Chapter 7 - The Cost of Money.

The Cost of Providing a Circulating Medium

Italy has a velocity of about 1.2. This means that only 10% of the Money Supply is changing hands each month. 90% of money is idle in the hands of people who hold it rather than spend it. The 10% of money that is circulating is doing the work of money in the real economy that feeds, clothes, and houses the Italian people. In Italy, there is three times as much debt as money. [2014-12 €4092/€1351] Total Debt is €4090 billion. [2014-12] If the average interest rate in Italy is 5%, there is €204 billion in interest. For the €144 billion that is working as Circulating Money, there is an associated interest of €204 billion. (People with Hoarded Money do not pay interest because they do not borrow money.) For each €1000 that is working, there is an annual interest of €1416. It is costing Italian citizens €1416 in interest charges to lenders for each €1000 that is circulating. These interest charges by lenders for the provision of a circulating medium are a little on the high side. If the velocity was brought up to say: two or three or four or five, the charge would be brought down significantly. These interest charges make it difficult to escape the debtor’s bind as discussed to by Moses, Jesus, Mohamed, and other prophets. It does make one question who has the authority to create the money of a nation. One would assume that the government would have the authority to create the money of the nation. In which case the government would have no debt.

The Flow of Money

Cash Currency in Italy is created by the Italian branch of the European Central Bank. The government does not use Cash Currency to pay its bills. Cash Currency enters circulation when people exchange it for credit in their bank accounts. The banks purchase Cash Currency from the ECB using credit. Cash Currency is used almost exclusively in the retail sector. Other than the retail sector, transactions are affected by shuffling virtual numbers in bank accounts. So let us study bank accounts. In Italy, there is €186 billion Cash Currency as folding notes. [2014-12 Calculated from Euro Area currency scaled down to the population of Italy]. Much of this is in people’s wallets. The Money Supply is listed as €1351 billion. [2014-12] €1165 billion of this never originated from the ECB. It vastly exceeds the volume of Cash Currency issued by the ECB. This money is virtual. It is credit for €1165 billion in real money that does not exist. It is the amount that the banks owe their customers. It is monetized credit. It is credit on the books of banks that is transferred from person to person to effect payments and thus it acts as money. No bank collects all the money at once, so the system works. The banks create more credit which allows previous interest to be paid. This credit is created by the fascinating process of double entry accounting. If you are buying an Italian house for a million euro, the bank does what it is good at and that is bookkeeping. The bank writes one million euro with a plus sign in the seller’s account and one million euro with a minus sign in your account. From that second, there is one million euro more money in Italy and one million euro more debt. The rate at which banks lend credit determines how much credit there is in the nation. Cash Currency can only be obtained from banks in exchange for Bank Credit, so bank lending entirely determines the magnitude of the Money Supply.

Some money in the Money Supply sits idle in accounts for years on end. The money that changes hands regularly in the real economy is the only money that benefits society. I draw the line at one month. If a money unit changes hands within one month, I class that unit as Circulating Money. Money that sits idle, I class it as Hoarded Money. Italy has a velocity of 1.2 which is equivalent to 10% of money being Circulating Money. Velocity tends to change very slowly and so it is often ignored in economic analysis. This is a major flaw of economics. Velocity is a killer or a saviour. Velocity influences the economy just as much as the magnitude of the Money Supply. Ignore velocity at your peril. The Money Supply is so highly considered that it is divided into different sections: M0, M1, M2, M3 and other terms like Monetary Base and Broad Money are used. Velocity has the same influence as all of these. A horribly simplistic assumption is made that the economy depends upon the Money Supply. This is totally unrealistic and misleading. The GDP is equal to Money Supply times velocity. It should be obvious from this equation alone that Velocity has the same influence as Money Supply. In simple terms: The Gross Domestic Product is equal to the Money Supply and how many times the Money Supply is turned over in a year. If you turn over a one billion economy six times in a year, velocity is six and your GDP is six billion. If you turn over a one billion economy once in a year, velocity is one and your GDP is one billion. Money needs to change hands many times in a year to be useful to society.

Let us consider how money gets into circulation. People take out loans for houses, boats, businesses, and cars. The money is created as book entries and passes from person to person by transferring ownership in bank accounts. Thus the banks are the only creators of money. Cash Currency is a side show. You buy it with bank credit from a bank and it goes on a repeated cycle of: ATM > citizen > retailer > bank > ATM > citizen > retailer > bank > ATM. So the source of all money is bank loans.

If a business needs money, it goes to the bank and the bank creates fresh credit. The Money Supply increases by the amount of the loan. If an individual needs money, the individual gets a job or goes to the bank and the bank creates fresh credit. The Money Supply increases by the amount of the loan. If a company needs money, it has a few extra choices. It may borrow money from a bank and increase the Money Supply. It may issue shares or it may issue bonds. If it issues shares, it is giving away ownership of the company to those with more money than they can spend. These people take no stress in the day to day running of the business but get the financial reward at the end of the year. The purchase of the shares is done with existing bank credit. No new Bank Credit has been created. If the company creates a bond, the bond is an IOU with a fixed redemption date. The bond will be purchased with existing credit. There is no increase in the Money Supply but there is a strange effect. The bonds are prone to be bought with Hoarded Money and the company spends it into circulation. A minor rise in velocity occurs.

When a government needs money, it borrows money by issuing bonds. The bonds are paid for with existing bank credit transferred to a government bank account. There is no increase in the Money Supply. However, the bonds are prone to be bought with Hoarded Money so there will be an increase in velocity. On rare occasions when the government cannot obtain money from the sale of bonds, the central bank steps in and creates money out of thin air and purchases government bonds. If the central bank purchases freshly issued bonds from the government, the Money Supply increases, and the money is spent into circulation. This increases the velocity. If the central bank purchases existing bonds from financial institutions, there is an increase in the Money Supply but the money is prone to become hoarded. This is what happened with Quantitative Easing. The money became hoarded. You now know more than all the treasurers in the world combined.

When the banks lend money, it is important how it is spent. This characteristic decides whether new credit causes inflation or business activity. If new money is lent to purchase assets such as houses or shares, inflation will occur without any increase in the real economy. The GDP will not rise and may even fall due to increased rents to businesses. If money is lent to businesses for expansion, the real economy will expand and the GDP will rise. This is why a public bank is essential. The public bank makes sure that credit is available for business and infrastructure. The public bank is run for the benefit of the nation.

Living with Debt

All the nations of the world have been bequeathed a debt banking system. The whole money system would need an overhaul to change to a sovereign bank system based on government issued money. We have lived with heavy debt for a few hundred years. We have lived with unpayable debt for a few hundred years. We can live with debt. It is a collapse that is to be feared. Debt is a minor problem compared to financial collapse. With debt, some go hungry. With collapse, we starve. Rich and poor alike will fight for scraps of food.

There is some advantage with operating under debt. Everybody works hard to pay off debt. This means that farmers produce plentiful crops, workers work hard to pay their mortgages, entrepreneurs are productive, and inventors are creative. There is plenty of product to be absorbed with your income. Debt tends to be nullified by inflation. People get nice houses and a nest egg for retirement. Thus, I have given the formula to make the money that exists work faster. There is no way the current system can operate without the great debts. When all money originates as a credit to a seller and a debt to the purchaser, interest will ensure that debt grows faster than money. There is no escaping this.

If you wish to operate a system with no debt, you will need what is called a sovereign money system. In this system, the government creates money at the treasury and spends it into society. The society is basically debt free. Many nations have had this system until a debt based system is teased into place. England had the tally stick system for seven hundred years. The king had notched sticks of wood split in half. One-half was retained to prevent forgery. The other was spent into society. The king would build bridges, roads, ports, and public buildings. It is a beautiful debt free system, but it has one massive flaw and some minor flaws. The minor flaw is that the volume of money in society is dependent on the whimsical spending of the king. The big flaw concerns businesses. Businesses need money before they can make money. Businesses need credit so that they can start. Then they need money to cover operations. Banks are remarkably good at this. Banks evaluate risk extremely well. Government entities are extremely poor at evaluating risk. The modern way to operate a sovereign money system would be for the treasury to create the money in both paper form and digital unit form. Each digital unit would be numbered and traceable and would be like a digital drachma note. The government would spend the drachma digital notes into circulation. To ensure that business had access to credit, the treasury would fund the banks with loans at a very low interest rate. The treasury would lend banks paper and digital notes on an ‘as needs basis’. Lending patterns and inflation could be controlled. Loans for asset appreciation and asset speculation could be curbed. So money would be available to first home buyers at a low interest rate. Money would be available for business start-ups and for business operation. Money would not be available for stock market speculation or for land and property speculation. Money for property speculation is commonly masked as ‘investment in property’ to hide its speculative nature.

Pastor Sheldon Emery words it this way: “Under the Constitutional system, no private banks would exist to rob the people. Government banks under the control of the people's representatives would issue and control all money and credit. They would issue not only actual currency, but could lend limited credit at no interest for the purchase of capital goods, such as homes.

A $100,000 loan would require only $100,000 repayment, not $270,456.00 as it is now. Everyone who supplied materials and labor for the home would get paid just as they do today, but the bankers would not get $170,456.00 in interest.

That is why they ridicule and destroy anyone suggesting or proposing an alternative system.” [13]

I shall enhance and reword the words of Pastor Sheldon Emery:

You may wish to take on the bank system. If you win you may crash the money system. You will win, then you will starve. It is better to make a few adjustments to the tax system.

London Times -1865: “If this mischievous financial policy [of creating a debt-free currency], which has its origin in the American Republic, shall become permanent, then that government will furnish its own money without cost! It will pay off its debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedent in the history of the world. The brains and the wealth of all countries will go to America. That government must be destroyed or it will destroy every monarchy on the globe!” [13]

Debt-free euro would make your country prosperous beyond imagination. But alas, it is not going to happen because you cannot even make the money you have in Italy work for you. You will have to stand by and watch these coordinated corporations mortgage your nation. They will takeover the lands, the houses, the businesses, the farms and the factories. Land has titles. They will own the titles. Houses have mortgage papers. They will own the paperwork. Businesses become companies. Companies have shares. They will own the shares. The nation has a propaganda system. They will own the propaganda. The nation has politicians. They will own the politicians. They will own the land you stand on. They will own the water you drink. They will own the factory you work in. They will own the political parties you vote for. By craft and cunning, they will follow the formula of Moses and own everything that sustains your life. They will destroy the Christian basis of European order. They will create social disharmony and change the racial mix. They will make the working man reliant on their drab factory jobs. They will make politicians dependent upon their funding. They will make parliaments dependent upon their financial control of the money supply. They will lend so that you can buy what was freely provided by nature for all living things to share. You cannot change this. But you may be able to change the way the tax system works to make sure that those with swimming pools do not hoard the money. It matters little how many swimming pools they own. It matters that the money moves. There is only be half the money supply that could have been if the banks had not ceased to issue credit. Double the speed of movement of money and you will achieve the same affluence. Everyone in Italy has the potential to have access to a pool or own a pool. It will never happen if the money is idle. The unemployment has gone from low to high. There are vast numbers of Italian people available to work. There is a vast amount of work to be done. The missing ingredient is the transport medium. There is a lack of circulation of money. Make the money move faster. Remove the money from those that sit on money. Because Italian people do not understand the money system, they are easily robbed of their assets, saving, and their property. Do not ask an economist. They don't know either. They think that the current debt banking system is normal. They see no anomaly that every nation is in debt to international banks.


It should never be forgotten that humans live by trading services with each other. Someone invented the money token. The token made the trade very much easier. The token is much easier than carrying a cow around. A token holds the value of one transaction until the next transaction. The token was invented to enable trade. It was a gift to the human race. There are other gifts to the human race which include the land, the sea, the air, and the biodiversity. The money token is perhaps the best gift ever given to mankind. It was a gift for the whole human race. It is ‘our’ money system and it was not invented so that rich could abuse poor. It was not given so that a certain few could abuse it. It was never invented for people to hoard. It was never invented so that some could make more tokens from tokens. Any person that hoards tokens is standing against the human race. Anyone who manipulates money to make money is standing against the token system that was a gift for all in the human race to use to trade the essentials of life. These people must be told in no uncertain terms that their actions are wrong. We need a revival of the approach by Jesus and also that of the Essenes. They stood against the abuse of the poor through the manipulation of the money system. The stand of Jesus was particularly against the use of money to make more money. Mohamed was even more detailed than Jesus. The new messiah declares that the making of money from money is evil. Much evil has been perpetrated on the Italian people. The monetary straightjacket of the EEC is a significant problem, but the immediate problem is that the money that actually exists in Italy simply is not moving. Money must be taken from Hoarded Money by adjusting the tax mix. Money must also be taken from money likely to become Hoarded Money. As such, a minuscule transaction tax needs to be implemented. This is very likely to be 0.1% of every transaction occurring in Italy, without any exceptions. There should be no exception for financial transactions. Land Taxes of all types should be increased slightly. Circulating Money can be treated more kindly than at present by relaxing depreciation rules, by adjusting the non-deductibility for trading stock, and reducing Sales Tax.


Do not forget that the bank system is not protected against implosion. Glass-Steagall is needed to accomplish the protection. Glass-Steagall separates the Commercial Banks from the Investment Banks. Commercial Banks operate the fabulous payments system that is essential for life as we know it. Commercial Banks look after businesses operating in the real economy. If Commercial Banks are tied to Investment Banks, a failure of one or more Investment Banks could collapse the financial system and bring the Commercial Banks down with them. If you think the past few years have been tough in Italy, imagine what it is going to be like if the banking system collapses.

High School Maths

At school, you would have learned about 'interest'. You will remember drawing graphs similar to this. One thousand tokens are lent at 10% interest rate. The money available is one thousand tokens but the amounts that need to be repaid magnify in a series like this: 1000, 1100, 1210, 1331, 1464.10, 1610.51, 1771.56, 1948.72, 2143.59, 2357.95, 2593.74, 2853.12, 3138.43, 3452.27, 3797.50, 4177.25, 4594.97, 5054.47, 5559.92, 6115.91, 6727.50. So at the end of 20 years, there is 6727.50 owing to the money lenders of which 5727.50 is interest. Yet there is still only 1000 money tokens in existence. During the eighth year, tokens owing exceeds the total Money Supply. This means that the money lenders need to control the flow of information to avoid the citizenry observing the phenomenon. In practice, the debt does not build up like this because the lenders asset-strip their victims. The money lenders start to own all the share of the companies. Before long, they wield greater influence in political parties than the voters.

A graph of interest at ten percent. Graph by Andy Chalkley. Creative Commons Attribute

To keep the system going it is necessary to create more tokens so that past interest can be paid. So this graph shows one thousand tokens where the number of tokens increases by 10% each year. The extra tokens would typically be in the form of credits written into registers. This makes the extra tokens entirely virtual. These virtual tokens survive as long as the bank survives.

A graph of interest at ten percent where the number of tokens increases at ten percent each year. Graph by Andy Chalkley. Creative Commons Attribute

This has a similarity to a Ponzi scheme where new money is required to pay past debts. This is my first graph of a Ponzi Scheme:

A graph of a Ponzi scheme. Graph by Andy Chalkley. Creative Commons Attribute