causes increased inflation. When inflation reaches some difficult to determine critical level, an avalanche situation occurs where Hoarded Money comes out in high volumes. With the fall in purchasing power of their money, people start to convert mythical bank credit to cash currency. Banks have assets in the form of the debts that people owe them, but they are impossible to recall because they are excessive and not collectible in the short term. A run on the banks ensues. A run on the banks is when people queue at banks to convert bank credit to genuine government cash currency. To stop the destruction of the banks, the government declares an extended bank holiday, whence people only use cash currency. As the situation worsens, the government resorts to paying its debts using cash currency. To do so, it cranks up the printing presses to create vast quantities of cash currency which it uses to pay its workers. This should work without a problem except for one major oversight. It collects no tax. Tax collection systems were set up to collect tax as bank credit. No mechanism exists to collect tax as cash currency. The original definition of inflation was to inflate, as in 'pump up with wind', and this is the classic case with the addition of my assertion that velocity plays an equal part. We now have vast quantities of paper notes changing hands at high velocity. To keep the government in operation, the printing presses start working round the clock causing machinery failure. We are now in the final stages of collapse. There is no system to tax in cash, so the vast quantities of cash currency, rapidly changing hands, cause an unstoppable inflation. Hyperinflation is not the result of a trigger, but is the resutant collapse of an unstable money system.

There is a distinct lack of knowledge on what triggers a hyperinflation but various studies and authors give good hints but no rigid formulae. However, it is likely that any financial event could trigger the hyperinflation. It is not the trigger that creates the hyperinflation but the instability of the financial system that places the money system at high risk of hyerinflation. Any financial shock can then trigger a financial system that is pent up with instability to release energy to cause a collapse. So, hyperinflation needs to be stopped before it starts. The economy needs to be proofed against collapse.

Hyperinflation tends to follow a crisis situation of some type and as such is often associated with wars, war debt or reparations, civil or political upheavals, or other crises. All of which hint at scenarios where government expenditure is high and tax receipts are low. This is inappropriately called the 'Deficit', giving the erroneous suggestion that expenditure should be less than tax receipts. When a government does not create the money of the nation, it forces the government to borrow. Anything that decreases businesses ability to pay tax and businesses willingness to employ exacerbates the problem. A rapid large increase in government expenditure on warfare, public unrest or whatever exacerbates the problem.

A study by Peter Bernholz suggests that when tax collection is 40% below the level of government spending, the economy is prone to monetary collapse and hyperinflation. [Peter Bernholz]. 5% deficit might be standard and 10% might be a little on the high side. 30% is excessive and dangerous. The government uses Bank Credit rather than its own sovereign money called currency, so debt increases and excessive debt exacerbates the situation. Peter Bernholz suggests that when debt exceeds 80% of GDP, a nation in the danger zone. [Bernholz] [10024]

I would add that excessive Hoarded Money contributes to the likelihood. Looking at it from another angle: The government has resorted to the use of paper money because the creditor class has suddenly ceased to lend to the government and is effectively foreclosing on the government by refusing to buy bonds and by selling those bonds they have to the central bank. The money people lend to the government whilst they can advance their own interests and then dumps the interests of the nation when the government can no longer pay the usurers.

So there are at least two stages occurring here. Firstly, a collapse of trust in Bank Credit. Secondly, when the government starts to print cash to continue in operation, it fails to tax the currency out of circulation. The government has changed from using Bank Credit to pay its bills to using cash. Tax is collected through the banking system. There being no mechanism to collect currency from the people, massive inflation occurs.

Tax during the German Hyperinflation (From Eichengreen 1995:138, Table 5.1 German Government Taxes and Spending 1919 to 1923)

A high level of misery and hunger ensues.

Previously well-to-do people can be seen slinking around like beggars.

Many people lose their entire savings. The middle class tends to be destroyed.

Hyperinflation has been notoriously difficult to stop. Hopeful you might soon see how to prevent and stop it.

A currency, during hyperinflation, is a poor 'store of value', however, it is still acting as a medium of exchange. The serious problem arrives when the rate of increase is such that the transaction cannot be carried out without significant inflation during the transaction.

The government has trouble selling bonds, which is finance talk for borrowing Bank Credit to make payments on a cumulatively unpayable debt.

Hyperinflation has the potential to be used as a financial weapon to destabilize a nation and its governing system in preparation for takeover. Some might claim these as examples: German hyperinflation and the rise to power of the Nazis in the early-1930s, the China takeover by Mao Zedong and the French revolution.

There have been 56 cases of hyperinflation with more than 50% per month inflation (12,970% per year).

Peter Bernholz did a study of twenty-nine cases of hyperinflation and looked at the circumstances that led up to them. He found that the best predictor of hyperinflation is government debt over 80% of GNP and the deficit over 40% of government spending. Note that 50% deficit spending would mean spending twice what was collected in taxes. The US is over the debt number and not far from the deficit number, so the danger of hyperinflation is real. [10024]

The government takes the rap even though the central bank claims that it is 'independent of political interference'. The central bank is responsible for controlling inflation and the bank system.

The situation occurs when the government spends money but fails to tax sufficiently. Under the Bank Credit system, the government needs to obtain Bank Credit by issuing bonds. As inflation sets in, people do not want to hold the government bonds, characterized by a collapse in the bond market. The government then relies on the central bank to buy bonds so the government can pay interest on previous loans to keep the government in operation. The deficit is large and it is not possible to increase taxation or decrease expenditure. Failing businesses, rising unemployment and increasing state dependency exacerbate the situation. When the Bank Credit loses the trust of the people and banks close their doors, the government starts to physically print money and pay its bills using currency. There is no mechanism to tax currency. So the next stage of hyperinflation sets in. Ever increasing volumes of cash are required to buy staples such as food.

Vincent Cate

Hyperinflation happens because government debt gets over 80% of GNP and deficit gets over 40% of spending. It does not matter how you get into that situation. Hyperinflation works the same if you lose a foreign war, a civil war, a dictator goes crazy, a government with excessive foreign debt, nationalizing too many businesses, rampant corruption, productive collapse, excessive regulation, a regime change, too many taxpayers fleeing high taxes, a massive depression, or whatever. It just matters that the government is spending nearly twice what they get in taxes and has already borrowed more than is reasonable.

Typical Hyperinflation Stories

As soon as the factory gates opened and the workers streamed out, pay packets ... in their hands, a kind of relay race began: the wives grabbed the money, rushed to the nearest shops, and bought food before prices went up again. Salaries always lagged behind, the employees on monthly pay were worse off than workers on weekly. People living on fixed incomes sank into deeper and deeper poverty. A familiar sight in the streets were handcarts and laundry baskets full of paper money, being pushed or carried to or from the banks. [Egon Larsen, a German journalist, remembering in 1976]

It was horrible. Horrible! Like lightning it struck. No one was prepared. You cannot imagine the rapidity with which the whole thing happened. The shelves in the grocery stores were empty. You could buy nothing with your paper money.

[Friedrich Kessler as quoted in a book by Ralph Foster]

Tax Collapse

Tax collapse would occur if there was a collapse of business. The collapse or serious cutback in business activity would significantly reduce business tax collection as well as employment tax collection. Business relies on the availability of money to enable the production and availability of customers with money to purchase the product. 95% of the money in society is in the form of Bank Credit. If banks refuse to lend to business, cutback on loans for new houses and people start paying back loans, then there will be a fall in available credit, causing business collapse. Never forget that hyperinflations could be deliberately caused to effect regime change.

Hyperinflation tends to occur when there is a failure to collect sufficient tax. Let us look at some examples. Be aware that some of these may have been purposely induced to effect regime change [10026]:

Before the Latin America debt crises in the 1980s, "large government spending, driven mainly by ambitious public investment programs and populist polices resulted from the fact that, in these countries there is a very unequal income distribution between very rich with enough political power to avoid heavy taxation and very poor who are in high demands for public spending." [10026]

Civil wars, revolution, or deep social unrest are often a factor in hyperinflation, especially those prior to the 1980s (US Civil War (1861-1865), US War of Independence (1775-1783), and French Revolution (1789-1794).

China: A civil war and resulting hyperinflation in the 1940s brought Mao Zedong to power.

Bolivia: A shift in US monetary policy pushed Bolivia to inflation, deficits, indexed wages, and political chaos. Monthly inflation hit 182.8%. Most of the Bolivian external debt was related to the rapid growth of mega investment projects. Foreign borrowing turned into money printing once they were cut off.

Yugoslavia: Large subsidies, of agriculture, led to shortages, debts, and ultimately hyperinflation. Bailouts of struggling enterprises compounded problems. Reparations and occupation payments frequently cause hyperinflations; they also cast a pall over government finances, leading private investors to develop jaundiced eyes.

The hyperinflation in Weimar Germany in the 1920s occurred in an environment of very high debt repayments levied by the Allies exacerbated by the occupation of the Ruhr Valley.

The hyperinflation in Zimbabwe occurred in an environment that included a war and land reclamations. Farm output was reduced. Farm employment reduced. Farm taxation reduced.

Hyperinflation is More Common Than You Think

Egypt 276 AD - 334 AD. 1 million percent inflation in 58 years. A measure of wheat which sold for 200 drachmae in 276 AD increased to more than 2,000,000 drachmae in 334 AD

France 1789-1803. Assignats were created as notes by the French government based on the value of confiscated church property. They were printed with no relation to the underlying value and eventually became totally worthless (no exchange value).

United States 1779. 47% inflation per month

United States 1861-1865. Total hyperinflation of 1,200 to 1. Confederate Civil War Inflation Rates

Austria 1914- 1923. Inflation in one year (1922) reached 1426% and overall the consumer price index rose by a factor of 11,836.

Germany 1914-1923. Total hyperinflation 1,000,000,000,000 to 1. Hyperinflation in Weimar Germany

Hungary 1919-1924. Inflation reached 98% per month in 1922

Poland 1918-1924. Hyperinflation 800,000 to 1

Philippines 1942-1944. Conquering Japanese army issued fiat currency which rapidly became worthless.

Greece 1942-1953. Total hyperinflation 50,000,000,000,000 to 1

Hungary 1945-1946. Total hyperinflation 400,000,000,000,000,000,000,000,000,000 to 1. Some historians believe this hyperinflation was actually an act of war as Russian Marxists tried to destroy the Hungarian middle and upper classes.

China 1947-1949. Total hyperinflation 15,000,000,000,000,000,000 to 1

Brazil 1967-1994. Total hyperinflation of 2,750,000,000,000,000,000 to 1.

Mexico 1982-1993. Total hyperinflation of 10,000%

Bolivia 1984-1987. New currency replaced the old currency at a rate of 1 Million to one.

Iraq 1987-1995. Total hyperinflation of 10,000 to 1.

Nicaragua 1988-1991. Total hyperinflation of 50,000,000,000 to 1.

Argentina 1975-1993. By the end the hyperinflation currency exchanged at 100 Billion to one.

Peru 1986-1991 Total hyperinflation of 1,000,000,000 to 1.

Yugoslavia 1989-1994. By the end the hyperinflation currency exchanged at 1027 to one.

Poland 1989-1994. By the end the hyperinflation currency exchanged at 10,000 to one.

Zaire 1989-1996. By the end the hyperinflation currency exchanged at 300,000,000,000 to one.

Angola 1991-1999. By the end the hyperinflation currency exchanged at 1 Billion to one.

Bosnia and Herzegovina 1992-1993. Hyperinflation at the rate of 100,000 to 1.

Belarus 1994-2002. By the end the hyperinflation currency exchanged at 1 Million to one.

Zimbabwe 1998-2008. The overall impact of hyperinflation was 1 = 1025 The final result was a total elimination of the currency and only foreign currencies traded. Zimbabwe Hyperinflation and Zimbabwe Hyperinflation and the U.S. Dollar.

North Korea 2009 to 2011.


This graph shows the Bank of England recently purchasing significant volumes of bonds. This is rather strange activity and is worrying symptom. Nations cannot go bankrupt in the same way as individuals and businesses. (Although there is quite a bit written about the 1933 bankruptcy of the United States. Websearch  : united states bankruptcy 1933)

Bank of England purchases bonds

Before you try to fix your nation's hyperinflation, please read Hjalmar Schacht 1967 'The Magic of Money' and do and internet search for Vincent Cate.

Likelihood of a Collapse

Here is a description of Bankers Depression of the 1930's as described by Bible Believers:

Australians all know about the Great Depression and the extremely hard times it brought about; but what of its causes?

In 1930, Australia did not lack industrial capacity, fertile farmland, or skilled, industrious and willing workers, residing in both the city and country. Already, extensive systems of reasonably efficient transport and communications were in place. War had not ravaged the cities or countryside, nor had famine devastated the land and its population. The one thing that industry and commerce lacked was a sufficient supply of money.

In the early 1930s, Bankers, who were the only source of new money or credit, deliberately refused loans to industry, commerce and agriculture. However, payment on outstanding loans was demanded, which led to a rapid decrease in the circulation of real money.

This caused a complete standstill; jobs could not be done, goods and services could not be purchased. This ploy by the greedy Bankers placed Australia in the Great Depression of the 1930s, and moreover, placed extensive amounts of businesses, private dwellings and farms in the hands of these same Bankers.

The people, not understanding the system, were in a helpless position, and were cruelly robbed of their hard-earned savings and property; they were told things like "times are hard", "money is short", "everyone is suffering." These same statements come to mind when recalling them being made during Australia's recent so-called "recession".

This was "a 'recession' we had to have," the politicians proclaimed; and one I'm sure the banks loved to have. If you should have the opportunity, a check on how the banks faired during the so-called "recession" will reveal sustained and increased profits, with an abnormal increase in acquired property assets! [10028]

We could soon face the of the most serious economic crisis that has ever occurred in the history of civilization. Although the talking heads call it an economic crisis, it is really a human crisis. The economies around the world are interdependent. Even the breakdown of supply chains will cause havoc as so many countries rely on activity in other parts of the world. Our money system sees itself as a mechanism to make more money for the industry insiders rather that operating a system to the benefit of human-kind. We have an interdependency of the financial affairs where one large player going bankrupt has the potential to bring down the whole virtual money machine.

The banks list the money that is owed to them as assets. The money the banks list as assets simply does not exist. Because there is more debt than money, the listed assets are uncollectible. Unless governments release new money into the current system, the system will collapse taking the 1% with it. The collapse of the Roman Empire did not benefit the elite. In reality, the Roman 1% had a greater degradation of lifestyle than the serfs and plebes. I remember reading a book when I was much younger, about dynasties in China. I remember one thing. The author wrote that the rich get richer in a cycle with a wavelength of 300 years. When the rich get too rich, the whole system gets tipped upside down. And the rich get turned into peasants and the whole cycle starts over again. Please heed my warning. It will happen again.

Jeff Nielson

Warren Buffett once described derivatives as 'financial weapons of mass destruction' - and for a very good reason. While U.S. 'unfunded liabilities' are larger than the entire global economy, the derivatives market is 20 times larger than the entire global economy - at an astonishing $1 quadrillion. Yes, you heard me correctly - $1 quadrillion! And get this - this derivative market is totally unregulated. It is totally lacking in transparency, meaning that all we know about this $1 quadrillion mountain of banker-paper is what the bankers tell us.

The collapse of U.S. economy is a certainty - only the manner of the economic collapse has yet to be determined. In time the global derivatives bubble will produce the same result which has occurred to every other currency not backed by gold throughout history: those currencies, our 'money', will become worthless. [10029]

An Unworkable Solution - Jubilee

The first unworkable solution is the Jubilee. The concept of Jubilee is that debts should be canceled under certain circumstances. The concept goes back to the Jubilee as described and practiced in biblical times. Debts were canceled each seventh year, then each forty-ninth year and again when there was a new monarch. The big Jubilees included the freeing those under debt servitude. Debts are money owed to banks and as such are listed on the assets side of the balance sheet. Bank Credit, as listed in clients' bank accounts, is the sum the bank owes the client payable in real money which is currency. If the debts are canceled, the assets of the bank disappear whilst the liability remains. Jubilee will cause a collapse of the banking system.

Government Accounting

Government accounting is done in an inappropriate manner. If the government sells, for example, an electricity utility for $2 billion, it records this as $2 billion income. If the utility was worth $4 billion, then, in reality, the nation has made a two billion dollar loss. The government is not accounting for the value of its assets as is be done by business. The government may be selling assets to pay interest on Bank Credit to private banking corporations. The assets it might sell off include utilities, mining rights, fishing rights, land for agriculture and residential land. These are all public assets sold on a one-off income basis.

Instability Factors

Credit to Real Money

For Australia, this is $1760 billion of Bank Credit to $67 billion which is about 26. In the event of a collapse of the banks, the money supply will reduce to one twenty-sixth of its current value. My research suggests that: at the collapse of the Roman Empire, the money supply dropped to about one-twentieth of its former value.

Debt to Money

A debt-free nation would have a ratio of zero. A nation with debt to money above one, has debts that are impossible to pay and debts that are impossible to collect. The banks are trading insolvent.

National Debt

This is an ever increasing amount which tends to increase in an exponential manner. The debt burden increases making a collapse more probable and eventually inevitable. This is a debt burden being passed to future generations.

Total Debt of a Nation

This is the sum of the government debt (National Debt) and private debt. As the debt burden increases a collapse becomes more likely. There is no way of repaying the debt without collapsing the economy. The entire money supply of the entire world is insufficient to pay all the debts owed to moneylenders. The collapse may be delayed, but in the end, a collapse is inevitable.


The value of derivatives exceeds national money supply and national GDP and, worldwide, it exceeds gross world product. It is about the same level of lunacy as the Dutch tulip bulb.

Hoarded Money

Money hoarded creates instability. In the event of financial issues, the hibernating money comes out of hiding and causes a dramatic increase in spending. This rapid increase in velocity has a similar effect as great increases in the money supply. Most believe inflation of prices is dependent upon money supply, but it is also equally dependent upon velocity. A common statement might be: inflation is caused by growth in the money supply greater than the rate of economic growth. This completely misses the influence of the velocity of money. This error is possibly made because the velocity did not change much at the time of observation. Certainly the effect of hoarding was known a the time of writing the Quran as there are significant statements as to the effects of hoarding. When Hoarded Money is suddenly released into the circulation component of the money supply, it is as inflationary as an equivalent increase in the money supply. Worst than that, it could cause an avalanche of conversion of Hoarded Money into Circulating Money or other assets.

Financial House of Cards

The interdependence of financial organizations creates great instability. If one organization fails, the interdependence could bring more or all other organizations down. Financial independence is required. If the assets of 'A' depend on the assets of 'B' and 'B' fails, there is a likelihood of 'A' failing also. Derivatives are 'financial time bombs' in this inter-relationship.

Debt and Exchange Rate

When a debt in a nation is to be repaid in a foreign currency a drastic instability is created. Changes in the exchange rate have the potential to bankrupt a nation. Emerging-market businesses and governments may borrow in dollars. Their revenue is denominated in local currencies. When their currency depreciates against the dollar, they will face strained finances to the point of default. The default may trigger market breakdown to the point of a collapse of the virtual world of world finance with its money of no backing.

Forex Speculation

80% of the trade on the Forex is speculation. Only 20% is involved with genuine trade. Big time speculators are able to bid against nations in a dangerously hostile manner.

Rapid Trading

Rapid trading software allows speculators to move money fast in a destabilizing manner. It should be taxed nationally out of existence. Share markets are designed to take money from those that don't know how to use it and give it to those that are doing something productive. Speculation is of pure evil for the benefit of individuals and acts against the interest of mankind as a whole.

Asset Backing of Money

When one borrows money from a bank, the money is not backed by any real money held by the bank. The loan is backed by the asset that was purchased with the loan. When you purchase a house, it is the house that is the asset backing for the loan. The bank uses your asset as collateral for the loan. In a crisis, the assets lose value and the loan then has almost no backing. Similarly, a loan to a country depends upon the ability of the country to pay back the loan. If the idiots at an international bank demand austerity, then the ability of the nation to service the loan is much reduced and the nation may default. One cannot but wonder what brand of logic is used to lend money to an entity and then set about destroying that business' ability to service the loan.

Other Components of a Solution

Alternative Currencies

Another part of the solution is alternative currencies. Alternative currencies aid local business by allowing the local currency to flow freely around the local district. Never forget that the value of a $20 note is not the face value of the note but is the sum total of all the transactions enabled by the note. Money flowing around a local community aids the local community. It also acts as a buffer if the national currency should collapse. To this end, the currency may be linked to the national currency but better is might be linked to some other measurable value which might be hours of work or energy or any commodity that has a meaningful value. This value could even be a dozen eggs or a loaf of bread or a combination of items. In the event of a collapse of the national currency, the Alternative currency needs to be decoupled from the national currency.

Stop finance influence in the syllabi of economics courses

The best explanation of this is given by 'Kick It Over' at

Stop Financial Influence in Politics

Lobbying is legalised corruption.

Stop Corporate Avoidance of Tax

Attention must be given to creating the right legislative measures to tackle corporate tax avoidance. This will including knowing where companies pay taxes. Fighting tax evasion and avoidance is difficult. There needs to be adequate transparency and efficient methods to prevent complicated schemes that allow tax dodgers to prosper. However, a reduction in company tax and a movement toward land tax and transaction tax would help to reduce the desire to tax dodge.

Implement Homeowners Protection

In 1933 President Roosevelt introduced legislation to stop home and farm foreclosures, with the reasoning that homeownership was needed as a 'guarantee of social and economic stability' The Australian Federal Government passed the War Precautions Act 1916 to stop foreclosures. Every state in Australia enacted legislation during the Depression to stop home and farm foreclosures. The Federal Government passed the Farmers' Relief Act, which provided money to the states for the relief of farmers. The intent was to protect the Common Good by ensuring debtors were not crushed by creditors.

It is still necessary for homeowners and farmers to be protected from the predatory actions of banks. Banks can increase interest rates at will and cause farm foreclosure. The farm is using land provided by nature to produce food for the city folk. The viability of a farm depends on its ability to pay interest to a bank rather than its ability to produce food. The price of houses is dependent on the availability of work in the region, so work is the factor that determines whether one can move into a town. The availability of work depends upon the economic activity of the nation which depends upon the money supply of a nation which is dependent on the lending habits of the banks. Thus, a cutback caused by banks allows banks to foreclose. It is not in the nation's good to allow bank initiated evictions that were caused by a bank-induced recession.

Change Government Accounting

When a government sells a national asset, the proceeds are treated as income. It is the type of idiotic accounting that not even the smallest business would use. If a $4 billion asset is sold for $1 billion, it is treated as $1 billion not a loss of $3 billion. The private interests then take advantage of any monopoly situations adjust the situation to take maximum advantage, sometimes billing items back to the government, seeking concessions or hiking prices to the public. Sales of public assets may be against the wishes and interests of the citizenry. Major assets should not be sold without consulting the people.

Debt Induced Suicide

Make financial institutions liable for the hurt and damage they do to farm enterprises. This includes suicide and business failure through the recall of loans

Speculation Loans

Restrict the availability of loans for speculation. This can be done by regulation or through the tax system. Tax on unearned income should be far higher than on earned income, perhaps by a factor of three.

Encourage Home Ownership

Prevent land price rises by subsidizing the well off to buy so-called 'investment properties' by giving tax discounts to the wealthy. Either stop 'negative gearing' or revalue the properties each year. Businesses have to delay tax claims on expenses deemed to be asset purchases with a process called depreciation. This is unfair on businesses as the money has already been spent. They may own the asset, but the asset is not usable income capable of feeding a family. Investors are treated more favorably. They get a tax advantage and their asset is not valued, revalued or appreciated by a mathematical formula as with depreciated assets. The effect is to give a significant advantage to investors that is not available to home purchasers nor business operators.

Never forget: Negative Gearing is a subsidy to affluent speculators that is not available to our young families. The tax system creates significant bias in the housing market favouring investors and speculators and deprives young couples of the opportunity of homeownership.

The ownership of private property is an essential to give citizens the incentive to be productive in society.

Local Business

Stimulate of local businesses by providing affordable credit.


Require investor speculators to list the asset appreciation in their tax returns. Do not allow the negative gearing tax deduction of interest to occur until the property is sold.

War Industry

Keep the excesses of the war industry at bay.


Make lobbying a crime. Lock up politicians accepting sweeteners. Ban ex-politicians from lobbying on behalf of the industries they controlled. Ban the receiving of time delayed bribes from corporations that the politicians were in control of.

School Mathematics Syllabi

Change school mathematics syllabus that the teaching of compound interest includes the impossibility of paying the interest.

When I was a math's teacher, I taught compound interest, but I did not spot at the time that compound interest was biblical usury renamed and the textbooks do not teach the mathematical logic that the debt becomes unpayable when aggregated for the whole nation. It is not payable partly because there is less money than debt and also because any attempt to repay the debt would cause the removal of the essential circulating medium.

Minimize Inequality

A nation's prosperity is not measured by the number of millionaires but by the equitable distribution of the wealth amongst those that produce wealth. To that end, all working persons should have homeownership within reach. A person working for their house ownership is more productive and the properties and district are better cared for. Home ownership is a better measure of national prosperity and reduces dependence on the public purse during the working life and at retirement. Homeownership promotes pride, self-respect and citizenship. Only through homeownership will vibrant, safe and crime free societies flourish. If youth loses the dream of a good life, forget the chance of safe neighbourhoods.

How to Destroy an Economy

Tax the Real Economy rather than the hoarders and speculators

Trade in the eggs and carrots Real Economy is taxed with a sales tax as high as 25%. Income tax can take up to another 30%. So money that is doing useful work is taken out of circulation rapidly and has to be replaced from somewhere so that trade can continue. Unfortunately, government does not spend into this sector well and so recourse is had to borrowing. Hoarded Money tends to sit in bank accounts and is unavailable for long periods of time. Hoarded Money is generally untaxed.

Stifle small business

If you stifle small business, you will destroy the ability of the small business to produce, employ and serve. You will destroy the tax collection from the employment and drive numerous employees to unemployment and welfare. This will conveniently decrease taxation and increase welfare expenditure. Next, arrange a tax scheme that inhibits expansion and growth by taxing any assets purchased to increase trade. This included the depreciation of assets in future years for money expended in the past.

Discourage banks from business lending

Arrange for various rules to add unfavourable weightings to business loans so business pays higher interest rates than speculators. Add harsh asset requirements to business loans so that non-house-owners have no chance of a business loan. Add more requirements so that almost no business loans are given. Basel Three conveniently adds unfavourable weightings to business loans.

Create laws giving land and property speculators tax discounts

This will help to push up land and property prices to make them unaffordable to those on the lower end of the income scale as those with higher tax brackets can bid higher prices because they get purchase subsidies through the tax system. The taxpayer subsidies also allow the banks to lend more and thus collect more interest. Higher land prices will also push up rents making any business pay higher wages so people can work and higher business premise rents. With any luck, the speculators and the banks will make more income than the business owner.

Create a Bubble and Burst Lending Environment.

Allow banks to lend for purposes of speculation so that asset prices get inflated as in the Dutch Bulb bubble. Not only does the bubble burst and asset prices plummet, it beautifully destroys the essential trading medium at the same time.

Encourage People to Borrow More

Make real money scarce: Make the government borrow to increase the money supply. Make people borrow money to buy cars and houses.

Tax business profit rather than income. Thus, newly invested money is treated as an asset and is not tax deductible for many years. This will mean that any business wishing to expand will be pushed toward using borrowed money.

Charge no tax on land.

This will maximize the money available to pay interest on a mortgage. Land tax will reduce the amount people will be able to pay in mortgage interest. Without land tax, land prices will increase and so the banks and speculators do well but tax will have to be taken from other areas which traditionally have been transaction taxes that damage the Real Economy that supports civilized life.

Avoid Taxes on Speculation.

Avoid taxes like The Robin Hood Tax. The Robin Hood Tax affects the high speed trading of some speculators. It collects large amounts of tax which then allows income tax and sales tax to be reduced.

Allow Short Selling.

Short-selling is the practice of selling an asset that the seller does not own. The seller waits for the price to fall and purchases the item at a lower price.

Encourage the government to waste money

The government will happily build monuments rather than bridges.

Encourage government subsidies

This will distort market equilibrium and encourage wastage.

High Unemployment

If you can succeed in creating high unemployment, then you will get secondary assistance in destroying the economy through the increase in welfare payments. You may also get higher police, court and gaol costs as the impoverished resort to crimes classed as illegal in order to survive. There will be an increase in crimes against those with larger quantities of money obtained with crimes that have been legalized.

Encourage the Nation into Unsustainable Debt

Discourage the government from creating money and encourage it to use Bank Credit. It will eventually not be able to pay interest and you then will have little trouble in persuading the government to sell its assets and utilities to corporations whose share you own.

Subsidize inefficient business

Besides wasting money, it will reduce tax collection so more tax will have to be collected from efficient business.

Subsidize essentials

Subsidize electricity, fuel, gas and other items to encourage squandering of resources and waste public money. It will also prevent you from tax collection on these items.

Spend lavishly on the military

Make sure the military industrial complex gets its way with their extensive network of free-spending lobbyists and funded politicians so that vast quantities of money go to the military.

Balance the Budget

It is beautiful to watch the simple minds argue for their own destruction. Calls for a 'Balanced Budget' is a call for a reduction in the money supply which is a call for a reduction in money to the trading component of the money supply. Two common ways of reducing the green portion of my graphs (the money supply) are: interest to banks and tax to the government. Neither will get much money out of the hands of the speculators and hoarders whilst money is easily removed at time of trade. Voila! You have an easy path to destroy your economy whilst half the population will enthusiastically cheer you on your path to depression.

The word deficit suggests that government spending should match tax collection. This is erroneous thinking. The money supply of a nation needs to increase slowly and steadily by some undetermined amount. Thus, a deficit is normal and essential. A deficit of zero will cause a recession or depression. You should be able to see that a balanced budget is a budget with a deficit of zero that will plunge the nation into recession. The beautiful concept of a balanced budget is easily sold to simple minds with almost no effort and the results will be outstanding in their destructive power. The simple minds will argue for their own destruction.

The private banking sector will help the depression along by cutting back the volume of Bank Credit in the money supply. There has been no change to the producing capacity of the nation but your clever reduction of the money supply, supported by private bank cuts to the volume of credit will bring numerous businesses to the brink for lack of working capital. You will be able to detect the success of your folly by watching the 'Velocity of Money' fall. A fall in Velocity indicates that money is hoarded rather than traded.

Financial barriers to education

An efficient country needs trained people. It is not possible to run a country without trained people. An increase in training aids the efficiency of the nation. Put heavier financial barriers to education to make the nation inefficient.

Encourage bad diet

Make the nation obese and unfit so that medical costs rise.

Destroy the Middle Class

The middle class is the backbone of a functioning nation. They pay taxes and require nothing from the state. Expressions such as 'classless society' will help the dialogue. Tax them, distract their young with computer games, promiscuity and propaganda until their children lose the will to work.

Destroy the Working Class

The working class has often been a cheerful hearty section of society. Encourage cheap foreign labour to make is it un-worthwhile to work until they develop a welfare dependence attitude and an 'avoid work' attitude.

Make Welfare Easy

Make welfare easy and plentiful so that those who don't wish to contribute can opt out.

Promote divided loyalties

This will encourage a culture of victimization so that no logical thought will prevail. Encourage disunity and create division among the people.

Promote Political Parties

This will prevent independent thought as all policies will come from the elite controllers of each party. Promote only two parties both of whom support the debt banking system and every war that gets promoted by a compliant media system. Without independent politicians, representative government will be stopped and people will vote one of two economy destroying ideologies.

Think Tanks

Allow 'Think Tanks', that are funded and populated by the wealthy elite, to generate all news reports and generously fund and train politicians and their parties.

Control Truth

Constrain intelligent conversation with use of terms such as: conspiracy theory, racist, multiculturalism, islamophobia, anti-Semitic, far-right, gay-rights, individual rights.... Use these term in the same way that the word 'heretic' was used in the sixteenth century to silence sensible conversation. Promote victimology. Brand anyone who discusses high immigration, bilingualism, multiculturalism, dual citizenship as a racist. Read up on Londonistan and Mexifornia.

Be fiscally responsible.

This is a very useful expression if you wish to destroy your economy. Being 'fiscally responsible' generally means balancing the budget. This will restrict the increase in the money supply and send you toward a recession.

The Tenth Flaw of Economics

   It is economically irresponsible to be fiscally responsible.

Family Unit

Encourage the breakdown of the family unit. Encourage a culture of ridicule for basic morality. Promote no fault divorce. Give an advantage to those trying to break apart the family unit. Promote the idea that all males are potential rapists. Promote the concept that all men are potential pedophiles. Seventy percent of inmates of US goals were brought up in single parent families. Encourage authors, screenwriters and songwriters to write lurid works to break morality and trust.

Financial Corruption

Promote the concept that there is 'corruption in the financial system' rather than 'the financial system is corrupt'.


Encourage people to do as they please rather than do the best thing for the nation. Encourage what is bad as being good and what is good as being 'square' or 'old fashioned'. Encourage people to discredit the value system of religion, discredit patriotism, discourage moral conduct. Encourage promiscuity in the young to destroy the chance of trust between male and female. Set female against male. Make it easy to break families apart. Encourage people to do what is best for themselves rather than what is best for the community.

Flexible Money Supply

The money needs of the egg and carrot traders varies from day to day depending on availability of product. Generally, they will have a short-term hoard of money or a float. Occasionally they will be short of money to conduct business. Other than short-term borrowing from friends and family, the only flexible money supply available to them is moneylenders. These are comparatively cheap in the modern era. They have the unfortunate side effect of creating unpayable debt when the practice is conducted on a large scale. A government has no comparable flexible money supply to augment the money supply and it is unlikely that one will be invented.

It may be possible to invent a web-based crowd-funding model so that local people can invest locally for business start-ups and day to day business needs. Until an alternative system of funding business is available, freely available credit through local banks will be essential to business life. Even if government creates its own money on a larger scale than the current 95%, it is still unlikely to fill the instant needs of business. The government can run its own public banks at a national and local level, right down to a micro level in poor communities, but it tends to lack innovation and cost effectiveness. We cannot let a hate of persons making private profit from destroying the items that make modern life feasible.

In the middle ages, the monarch set up numerous private mints around the nation where citizenry could convert their precious metal to coin. Although far from perfect this allowed the locals to increase the money supply on an as-needs basis. Similar could be done by allowing states to create currency on an as needs basis. Never forget that new money needs to be injected into the community to slowly increase the money supply. This may be partly to counter the unpayable interest that occurs with interest but also to counter for increased population, increase in product availability and increase in hoarding. In the current era, excessive hoarding is occurring and hoarders take precedence over traders in the Real Economy. Once a hoarder decides to leave money in their bank account, it is almost impossible to get them to release it to someone that has an urgent need money to trade. It is one of the flaws of money that there is no immediate flexibility in supply to match the erratic nature of the trade in eggs and carrots. In carrot selling season there is a greater need for money than in a dormant season and humans have yet to invent a system flexible enough to cope other than using the flawed system of usury. We will have to tolerate usury until we invent a better system and it is more likely to be the private sector that invents it.

The demand that 'Only the government should create money' and '100% reserve banking' will remove the flexibility delivery of Bank Credit on which business thrives. 100% reserve banking will have a large impact on the banks' ability to lend which will create an almost permanent depression. Although Bank Credit and debt to banks is a problem, the lack of instant credit to business will be an even greater problem. Some arrangement is needed to ensure banks favour business over speculators and consumers.

Two Types of Digital Money

Digital money can be distinguished into two types: One is a Digital Balance and the other in the form of identifiable Digital Units. They are distinctly different.

Digital Balance. The Bank Credit system is a digital balance system. The balance of what each person owns is kept as a balance. When money is transferred, one person's balance is increased and another person's balance is decreased. It operates under the strict principles of double entry accounting.

Digital Units. This is an entirely different system. Each unit is numbered and tracked. To own a digital unit you need only the registration number which we might call the unit number. The ownership of a digital unit only requires proof of ownership which requires a list of transactions. The ownership of the Digital Units does not entirely rely on one single central computer. A central computer may be used and updated from time to time from other computers. However, a network of unconnected computers would likely be better and each computer is updated with recent transactions when convenient. This is similar to the DNS settings in the internet. When a domain name is set up by any domain name authority, the IP address (like a telephone number of a computer) is added to their local computer and then that new information is progressively updated on all computers around the world. This used to take a few hours but now is quite quick. Land Title systems work in a similar way. My land title lists all the previous owners and each transaction as the title is transferred to another person. A land title office also records all land transfers. So ownership is determined by looking at the transfers. Bitcoin uses a system like this. A Bitcoin has an attached list of transactions showing who is the current owner. To demonstrate ownership is a matter of checking the attached transfer list.

The Digital Units system is very much like a large denomination paper cash currency system where each note is numbered and the number recorded in a ledger. The government creates large denomination notes with difficult to forge numbers like the numbers. They may be tracked on any number of computers and ownership is a matter of tracking transactions. Using one that you do not own is fraud. To spend your digital unit, your smartphone or smart-card needs to know its registration number and your owner number and the number of the receiver, all linked to trackable email addresses. This would all occur is a similar manner to a credit card, except that your smart-device would know the registration numbers. A receiving device can verify the digital units or not as is done with cash now. Your statement will soon tell you if there has been monkey business and the registration agent would lose their license. The system does not require double entry accounting and personal balances. There is no need for the computers to keep balances, just ownership records.

There is one oddity. You can only pay with the digital units that you own in the particular denominations. So change needs to be kept by the seller just as the shopkeeper keeps change in the till. This is entirely different to the bank balance system where any amount can be transferred provide two accounts are updated with equal but opposite amounts. The Digital Balance requires two transactions to occur for each payment, whereas the digital unit system requires one transaction per unit transferred.

The digital unit system is very much like the current cash system where you own the notes in your wallet, subject to their validity, and transfer them to whomever you wish to pay. Validity can be verified by automatic checking on the master computers like automatic updates on a computer. I can pay for a drink in the middle of a desert and the transactions will update when I reach civilization. Similar is done with some metro transport systems. You buy credits which are kept on a smart ticket that looks like a credit card and the turnstiles adjust the credit on the card and update a central computer. This would be how foreign visitors and small children would use the system. You will give them a card with so much credit on it as digital units and the shop register would make adjustments and hold the updates to be added to the network of storage computers.

Each storage computer would have a register for each digital unit with its history of ownership. The tourist card would be an anonymous customer with a registration number.

This system would not replace cash. It would be a parallel system. In years gone by, the sovereign would dictate what the currency would be and demand that everyone use it. Sometimes they would have a re-issue every few years and re-mint the currency to effect a tax. This is the wealth and hoarding tax that I have talked about.

The system would allow borrowing, either from private banks or the government. The interesting thing here is that a lender can only lend out registered digital units that actually exist. This then becomes what is called '100% reserve backing' as money cannot be made out of thin air. The government could also aid small and medium business by allowing flexible arrangements on income tax. Pay early for a discount and request late payment with a discount if business does expand. Expanding business keeps people off the welfare and gives a better standard of living. I fill in an online form requesting deferral of tax to purchase a bus to give additional bus services and an online clerk clicks 'accepted' and I have some of the funds needed to expand my business. This money is usury and interest-free and creates no unpayable debt. It is a direct and debt-free method of financing small and medium business and entrepreneurial activity.

The Bitcoin system uses this method. It has secure digital registration numbers, electronic wallets and distributed computers updating ownership as transaction information arrives.

That Was The Easy Part

That was the easy part. Fixing the national economy, derivatives and debt situation is the easy part. The difficult part is fixing the international debt. That is in the next section.

World Debt and World Money Supply.

The best I can work out for world debt is that the ratio of debt to money is about two to one. So we have worldwide unpayable debt. This debt to money ratio is not getting better and so there will inevitably be defaults. This brings an immense cost in human misery exaggerated by wrongful suggestions to implement austerity. No repayment can occur if the nation is sent into an economic depression and austerity will hasten the bankruptcy of the nation. There is a limit to the volume of assets that can be stripped from a nation. There is no end game but default when money is lent to nation under usury. This is not wise usury as the end game is default and collapse of the asset base of the international banks. Never forget that a nation should never be in debt for its own money. A nation should never accept a loan repayable in a foreign currency for its own internal money supply. It should create a public bank and operate with the treasury to create adequate Bank Credit for the operation of the nation.

The IMF and The World Bank

International Loans

The IMF and World Bank make loans to countries. Where does this money come from? When they loan you one billion dollars, they write one billion dollars with a plus sign in one account and one billion dollars with a minus sign in a loan account. They add interest to the loan account, effectively making the loans unpayable. The loans are made in foreign currency and need to be repaid in the same foreign currency. To pay off this loan and interest, the country finishes up selling it's mineral assets, land assets, utilities and whatever else that can be sold. The country usually has to agree to what they call free-trade, which allows foreign corporations into most areas of the national economy. Their strong position in the nation allows them to use money to influence the politics and decision-making of the nation.

This puts the World Bank, the IMF, the WTO in a position to control the nations of the world. Jose Saramago said it this way: "The world is governed by institutions that are not democratic - the World Bank, the IMF, the WTO."

John Perkins wrote an interesting book called the 'Confessions of an Economic Hit Man', in which he described his time as an economic planner in the 1970s. He wrote how Third World nations were enticed into debt by the IMF and World Bank. He would negotiate very large loans to Third World nations which the borrowers would have no hope of repaying. When default occurred the lenders would demand the natural resources and utilities and would gain control of its economy and political system. Enticements included cash, hookers, cocaine and luxury. Any leader who would not cooperate would be overthrown in a CIA coup or even be assassinated. As is usual with bank lending, the money lent by the IMF and World Bank did not exist until it was lent. This is usury at a truly international level.

Prof. Carroll Quigley wrote in "Tragedy and Hope":

The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.

Maurice Carney 2008

There's really four entities that are involved in keeping the Congo dependent, and one of those entities are international financial institutions, multinational institutions, such as the IMF and the World Bank... The International Monetary Fund had set up financial rules that pretty much restrict the Congolese government. At least they prevented the Congolese government from having the necessary resources to pay its soldiers. And as a result of the government not having the resources to pay its soldiers, the soldiers then feast on the population - by stealing, by raping. ... [10030]

The World Bank ... went in after the conflict in 2002, established the mining laws, and the mining laws provided the legal framework for the multinational corporations to come in and establish contracts with the government. Now, even though the mining laws were in place and they required transparency and adherence to the OECD laws, the mining companies came in, and the contracts were opaque. They weren't transparent. And World Bank studies clearly document this, but they have refused to publish those studies which demonstrate how the mining contracts that's been established by multinational corporations are actually odious contracts and absolutely do not serve the interests of the Congolese people, but serve the interest of investors from the West. [10030]

Edward S. Herman

The World Bank, IMF, and private banks have consistently lavished huge sums on terror regimes, following their displacement of democratic governments, and a number of quantitative studies have shown a systematic positive relationship between U.S. and IMF/World Bank aid to countries and their violations of human rights. [10031]

Global Exchange

The real function of institutions such as the World Bank is not to promote 'development' but rather to integrate the ruling elites of third world countries into the global system of rewards and punishments.

Because direct colonial control of the third world is no longer tolerated, northern elites need an indirect way to control policies implemented by third world governments. By getting the elites onto a debt treadmill and promising them new cash if they implement policies written in Washington, the World Bank can effectively control third world policies. [10032]

Global Exchange

The World Bank's emphasis on expanding exports has been disastrous for the environment.

As part of the standard structural adjustment package, the World Bank encourages countries to expand their exports so they will have more hard currency (dollars, yen) to make payments on their foreign debts. This leads countries to overexploit their natural resources. They cut down their forests, which contributes to the greenhouse effect. They pump chemicals onto their land to produce export crops such as coffee, tea and tobacco, thus poisoning their land and water. They rip minerals out of the ground at a frantic pace, endangering human lives and the environment in the process. They overfish coastal and international waters, depleting a resource of the global commons. [10032]

International Debt.

Can you spot anything illogical in the next table?

Central Intelligence Agency Cia World Factbook
Country Comparison :: Debt - external
1 European Union$15,950,000,000,000
2 United States$15,680,000,000,000
3 United Kingdom$9,577,000,000,000
4 Germany$5,717,000,000,000
5 France$5,371,000,000,000
6 Japan$3,017,000,000,000
7 Luxembourg$2,935,000,000,000
8 Italy$2,604,000,000,000
9 Netherlands$2,347,000,000,000
10 Spain$2,278,000,000,000
11 Ireland$2,164,000,000,000
12 Switzerland$1,544,000,000,000
13 Australia$1,506,000,000,000
14 Belgium$1,424,000,000,000
15 Canada$1,331,000,000,000
16 Singapore$1,174,000,000,000
17 Hong Kong$1,159,000,000,000
18 Sweden$1,039,000,000,000
19 China$863,200,000,000
20 Austria$812,000,000,000
21 Norway$720,600,000,000
22 Russia$714,200,000,000
23 Finland$586,900,000,000
24 Denmark$586,700,000,000
25 Greece$568,700,000,000
26 Portugal$508,300,000,000
27 Brazil$475,900,000,000
28 Korea, South$430,900,000,000
29 India$412,200,000,000
30 Poland$365,200,000,000
31 Turkey$359,500,000,000
32 Mexico$354,900,000,000
33 Indonesia$223,800,000,000
34 Hungary$170,300,000,000
35 United Arab Emirates$167,900,000,000
36 Saudi Arabia$149,400,000,000
37 Qatar$149,400,000,000
38 Taiwan$146,800,000,000
39 Thailand$142,600,000,000
40 South Africa$139,000,000,000
41 Ukraine$138,300,000,000
42 Romania$131,600,000,000
43 Kazakhstan$131,300,000,000
44 Chile$119,000,000,000
45 Argentina$111,500,000,000
46 Czech Republic$102,100,000,000
47 Iceland$102,000,000,000
48 Malaysia$100,100,000,000
49 Israel$96,300,000,000
50 Cyprus$95,280,000,000
51 Colombia$85,830,000,000
52 New Zealand$81,360,000,000
53 Venezuela$74,870,000,000
54 Philippines$72,810,000,000
55 Slovakia$68,440,000,000
56 Vietnam$68,380,000,000
57 Croatia$60,470,000,000
58 Iraq$59,490,000,000
59 Puerto Rico$56,820,000,000
60 Slovenia$52,530,000,000
61 Pakistan$52,430,000,000
62 Malta$51,080,000,000
63 Peru$50,150,000,000
64 Egypt$48,760,000,000
65 Sudan$40,920,000,000
66 Latvia$39,870,000,000
67 Bulgaria$37,850,000,000
68 Morocco$36,510,000,000
69 Kuwait$34,410,000,000
70 Sri Lanka$33,670,000,000
71 Serbia$33,600,000,000
72 Bangladesh$30,690,000,000
73 Lithuania$29,550,000,000
74 Bahrain$28,820,000,000
75 Tunisia$26,950,000,000
76 Estonia$26,740,000,000
77 Lebanon$26,740,000,000
78 Cuba$23,440,000,000
79 Angola$22,710,000,000
80 Jordan$22,040,000,000
81 Ecuador$19,910,000,000
82 Dominican Republic$18,010,000,000
83 Guatemala$17,670,000,000
84 Uruguay$17,610,000,000
85 Bahamas, The$17,560,000,000
86 Nigeria$15,730,000,000
87 Iran$15,640,000,000
88 Panama$15,220,000,000
89 Costa Rica$15,100,000,000
90 Ghana$14,680,000,000
91 El Salvador$14,440,000,000
92 Tanzania$13,820,000,000
93 Jamaica$13,820,000,000
94 Papua New Guinea$13,610,000,000
95 Ethiopia$11,990,000,000
96 Kenya$11,960,000,000
97 Georgia$11,740,000,000
98 Bosnia and Herzegovina$11,140,000,000
99 Oman$10,840,000,000
102Cote d'Ivoire$8,959,000,000
109Congo, Democratic Republic of the$6,874,000,000
122Trinidad and Tobago$4,823,000,000
133Congo, Republic of the$3,274,000,000
137Korea, North$3,000,000,000
139Burkina Faso$2,863,000,000
143Equatorial Guinea$2,104,000,000
152Sierra Leone$1,331,000,000
153Cabo Verde$1,328,000,000
163Faroe Islands$888,800,000
171Central African Republic$634,200,000
174Gambia, The$517,700,000
176Saint Lucia$446,400,000
177Antigua and Barbuda$441,200,000
180Sao Tome and Principe$406,800,000
184Solomon Islands$255,500,000
185Saint Vincent and the Grenadines$255,300,000
187Saint Kitts and Nevis$158,900,000
189Cook Islands$141,000,000
190Marshall Islands$87,000,000
191New Caledonia$79,000,000
192Micronesia, Federated States of$60,800,000
194British Virgin Islands$36,100,000
199Wallis and Futuna$3,670,000
This entry gives the total public and private debt owed to non-residents repayable in internationally accepted currencies, goods, or services. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.

The answer: They are all negative. Should not some of them be positive?

Would you not expect half of them to be positive and half negative. Half in credit and half in debt. No. They are all in debt to organizations that do not belong to any country and do not provide audited results. These private corporations are supra-national. If some figures were positive then the average could be zero. Basically, countries owe big money to International Banks. So we have a similar situation that you find internally in countries where most all finish up in debt to Private Banking Corporations and the Private Banking Corporations create debts that cannot be repaid in a situation where they create more debt than money.

How can we have a situation where all countries of the world are massively in debt to an International Bank? A bank that was supposed to help us.

International Debt

An Australian politician by the name of Eddie Ward warned us about this in 1945:

...I am convinced that the agreement [Bretton Woods] will enthrone a world dictatorship of private finance more complete and terrible than and Hitlerite dream. It offers no solution of world problems, but quite blatantly sets up controls which will reduce the smaller nations to vassal states and make every government the mouthpiece and tool of International Finance. It will undermine and destroy the democratic institutions of this country - in fact as effectively as ever the Fascist forces could have done - pervert and paganise our Christian ideals; and will undoubtedly present a new menace, endangering world peace. World collaboration of private financial interests can only mean mass unemployment, slavery, misery, degradation and financial destruction. Therefore, as freedom loving Australians we should reject this infamous proposal. [10033]

My Explanation

There is a disconnect between the trade conducted between countries and the mechanism to set exchange rates. It is not the trading of goods and services that sets the exchange rate. It is a separate entity called Forex, Foreign Exchange Market. Eighty percent of Forex transactions involve speculation and twenty percent involve trade. Ordinary citizens can set up a Forex account and start betting on exchange rates. The effect is that there will be trade imbalances. These trade imbalances will finish up as a debt to someone. That someone is likely to be an international bank. Countries can try and adjust their currencies by a very crude and expensive method. Selling off assets such as gold and cash reserves and adjusting interest rates. This is pretty frustrating as Forex clients are not dealing with real money. They have an account and bet with virtual money. No physical money changes hand. Whereas countries have to deal with real money. People's money.

Special Drawing Rights

The official description is:

Special Drawing Rights (SDR) are international reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement existing reserve assets.

SDRs are the currency of the IMF. The IMF creates SDRs by writing numbers in an account. This is different to the way banks create bank credit. Banks always create credit and debt in equal quantities according to the rules of double entry accounting. SDR's are created without accompanying debt. They create a billion SDRs by writing 1000000000SDR in an account and they are immediately equal to foreign currency.

The official description is double-speak for: The IMF creates SDRs out of thin air and then exchanges them for real national currency. The IMF is a corporation, little different in structure to BP, Nestlé and Monsanto, that creates its own limited use currency out of thin air, by the billion, and exchanges it for the real currencies of nations. We now have a corporation making its own international currency and calls it a 'reserve currency'. Its value is obtained by the false means of pegging it to a basket of currencies as it has no other way of establishing a value. It is not redeemable for anything other than itself or other currencies and it is not backed by anything of substance. Be wary of the ascension of the SDR to replace the dollar as the world reserve currency. The IMF and central banks are front organisations for private international banks.

Joe Stiglitz

Every country the IMF/World Bank got involved in ended up with a crashed economy, a destroyed government, and sometimes in flames with riots.

Joe Stiglitz interview by Greg Palast

In a recent interview with The London Observer and BBC TV's Newsnight, some of the real, often hidden workings of the IMF, World Bank, and the bank's 51% owner, the US Treasury were revealed. Also, documents marked "confidential", "restricted", and " not otherwise (to be) disclosed without World Bank authorization were brought to light. One such document entitled "Country Assistance Strategy" outlined the assistance strategy for every poor nation, designed, says the World Bank, after a careful, in-country investigation. But, according to insider Stiglitz, the bank's staff "investigation" consisted of a close inspection of each nation's five-star hotels. It ends with the Bank's staff meeting some begging, pleading finance minister who is handed a "restructuring agreement" pre-drafted for his "voluntary" signature. Each nation's economy is individually analyzed, then, says Stiglitz, the bank hands every minister the same, exact four-step program.

Step One is Privatization - which Stiglitz says could be more accurately labeled "briberization". National leaders, using the World Bank's demands to silence the local critics - happily flogged their electricity and water companies for a 10% commission to be paid into a Swiss bank account for simply shaving a few billion off the sale price of their national assets. (Control ends up in the hands of a few and, ultimately, the monopolization of these essential assets leads to higher costs for consumers.)

Step Two of the "rescue" plan is "Capital Market Liberalization". In theory, capital market deregulation allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money simply flowed out and out. Stiglitz calls this the "Hot Money" cycle as cash comes in for speculation in real estate and currency, and then flees at the first sign of trouble. A nation's reserves can drain in days or hours and when that happens, to seduce speculators into returning a nation's own capital funds, the IMF demands these nations raise interest rates to 30%, 50% or more. The results are predictable, demolished property values, crippled industrial production and empty national treasuries.

At this point, the IMF drags the gasping nation to

Step Three; Market Based Pricing, a fancy term for raising prices on food, water, and other essentials. This leads, predictably, to

Step Three and a Half, what Stiglitz calls the IMF riot.

When a nation is "down and out, the IMF takes advantage and squeezes the last pound of flesh out of them. They turn up the heat until the whole cauldron blows up," as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. The people rioted, but there were other examples - the Bolivian riots over water prices in 2000 and this February (2001), the riots in Ecuador over this rise in cooking gas prices imposed by the World Bank. (It is almost as though the riots were part of the plan)

One such "plan", the "Interim Country Assistance Strategy" for Ecuador stated with cold accuracy that "social unrest" was expected. The secret report notes that the plan to make the US dollar Ecuador's national currency has pushed 51% of the population below the poverty line. The World Bank "Assistance" plan simply calls for facing down civil strife and suffering with "political resolve" - and still higher prices.

The IMF riots cause more panic and the flight of capital out of the countries and the ultimate bankruptcy of governments. (Look at recent events in Argentina). Foreign corporations also take advantage of these situations by buying up remaining assets at fire sale prices.

A pattern soon emerges. There are lots of losers and one clear winner, the Western banks and the US Treasury making big bucks off this crafty international scam. Stiglitz told a story of his early days at the World Bank. He met with Ethiopia's newly elected president and the World Bank and the IMF had ordered Ethiopia to divert aid money to its reserve account at the US Treasury which, pays a pitiful 4% return, while the nation borrowed US dollars at 12% to feed its population. The new president begged Stiglitz to let him use the aid money to rebuild the nation, but no, the loot went straight off to the US Treasury's vault in Washington.

Now Step Four of what the IMF and the World Bank call their "poverty reduction strategy." Free Trade as designed by the WTO and the World Bank. Europeans and Americans are kicking down the barriers to sales in Asia, Latin America and Africa, while barricading their own markets against Third World agriculture. In the past, the West used military blockades to force open markets. Today, the World Bank can order a financial blockade, which is just as effective - and sometimes just as deadly.

J.W. Smith

The size of the debt trap can be controlled to claim all surplus production of a society, but if allowed to continue to grow the magic of compound interest dictates it is unsustainable. One trillion dollars compounded at 10 percent per year become $117 trillion in fifty years and $13.78 quadrillion in one hundred years, about $3.5 million for every man, woman and child in the Third World. Their debt is 50 percent greater than this and has been compounding at twice that rate - over 20 percent per year between 1973 and 1993, from $100 billion to $1.5 trillion [only $400 billion of the $1.5 trillion was actually borrowed money. The rest was runaway compound interest]. If Third World debt continues to compound at 20 percent per year, the $117 trillion debt will be reached in eighteen years and the $13.78 quadrillion debt in thirty-four years. [10034]

Ross P. Buckley 2002

According to UNICEF, over 500,000 children under the age of five died each year in Africa and Latin America in the late 1980s as a direct result of the debt crisis and its management under the International Monetary Fund's structural adjustment programs. [10035]

Luis Ignacio Silva, Brazil 1985

Without being radical or overly bold, I will tell you that the Third World War has already started - a silent war, not for that reason any the less sinister. This war is tearing down Brazil, Latin America and practically all the Third World. Instead of soldiers dying there are children, instead of millions of wounded there are millions of unemployed; instead of destruction of bridges there is the tearing down of factories, schools, hospitals, and entire economies . . . It is a war by the United States against the Latin American continent and the Third World. It is a war over the foreign debt, one which has as its main weapon interest, a weapon more deadly than the atom bomb, more shattering than a laser beam. [10036]

Rex Weyler, Greenpeace

These bankers are not proposing to loan their money to the world. Rather, they propose creating new money out of thin air, likely through International Monetary Fund (IMF) 'Special Drawing Rights', a synthetic currency beyond the control of any sovereign nation. By loaning currency rights to national treasuries, the bankers create $100 trillion with a few computer keyboard strokes. Then, they loan the fabricated money, collect interest payments and demand the principal back in real money from the debtors. It's a lucrative scheme if you're on the inside. [10037]

Robert Mundell 1999

When the international monetary system was linked to gold, the latter managed the interdependence of the currency system, established an anchor for fixed exchange rates and stabilized inflation. When the gold standard broke down, these valuable functions were no longer performed and the world moved into a regime of permanent inflation. What will be the character of the international monetary system in the next century and how will gold intersect with it? This subject may strike modern audiences as a strange topic, but back in the 1960s, when people were deliberating about the future of the international monetary system, gold figured importantly in the discussions. Even today, the importance of gold in the international monetary system is reflected in the fact that it is today the only commodity held as reserve by the monetary authorities, and it constitutes the largest component after dollars in the total reserves of the international monetary system." [10038]

Ellen Brown 2007

At a 1968 meeting of the secretive globalist group known as the Bilderbergers, a U.S. official named George Ball spoke of creating a "world company." Ball was U.S. Undersecretary of State for Economic Affairs and a managing director of banking giants Lehman Brothers and Kuhn Loeb. The "world company" was to be a new form of colonialism, in which global assets would be acquired by economic rather than military coercion. The "company" would extend across national boundaries, aggressively engaging in mergers and acquisitions until the assets of the world were subsumed under one privately-owned corporation, with nation-states subservient to a private international central banking system." [10039]

Ellen Brown 2007

Before World War II, the head of this private global banking system was in England; but it moved to Wall Street with the economic ascendancy of the United States. Under the Bretton Woods Agreements, the U.S. dollar became the world's "reserve currency" along with gold. In 1971, President Nixon took the dollar off the gold standard, and the dollar became the world's reserve currency without that tether. U.S. lenders could create and lend dollars to whatever extent the world could be induced to borrow them. To ensure that the lenders got their interest, in the late 1970s the World Bank and International Monetary Fund began imposing "conditionalities" on loans to Third World debtors, requiring them to open up their capital markets, slash spending on social programs, and privatize their industries. Meanwhile, speculative attacks on local currencies that had been left to "float" in foreign exchange markets without the tether of gold caused radical currency devaluations, allowing foreign investors to pick up these privatized assets at bargain basement prices. [10040]

How the IMF acquired its gold holdings

The IMF holds around 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories. On the basis of historical cost, the IMF’s total gold holdings are valued at SDR 3.2 billion (about $4.8 billion), but at current market prices, their value is about SDR 72.3 billion (about $101.5 billion). [10074]

The IMF acquired its gold holdings through four main channels: [10074]

when the IMF was founded in 1944 it was decided that 25 percent of initial quota subscriptions and subsequent quota increases were to be paid in gold. This represents the largest source of the IMF's gold.

all payments of charges (interest on member countries' use of IMF credit) were normally made in gold.

a member wishing to acquire the currency of another member could do so by selling gold to the IMF. The major use of this provision was sales of gold to the IMF by South Africa in 1970-71.

member countries could use gold to repay the IMF for credit previously extended. [10074]

New Supranational World Currency

The IMF website describes the SDR (Special Drawing Rights):

Special Drawing Rights (SDR) are international reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement existing reserve assets.

The IMF creates SDRs out of thin air and then exchanges them for national currency. The IMF is a corporation with a typical corporate structure and operates outside the jurisdiction of any nation. It creates its own currency out of thin air. Thus, we have a multi-national corporation, out of reach of any democratic jurisdiction, making its own currency that is not backed by any asset. Its value derives from its convertibility to national currency at an exchange rate determined from a basket of currencies. Thus, its backing is the currencies of other countries. It creates money with no backing and states that the money is convertible to existing currencies. It is unbacked money created out of thin air at no cost to the IMF and it is instantly, at the moment of creation, exchangeable with national currencies. No better money making scheme has ever been invented. Perhaps I should try this:

"I make money. I buy your currency. I use your currency to buy your assets. Very clever business."

There are moves to make this an international currency. Henry CK Liu worded it this way:

Following the 2009 G20 summit, plans were announced for implementing the creation of a new global currency under the IMF's Special Drawing Rights (SDRs), to replace the U.S. dollar's role as the world's reserve currency. [10049] [10048]

From IMF factsheets:

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. [IMF] [10080]

Thus, its backing is not the IMF gold but the currencies of the nations. The IMF creates an SDR and exchanges it for national currency but the IMF owes the holder nothing. The only claim is against the currencies of other nations. The IMF has created a currency out of thin air using someone else's asset. Thus, the IMF makes money as a claim against nations assets. The more they generate, the more national currency they immediately own. they have a vacuum cleaner that can suck up any amount of national currency. And the intention is to use it as a world currency when the US dollar dies.

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold, which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, the SDR was redefined as a basket of currencies. Currently, the SDR basket consists of the U.S. dollar, euro, Japanese yen, and pound sterling. Effective October 1, 2016, the basket will be expanded to include the Chinese renminbi. [IMF] [10080]

The IMF also lends SDR:

The SDR interest rate provides the basis for calculating the interest charged to borrowing members, and the interest paid to members for the use of their resources for regular (non-concessional) IMF loans. It is also the interest paid to members on their SDR holdings and charged on their SDR allocation. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt instruments in the money markets of the SDR basket currencies. [IMF] [10080]

The SDR mechanism is self-financing and levies charges on allocations which are then used to pay interest on SDR holdings. [IMF] [10080]

The SDR got a boost in 2009 when Governor of the People's Bank of China, Zhou Xiaochuan, put forward a proposal to promote the use of the SDR as a supra-sovereign reserve currency. [10081]

The move toward the SDR will consolidate all national currency systems under the control of the International Monetary Fund. This could be helped along by a strategic collapse of the US Dollar which will be conveniently blamed on whatever scapegoat happens to be handy. The financial calamity will be so severe that the people will beg for financial administration by the private corporation called the IMF. This will give complete sovereign economic control to a corporation. The IMF, World Bank and BIS will be portrayed as the heroes that saved the world economy.

The Foreign Exchange Market


The Foreign Exchange Market (Forex) is the largest financial market in the world. Transactions run at about $3980 billion each day. The Forex is made up of central banks, currency speculators, governments, organizations, international investors and retail investors. The UK has about 36% of the traders. The USA has about 18% of the traders. Japan has about 6% of the traders.

The commercial and investment banks belong to the group known as the "Interbank" market which has about 75% of the trade volume.

Now the strange bit.

What are they buying and selling in the currency market?

The short answer is "nothing". The retail Forex market is a speculative market. No physical exchange of currencies takes place. Trades exist as computer entries and are netted out depending on market price. For dollar-denominated accounts, profits and losses are calculated in dollars and recorded as such on the trader's account.

Hedge Fund Speculators

Somewhere around eighty percent of the Forex transactions are speculative. The trader has no intention of taking delivery of the currency purchased or sold. The trader was speculating on the movement of the currency. Hedge funds have gained a reputation for currency speculation. Hedge funds control billions of dollars of equity and sometimes borrow billions more. Hedge funds can thus overwhelm central banks supporting the currency of their country.

FOREX Transactions

My reading is that most buying and selling of the Australian dollar has nothing to do with selling iron ore, cattle or cars. Most trade in the Australian dollar is done as speculation on the Australian dollar. The Australian dollar has become quite popular.

Short Selling

Shorting or short-selling occurs when a seller sells an item that they don't own, whose price they think will fall. The item is bought back a while later, when the price drop occurs.

'Short selling' or 'selling short' or 'shorting' is a technique used by investors to profit from the falling price of a stock.

Short selling is the practice of selling securities or other financial instruments that are not currently owned, and repurchasing them or covering them at a later lower price.

For example, consider an investor who wants to sell short 1000 shares of a company, believing the shares are overpriced and that their price will fall. The investor's broker borrows the 1000 shares from someone who owns them with the promise they will be returned later. The borrowed shares are sold at the current price.

If the price of the shares drops, he/she "covers the short position" by buying back the shares, and the broker returns them to the lender. The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and borrowing expenses. If the price of the shares increase, the losses can be high. Short selling is a risky technique. It needs to be banned.

FOREX Allows Short Selling

Short selling is the selling of an item that the seller does not own. The seller thus promises to deliver sometime in the future. Posh gambling. The seller is gambling on the price falling and will purchase after the price fall so that he can deliver. I am not comfortable that big time money people can play with my currency like this. You make up your own opinion.

Big Time Speculator George Soros

During 1992, there was speculation that England was going to be rejected from the European Monetary Union. This would damage the English pound. George Soros with his Quantum Fund placed a ten billion short position in the Forex market. The Bank of England attempted to stabilize the English pound by intervening and selling all their foreign currency reserves. On 16 September 1992 (Black Wednesday) the pound plummeted. England was forced to withdraw from the European Monetary Union. Soros made $1 billion. He is now known as the man who broke the Bank of England.

Big Time Speculator Andy Krieger And The Kiwi Dollar

During the U.S. stock market crash of 1987, traders were buying up currencies that were appreciating against the dollar, the most popular being the Kiwi. Mr. Krieger guessed that this rally could never last and believing that the kiwi was overvalued, shorted two hundred million Kiwi. This is more than the entire money supply of New Zealand. The currency buckled under this pressure. Andy Kreiger made a massive profit.

Examples Of The Nonsense They Talk On The Forex That Influences Our Australian Dollar

Futures traders increased bets to a record that the Aussie will fall against the U.S. Dollar.

The Aussie dollar has been quite sensitive to the talk about tapering of QE3 in the US, so it is quite responsive to the moves.

the fall in Australian dollar was "just collateral damage," caught up in a volatile market place.

The Australian and New Zealand dollars slumped against their major peers as market volatility prompted traders to retreat from higher-yielding assets.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the Aussie.

If we see the opportunity to try, for example, to take the tops off any exchange-rate peak then we may exercise intervention.

The falls came as Treasury secretary Martin Parkinson warned Australia faced a volatile economic ride.

Investors will pay close attention to Fed Chairman Ben Bernanke's news conference for clues about the future of the central bank's asset-purchase program, known as quantitative easing.

This sounds more like horse racing gossip. They are posh betting on our currency. They are not operating for the benefit of Australia.

Bernard Lietaer 2001

Your money's value is determined by a global casino of unprecedented proportions: $2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all the stock markets of the world combined. Only 2% of these foreign exchange transactions relate to the "real" economy reflecting movements of real goods and services in the world, and 98% are purely speculative. This global casino is triggering the foreign exchange crises which shook Mexico in 1994-5, Asia in 1997 and Russia in 1998. These emergencies are the dislocation symptoms of the old Industrial Age money system. [10041]

Is FOREX Rigged?

Bloomberg News published an interesting report based on whistle-blowing information from five foreign-exchange traders from three different large banks. They report that the foreign exchange-rate market is fixed. We are talking about a nearly five trillion dollar per day Foreign Exchange Market.

Bloomberg 12 June 2013

The world's biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments and derivatives [10042]

This manipulation of foreign exchange rates affects investments and pension funds around the world. The Forex appears to have been rigged for more than ten years. The whistleblowers reportedly said that major banks would regularly trade against their clients in the forex. The procedure appears to be called "front-run" where the major banks would trade against their clients in sixty second time-slots in which trading was supposed to be paused.

Dealers colluded with [derivatives] counter-parties to boost chances of moving the rates.... The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade... the two traders said.

The British Financial Conduct Authority has received a complaint of rigging from a major European funds manager and is "considering opening a probe".

Australia became exposed to the manipulation of the Foreign Exchange Market when the Bob Hawke and Paul Keating government floated the Australian dollar in 1983. Previous to 1983, Australia set it's exchange rate itself. China still sets it's exchange rate manually. China has not fallen into the international debt that is hurting Australia.

Balancing Trade

It appears that we have a system that is prone to creating indebted nations. A country has trade in and trade out. If the dollar value of exports is greater than the dollar value of imports then a surplus is created. If the dollar value of imports is greater than the dollar value of exports then a deficit occurs. Reasonably obvious. However, the Forex market is independent of trade and is 80% speculation. Thus, if a country is doing very well then it is likely that it's currency increases. Thus, by doing well it gets punished with a high exchange rate that is not actually reflected by the volume of trade but by the wishful thinking of the speculative traders. The traders wish to make money from money whereas the country and maybe its government, wish top make money from trading goods. The two do not match and so imbalances are inevitable. This plays straight into the hands of the big international banks. For a country to balance its books is almost impossible when the exchange rate is set by speculation independent of the trade volumes between nations.

If one considers the situation before banks got involved, debt between nations was difficult to achieve. Traders would barter dried fish, animal skins, beads or tobacco for fabrics, bullets, needles, whiskey, traps, blankets, cloth, knives, salt, pots, windows, and mirrors. Thus, international trade deficits could not exist.

These factors can affect a currency's exchange rate: Economic growth, government debt levels, trade levels, and oil and gold prices. Increased government debt, a slowing gross domestic product or a large trade deficit could cause a country's exchange rate to drop. Rising oil prices could lead to a higher exchange rate for oil exporting countries or oil rich nations. So the exchange rate is only partly dependent on trade volume. Thus, working harder to correct a trade imbalance may not cut the trade imbalance. It could even make it worse. Even having untouched oil sitting in the ground could create trade imbalance.

My guess is that clever bankers knew this when the system was set up. Surely they didn't accidentally create a system where so many countries got into debt. Their business is making money from debt. So like other businesses, they would naturally push trade along in their direction. So are bankers the best people to set up a trading situation between countries? I don't think so.

Definition of Balance of Trade 'BOT'

The Balance of Trade is the difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.

It is also referred to as "trade balance" or "international trade balance."

Currency speculation is still incorrectly considered to be a legal activity. Speculators are allowed to take advantage of countries in a weak situation. The speculator can bet against weak countries without using their own money to take billions in profits. The devious procedure they use is to 'sell short' the currency that is in trouble. Selling short means they sell currency they do not own and then later purchase the currency when it falls so they can supply the currency that they have already sold. Selling short is an invention of satin and to profit from a nation's pain is the work of the devil. These speculators rejoice in a good day's work when they make mercilessly profit from the misery they create. When the short selling is done in sufficiently large volume, it drives down the currency. they then buy back the currency at a lower price and make a great profit in doing so. This needs to be classed as an act of hostility.

Bank for International Settlements

This is an unusually powerful organization that most people have never heard of. The Bank for International Settlements (BIS) controls the money supply of the whole world. It is effectively the central bank of the world or the central bank of the central banks. It is the bank that controls the Central Banks. It is completely immune from any law made by any country. The Central Banks that it controls are carefully groomed to be 'free from political influence'. And the Central Bank of each nation has complete control of the money supply of the nation. And the money is the lifeblood of the economy.

This all powerful organization is in Basel, Switzerland. It is not required to pay tax to any country and has immunity from any national law. The Bank for International Settlements has the task of guiding and directing the global financial system. Sixty of the world's central banks belong to the BIS. Its power over economies often exceeds that of the nation's politicians. It's unelected members travel to Basel regularly and make decisions which affect every person on the planet. It even runs its own private police force.

Andrew Gavin Marshall 2009

States, most especially the large hegemonic ones, such as the United States and Great Britain, are controlled by the international central banking system, working through secret agreements at the Bank for International Settlements (BIS), and operating through national central banks (such as the Bank of England and the Federal Reserve). The state is thus owned by an international banking cartel, and though the state acts in such a way that proves its continual relevance in the global economy, it acts so not in terms of self-interest for the state itself, but for the powerful interests that control that state. The same international banking cartel that controls the United States today previously controlled Great Britain and held it up as the international hegemon. When the British order faded, and was replaced by the United States, the US ran the global economy. However, the same interests are served. States will be used and discarded at will by the international banking cartel; they are simply tools. [10043]

Global Research

BIS [Bank for International Settlements] decisions [have been] reached to devalue or defend currencies, fix the price of gold, regulate offshore banking, and raise or lower short-term interest rates... The BlS has governmental immunity, pays no taxes, and has its own private police force., It is above the law. [10044]

Edward Jay Epstein 1983

The real business [of the BIS] gets done in "a sort of inner club made up of the half dozen or so powerful central bankers who find themselves more or less in the same monetary boat" - those from Germany, the United States, Switzerland, Italy, Japan and England... The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments... A second and closely related belief of the inner club is that politicians should not be trusted to decide the fate of the international monetary system. [10045]

Joan Veon 2003

The BIS is where all of the world's central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them. ... [10046]

When you understand that the BIS pulls the strings of the world's monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency. [10046]

Henry CK Liu

BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies. The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis, the IMF arrives as a carrier of monetary virus in the name of sound monetary policy, then the international banks come as vulture investors in the name of financial rescue to acquire national banks deemed capital inadequate and insolvent by the BIS. [10047] [10048]

When governments fall into the trap of accepting loans in foreign currencies, they become "debtor nations" subject to IMF and BIS [Bank for International Settlements] regulation. They are forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loan. [10049] [10048]

Following the 2009 G20 summit, plans were announced for implementing the creation of a new global currency under the IMF's Special Drawing Rights (SDRs), to replace the U.S. dollar's role as the world's reserve currency. IDRs are a synthetic paper currency issued by the International Monetary Fund. [10049] [10048]

Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS [Bank for International Settlements] regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system. [10050] [10048]

Mike Seccombe 2012

The last week of June, for example, saw the release of the 82nd annual report from the Bank for International Settlements - an intergovernmental organization comprising 60 central banks, including all the world's major economies. And what a depressing read it is. It foreshadows no end to the crisis.

It notes with alarm the fact that since 2007 - the year the financial crisis began - government debt in the advanced economies has increased on average from about 75 per cent of GDP to more than 110 per cent. And the debts of governments to the moneylenders were still growing apace; government deficits had more than quadrupled on average over the period. [10051]

Anthony Migchels 2014

The BIS is the apex of the global banking system, the Central Banks' Central Bank. It's the main executive in what Quigley famously described as "The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.". It's the top of what the Economist called 'the marvelous edifice of international finance'.

And the BIS does indeed hold a crucial trump card when it comes to the global management of the volume of money and thus the creation of the boom/bust cycle: it sets the capital reserve requirements for banks. It was the BIS raising capital reserve requirements in the late eighties that made the Japanese banks insolvent overnight, popping the outrageous Nikkei/Real Estate bubble that had overtaken Japan. They never recovered and neither did Japan.

The BIS of course knew well what was going on in the 2000's with the derivatives and real estate. The derivatives allowed huge leveraging by the banks, many of which at some point had no more than 2% in capital reserves. BIS policy now is to raise capital reserve requirements, officially to 'improve stability', and this has a huge impact on the banks' capacity to lend, guaranteeing ongoing depression.

The BIS, in its publications, is also openly calling for stronger deleveraging and the end of quantitative easing. [10052]

International Trade

Winston Churchill 1960

Germany's unforgivable crime before WW2 was its attempt to loosen its economy out of the world trade system and to build up an independent exchange system from which the world-finance couldn't profit anymore. ...We butchered the wrong pig. [10053]

Benjamin Franklin

The refusal of King George to operate an honest colonial money system which freed the ordinary man from the clutches of the manipulators was probably the prime cause of the Revolution. The Colonies would gladly have borne the little tax on tea and other matters, had it not been that England took away from the Colonies their money, which created unemployment and dis-satisfaction.

Jeffrey Sachs

The runs started in Thailand after the IMF intervened in such a dramatic way. Then the IMF came to Indonesia.

Abu Bakar Bashir

The Muslim leaders swallow the advice of the Western powers and bodies like the IMF and World Bank, even when it is bad for their countries and they know this.

Louis McFadden 1930

The Federal Reserve Bank of New York is eager to enter into close relationship with the Bank for International Settlements....The conclusion is impossible to escape that the State and Treasury Departments are willing to pool the banking system of Europe and America, setting up a world financial power independent of and above the Government of the United States....The United States under present conditions will be transformed from the most active of manufacturing nations into a consuming and importing nation with a balance of trade against it. [10054]

American Mercury Magazine 1957

The invisible Money Power is working to control and enslave mankind. It financed Communism, Fascism, Marxism, Zionism, Socialism. All of these are directed to making the United States a member of a World Government. [10055]

John F. Kennedy

The great free nations of the world must take control of our monetary problems if these problems are not to take control of us.

Common Complaints about the World Bank and IMF

The World Bank is used as an indirect way to control policies implemented by third world governments.

The "free market" economic model being pushed on third world governments is not one the industrial countries used to develop themselves.

The policies have systematically undermined democratic principles and eroded human rights protections in many countries around the globe.

The institutions operate as a kind of international loan shark.

The World Bank encourages national leaders to place the interests of international financial investors above the needs of their own citizens

World Bank policies make it difficult for national governments to ensure that their people receive food, health care, and education.

In Korea, the IMF insisted that all presidential candidates immediately "endorse" an agreement which they had no part in drafting or negotiating, and no time to understand.

These institutions have advanced a form of economic "development" that prioritizes the concerns of wealthy lenders and multinational corporations in the industrialized north while neglecting the needs of the world's poor majority.

Imposition of free trade has hindered economic growth and increased poverty and inequality. Countries that have resisted free trade often manage to decrease poverty and increase employment.

As soon as government officials begin worrying more about what Wall Street will think than what their own people think, democracy has been perverted.

At least twenty three African countries spend more money on debt repayment than they spend on healthcare.

Privatization can create lead to the creation of private monopolies who exploit consumers.

Under the guise of promoting "free trade," market liberalization, and financial stability, these institutions have forced cuts in health care, education and other social services for millions of people across the planet, thereby deepening poverty and increasing inequality.

They have directed the most political of decisions -- the allocation of national resources -- thereby undermining national democracies.

The IMF have been criticized for imposing policy with little or no consultation with the affected countries.

The IMF has been criticized for supporting military dictatorships in Brazil and Argentina.

Ethiopian authorities diverted millions of dollars from a World Bank-supported project to fund a violent campaign of mass evictions, according to former officials who carried out the forced resettlement program.

Since 1976, at least 100 protests against Fund and Bank policies have occurred in dozens of countries around the world

On giving loans to countries, the IMF makes the loan conditional on the implementation of certain economic policies. These policies tend to involve:

Reducing government borrowing - Higher taxes and lower spending.

Higher interest rates to stabilize the currency.

Allow failing firms to go bankrupt.

Structural adjustment. Privatization, deregulation, reducing corruption and bureaucracy.

The World Bank and its private-sector lending arm, the International Finance Corp., have financed governments and companies accused of human rights violations such as rape, murder and torture. In some cases, the lenders have continued to bankroll these borrowers after evidence of abuses emerged.

Over the last decade, projects funded by the World Bank have physically or economically displaced an estimated 3.4 million people, forcing them from their homes, taking their land or damaging their livelihoods.

The World Bank has regularly failed to live up to its own policies for protecting people harmed by projects it finances.

From 2009 to 2013, World Bank Group lenders pumped $50 billion into projects graded the highest risk for "irreversible or unprecedented" social or environmental impacts.

By getting the elites onto a debt treadmill and promising them new cash if they implement policies written in Washington, the World Bank can effectively control third world policies.

The emphasis on expanding exports has been disastrous for the environment.

They are unaccountable organizations that control the finances of virtually every nation on the face of the planet. The World Bank, the IMF and central banks control the creation and the flow of money worldwide.

The Bank for International Settlements is at the apex of a global finance control system.    [10031] [10056]


International Money

This has to be one of the strangest things to understand. Why would a national government borrow from an International Bank? A national government has the authority to create the money of the nation. If it borrows from an International Bank in its own currency, where did the money come from? If the International Bank is operating for the good of mankind, it would loan at an interest rate that would cover its costs. This rate might be 1%. If it was operating for the benefit of the bank and the shareholders of the bank, then it would charge high interest rate. If the nation borrows in foreign currency for its own internal purposes, then there is a conversion factor involved as well and the loan needs to be repaid in foreign currency. The first question is why would a national government borrow money from an International Bank?

A national government has the authority to create its own money. So a national government should never be in debt in its own currency. However, government tends not to use the issued form of its currency. The currency being cash and coin generated by the government mint and otherwise called Legal Tender. When banks arrive in the young nation, they persuade the citizens to give them their currency for 'safe keeping'. They issue the citizens with digital receipts in the form of bank statements with an implied promise to give them back the same volume of currency on request. The government also has accounts at the bank and use these accounts for all government transactions. The government can lift its balance in the bank in exchange for currency cash that it has created. However, cash currency has only limited use in the nation. Although cash is how we envisage money, it is only 5% or less of the money in the nation and an even smaller percentage by volume of transactions. Thus, the government has no means of obtaining sufficient Bank Credit in its bank accounts to operate its government functions. Although the government has a monopoly on the creation of currency, it is not cash that it uses to operate the functions of government. The government needs to borrow money to operate. One method is to issue Bonds that carry a minor interest rate. They issue the Bonds into the market. This means that they sell them to anyone who will pay for them Bank Credit. Thus, the government obtains Bank Credit. The government does not use cash, Legal Tender, to operate the business of government. The government joins the loop of bank created Credit where virtual money is transferred from bank account to bank account. The government has thus chosen the debt based money created by the banks rather than use its own freely created currency which most people would call cash. To operate using the convenience of Bank Credit, the government gets into debt to the tune of the bonds that it has issued.

Bonds are effectively the future taxes of the people. The government becomes revenue constrained and strange terms like "Balanced-Budget" and "National Debt" appear and strange practices such as "Austerity Economics" occur. The source of money for the government becomes limited to taxation, borrowing and issuing IOUs called bonds. The government is not capable of creating Bank Credit for itself unless it runs a National Public Bank. A National Public Bank is a bank that is owned and operated by the government on behalf of the people and is in the same payments clearing loop at the other banks. For a system of for a system of banks to operate in a nation a level of collusion is essential. They have to agree that their monetary unit is equal in value to the national unit and they have to freely exchange their Bank Credit for currency. So the only solution for a nation is for itself to have a bank in the system. Because it is owned by the government, it is called a Public Bank.

   The government is only capable of creating Bank Credit, if it runs a National Public Bank owned and operated by the government on behalf of the people.

If the government fully owns and controls the central bank, then this would suffice as a National Public Bank. In most cases, even when the central bank is apparently owned by the government, it is not controlled by the government. Study suggests that control comes from the Bank for International Settlements in Basel Switzerland. One should detect talking-heads state that the Central Bank needs to be 'independent of political influence' which would appear to be a euphemism for 'control by a cabal of private bank interests'. The central banks are then front organsiations for private international banks.

Democracy has some flaws. The voters can be manipulated as the media has the ability to manipulate public opinion. Political parties can be manipulated as they require vast quantities of money to get elected. Politicians are really manipulated to follow policies that create debt. The politicians love to demonstrate their benevolence with grandiose projects paid for through greater debt. If these banks are internal banks then the debts are payable to internal companies. If the debts are owed to an International Bank, then the debts must be repaid by exports or sales of assets, land for mining rights or public utilities to foreign entities. It becomes a form of asset stripping of the nation to international corporations whose shares are often owned by the International Banks. International corporations effectively become the operating arms of International Banks. What are these International Banks and who owns and controls them?

The International Banks are not owned by the United Nations, nor are they owned by a consortium national governments and thus by the people of those countries. International Banks are regular corporations with shareholders. The shareholders are the large private banks of the world. When you look at the CIA table of the monies owed to the IMF / World Bank on the CIA website, you find that every nation of the world, bar about four including Brunei and three you would never have heard of, is massively in debt to the IMF / World Bank. This would appear to be rather bizarre as you would expect some nations to be in credit and some in debt. Those in credit would balance with those in debt. This is not the case. They are all in debt. How can you have a situation where every nation of the world, bar four, is massively in debt to the World Bank. Those not in debt are listed as zero. Where did this money come from? I suggest that it was manufactured in the same way that Bank Credit is generated by banking your nation. I suggest that the IMF / World Bank writes four billion dollars in a credit account and $4 billion in a loan account. The 4 billion is passed to the creditors of your nation and your nation now owes $4 billion to the IMF / World Bank. There is no way of paying the interest due on this mythical money without borrowing more mythical money. This is usury on a scale unprecedented in human history. Empires loan money to the outlying subordinate countries at interest, but this IMF / World Bank stands at a level higher than empires. In an attempt to pay off the interest and principal to the International Banks, the nation embarks on an export and asset selling frenzy. Unfortunately, they are competing against other countries in the same situation. The best thing that the green movements could do is to work towards the elimination of this international usury system which is causing much of the damage about which they are concerned.

Where International Bank loans out money, there is basically no hope of finding the extra money to pay the interest. Money is lent expecting a greater amount of money in return in a manner that unpayable debts have been created.

Most people criticizing the IMF / World Bank system, concentrate on the devastating social effects it has on the people of the nations who borrow the money. What they don't point out is that the IMF / World Bank system creates unpayable debt in an Impossible Contract. With this new understanding, you can possibly see that the total money owed to the IMF / World Bank will increase each year by an amount equal to the interest rate plus new loans. The chance that the total decreases is fairly remote. It will take all the nations of the world to call their bluff.

There is a joke somewhere along the lines, "if you owe the bank one dollar, the bank is in charge. If you owe the bank one million, you are in charge." You would only take the debtor nations to ask where the money came from, and to refuse any repayment until they got a quality answer. Greece may be pulling this stunt at present. If debtors unite in the same way that workers unite under a union, they can dictate the terms to the bank. One must remember that money is a social convention and has no value to the creator. Its major function is to enable trade not extortion.

So please reconsider. When the IMF and World Bank make loans, what are they lending? Because of the limited supply of money the interest due constitutes an Impossible Contract. To my mind, an Impossible Contract is invalid.

What is the alternative? To my mind, there is utterly no reason why national banks, whether private or public, should not directly exchange currencies between each other in much the same way that banks in a national network clear the Bank Credit between their banks. More work is needed on the subject, but whatever the solution, it needs to be between National Public Banks and by the people. It also needs to be recognized by the public that international borrowing for internal purposes is entirely ridiculous. No privately owned international bank will ever be the solution. Private International Banks will always be an international problem.

   International borrowing for a nation's internal purposes is entirely ridiculous.

World Trade Organization

The World Trade Organization (WTO) is a powerful global commerce agency that expanded the General Agreement on Tariffs and Trade (GATT) into an enforceable global commerce organization. It is a powerful global commerce agency, and one of the main mechanisms of corporate globalization. Under the WTO's system of corporate-managed trade, short-run corporate profits dominate social, environmental, labor and other values. It was established in 1995 after the Uruguay Round of global trade talks. [10057]

The World Trade Organization is very helpful to the business interests of multinational corporations. The WTO even places limits on our ability to rein in the Wall Street banks that wrecked the economy.

The World Trade Organisation has 159 member nations and is responsible for 97% of global trade. [10058]

Complaints about the WTO include:

The WTO conducts negotiations without public scrutiny.

The WTO operates mainly for the benefit of wealthy nations.

The WTO overrides the sovereignty of member nations.

Trade deals do not consider the environmental impact.

Businesses in poorer nations suffer when multinational companies move into their country.

The WTO is being used by corporate interests and the US to force-feed the world genetically engineered food.

The World Trade Organisation tends to protect multinational corporations based in the North.

The WTO acts as a tool of rich and powerful countries, particularly the USA, Europe, Japan and Canada

Many countries are not invited to important meetings. Many meetings are invites only.

The WTO is undemocratic. Developing nations tend to have little say in decisions.

The WTO is a tool of the rich and powerful. It helps the rich to get richer.

Powerful business and banking lobbies influence government positions at the WTO.

The United States has blocked an agreement at the WTO that promised developing countries access to vital medicines. The reason is that the agreement on the table threatens to cost its pharmaceutical companies lost revenues in the billions.

The EU is also looking to expand markets for its huge drinking water companies under the WTO agreement on services. Even though freshwater resources are drying up, the EU has been pushing a corporate agenda, not one that works for the environment and development.

Countries cannot say no to genetically engineered food or milk that contains genetically engineered growth hormones known to cause health problems

Countries cannot say no to trees from pristine forests.

Guatemala took efforts to help reduce infant mortality, in accordance with the World Health Organization's guidelines, and to counter aggressive marketing by baby food companies aimed at convincing mothers their products are superior to the more nutritious and disease-protecting breast milk for their babies. It failed.

Canada complained to the WTO about France's ban on asbestos.

The United States' attempt to ban shrimp caught using apparatus that were harmful to endangered sea turtles has been ruled as WTO-illegal, forcing the United States to reverse its decision.

If health or environmental protections get in the way of the trade agreement, then they often have to be changed in favor of trade agreements.

The WTO has excessive enforcement powers.

The WTO also works to eliminate non-tariff barriers, and can be used to challenge environmental, health, and other regulations that may serve legitimate social goals but may be regarded as impediments to international trade.

The World Trade Organization undermines the principles of democracy.


Summary of the Summary

You will need strong regulation to ensure that the finance industry acts for the betterment of the nation rather than for their own benefit. No area of the finance industry should be left unregulated. Regulation should not be organized by those that need to be regulated.

You will need Glass-Steagall to separate Commercial Banks from risk taking speculative 'Investment Banks'. This will ensure that a collapse of an Investment Bank does not destroy the Commercial Banks, the payment system and the savings of the citizenry.

You will need a National Public Bank so that:

The National Public Bank can join the 'Bank Credit' system and the associated payments system.

The government can loan to the government for items of productive infrastructure.

To clear the National Debt.

The government can extend credit to where it will most help the economy.

The government can correct the problematic stop-go lending practices of private banks.

So that the government can lend to encourage entrepreneurial activity and business expansion.

So that the government can encourage home-ownership for all.

So that the government has greater control over the money supply and, in particular, the Circulating Money.

You will need State Public Banks.

You will need to implement Land Tax.

You will need to implement a Robin Hood Tax.

You will need to implement small death taxes. They should exempt genuine family business and family farms.

You will need to implement an inheritance tax.

You will need to reduce sales tax to 0% for most items. Sales tax would remain on items that involve environmental impact, waste processing fees, resource use, air pollution, bad influence and my pet hates: patio heaters and new buildings that need electric lights from day one. Businesses will sign an environmental pledge to get the 0% rate. Anyone ignoring their environmental pledge will lose their tax status for five years.

You will need to reduce individuals income tax to 0% for about one-third of taxpayers. The income tax form will contain a wealth tax component and also a saved (hoarded) money component. Each taxpayer will receive a $2000 work expenses allowance to reduce tax paperwork. Earned income will be taxed at a lower rate than unearned income.

You will need to classify business income tax in a different manner to wage earner income tax. Do not forget that business owners act as tax collection agents for the tax department and should be compensated for doing so.

Make every effort to enhance the Real Economy in every small way.

Tax concessions on small business start-ups.

Local council public markets.

Avoid locking up young people for minor offences including drugs. You are removing potentially good working people from the workforce for minor personal decision errors that they do not see as errors. Perhaps send them to boot-camps or rehabilitation camps. Youth needs better guidance in the suburbs than is being given.

Strengthen provision for local funding of small local projects on crowd-funding principles.

Ban short selling.

Ban speculation of Forex.

Ban all activity in financial markets that does not involve real money. Ban leveraging. Ban the use of borrowed money for trading.

Put a heavy tax on any stocks, shares,bonds or financial instruments sold within one year.

Delete the syllabus of all economics courses and re-evaluate the financial balance between the Real Economy and the financial economy.

Ensure that the central bank is controlled by the government and not a group of agents acting on behalf of those they are supposed to supervise. Ensure that the central bank is not controlled by overseas organizations or international private banks.

Ensure that the nation controls its own exchange rate as is done by China.



[10002] Federal Reserve, St Louis

[10003] Address at Des Moines, Iowa, (4 October 1932)

[10004] Bank of England. Quarterly Bulletin 2014 Q1. Money creation in the modern economy.

[10005] Bolton. Money in the Medieval English Economy.

[10006] Usury and the Church of England by Rev. Henry Swabey]

[10007] Margrit Kennedy Interest and Inflation Free Money (1995) Chapter One, Four Basic Misconceptions About Money, P17-18



[10010] Simon Thorpe at


[10012] Jubilee Australia FAQ

[10013] Jain. 1929. 110-111

[10014] Wall Street Journal:


[10016] Aug 2014 Submission to the Financial System Inquiry. Retrieved from on 2015-03-25

[10017] ref:

[10018] "A Profile of Banks: 2012-13". Reserve Bank of India. 2013. Retrieved 2015-02-22. As quoted in Wikipedia.

[10019] retrieved 2015-04-11


[10021] retrieved 2015-04-20

[194] Scriptural, Ethical and Economic View of Usury.

[10022] "Usury by Calvin Elliott" copyrighted in 1902 by Calvin Elliott and written on behalf of The Anti-Usury League. The book is available in various formats at

[10023] Report U.S. Monetary Commission of 1878 as quoted in "Coins Financial School" by W. H. Harvey 1894.

[10024] Monetary Regimes and Inflation: History, Economic and Political Relationships. Peter Bernholz





[10029] Jeff Nielson of in a speech

[10030] Maurice Carney, Co-Founder and Executive Director of Friends of the Congo, 2008 as quoted at

[10031] Edward S. Herman, economist, U.S. media and foreign policy critic, and author of The Real Terror Network.

[10032] Global Exchange is an international human rights organization.

[10033] Eddie Ward 1899-1963 Labor Minister of Australia, Eddie Ward, during the inception of the World Bank and Bretton Woods.

[10034] J.W. Smith, The World's Wasted Wealth 2, (Institute for Economic Democracy, 1994).

[10035] Ross P. Buckley, The Rich Borrow and the Poor Repay: The Fatal Flaw in International Finance, World Policy Journal

[10036] Luis Ignacio Silva, at the Havana Debt Conference in August 1985, quoted by Susan George, A Fate Worse Than Death P238


[10038] Robert A. Mundell, Nobel Laureate for Economics, 1999

[10039] Behind The Drums Of War With Iran: Nuclear Weapons Or Compound Interest? by Ellen Brown 2007 from Daniel Estubin, "Bilderberg 2007 - Towards a One World Government?", Nexus Magazine (August-September 2007).

[10040] Behind The Drums Of War With Iran: Nuclear Weapons Or Compound Interest? by Ellen Brown 2007

[10041] Future of Money, published in 2001 by Bernard Lietaer, former Central Banker

[10042] Bloomberg reported on 12 June 2013

[10043] Controlling the Global Economy: Bilderberg, the Trilateral Commission and the Federal Reserve. Andrew Gavin Marshall. Global Research. 2009

[10044] The Global Economic Crisis,Global Research, 2010, paperback as quoted at

[10045] Edward Jay Epstein "Ruling the World of Money", Harper's Magazine, 1983

[10046] Joan Veon, in a 2003 article "The Bank for International Settlements Calls for Global Currency"

[10047] economist Henry CK Liu about the BIS (Bank for International Settlements)

[10048] Henry C K Liu was born in Hong Kong and studied architecture and urban design at Harvard University. He developed an interest in economics whilst as a professor at the University of California Los Angeles, Harvard and Columbia.

[10049] 'The Financial New World Order: Towards a Global Currency and World Government'. Global Research, 2010, paperback

[10050] economist Henry CK Liu 'The BIS vs national banks' In Asia Times retrieved 2015-04-26

[10051] Jesus Saves, Moses Lends, Muhammad Invests by Mike Seccombe 9 July 2012

[10052] Derivatives, Or: How The Money Power Created The Greatest Depression by Anthony Migchels on 15-06-2014 retrieved 30/06/2015

[10053] Winston Churchill (The Second World War - Bern, 1960)

[10054] Rep. Louis McFadden - Chairman of the House Committee on Banking and Currency quoted in the New York Times (June 1930)

[10055] American Mercury Magazine, December 1957, Page 92

[10056] Global Exchange is an international human rights organization dedicated to promoting social, economic and environmental justice around the world.

[10057] Global Citizen.


[10059] Ref includes: and and

[10060] Reformation Thought: An Introduction Alister E. McGrath

[10061] 650 Years Ago: How Venice Rigged the First, and Worst, Global Financial Crash by Paul Gallagher (Printed in the American Almanac, September 4, 1995.)

[10062] Edwin Hunt 1994 'The Medieval Supercompanies: A Study of the Peruzzi Company of Florence'

[10063] Selected U.S. Legal Issues in Issuance of Electronic Money by John D. Muller

[10064] Annual figures were multiplied up from the quarterly statistics at the USA Automated Clearing House Network:

[10065] Stewart, in Challis, A New History of the Royal Mint: 49-55; Spufford, Money and its Use

[10066] Margrit Kennedy A Changing Money System, The Economy of Ecology





[10071] Daniel Johnson. The Telegraph - London 1-25-2

[10072] The National, Abu Dhabi. 'Central Bank chief warns Basel III capital rules could curb SME growth'

[10073] 'Basel III and SME financing' Asmus Angelkort and Alexander Stuwe


[10075] The Social Life of Money by Nigel Dodd

[10076] Keynes 1976:6-7

[10077] in Re Alberta Statutes 1938 SCR 100


[10079] Margrit Kennedy A Changing Money System, The Economy of Ecology



[10082] Wayne Dyer 1940 - 2015 American philosopher, self-help author.