Chapter 17 - A Lesson From Europe.

Humans exist by trading amongst each other. A money token system is required so that there are adequate tokens to enable between businesses and individuals. Money is a freely created resource. Money has no value because it can be created in any quantity at no cost. Europe lives in a monetary straightjacket. Europe’s problem is that it does not have enough money tokens and what it does have are idle. The velocity of money in Europe has fallen to one:

A graph of National Debt for the EuroArea. Graph by Andy Chalkley. Creative Commons Attribute

Money is in short supply and what there is changes hands less frequently than I have birthdays. Money is dead in the water. A snail walks a long way in a year and has a few offspring on the way. The earth rotates on its axis one time. A child is conceived, born and baptized before a euro does its ten seconds of work each year. Money is on a permanent holiday. I do a year’s work before the euro changes hands. Some people change their car with greater frequency. Vast quantities of Euro exist that sit doing nothing, all of it with attached debt costing interest to someone. Money was invented to enable trade and enabling trade is the one thing that it is not doing. This:

Five Euro Note. by Andy Chalkley. Creative Commons Attribute

costs no more than this:


100 trick note. by Andy Chalkley. Creative Commons Attribute

The note costs nothing to create. Its value is the value of the goods it will buy at the next transaction. Its value is dependent on its ability to buy goods. Unfortunately, it waits one year for the next transaction. The difference between the two notes above is in what they will purchase. The euro note will buy part of the GDP. The second one will buy a piece of virtual real-estate on a game board. They each have an intrinsic value of zero. The backing for the top one is the goods it will buy. The second one is highly desirable whilst the game is in motion.

The citizens of Europe believe that they have conceded the money creation to a European Central Bank. The ECB states on it website:

“The ECB has the exclusive right to authorize the issuance of banknotes within the euro area.”.

Interestingly, nowhere on their website does it say that they have the ‘exclusive right to create the money of Europe’. To date, the ECB has created €967 billion cash currency. This is sitting in people’s wallets and elsewhere. The M3 money supply for Europe was listed as €11 371 billion. Clearly this did not come from the ECB as the ECB has only created €967 billion cash currency. The remainder is digits in bank accounts. It is money you cannot touch. It is as elusive as the fairies. It is as difficult to find as the ‘end of a rainbow’. It is money that you cannot touch or feel. The numbers in the accounts are the amounts that the bank promises to pay you in ECB notes if you so wish. It is credit for ECB notes that do not exist.

If the banks lend, there is more money. European banks have not been lending well since 2008. This is rather strange considering the ECB is supposedly there to help the nations and that the ECB can create any quantity of Euro money at no cost. There has been a general slowdown in the economy in Europe due to a lack of credit in the money supply and because the money is becoming hoarded.

I shall start with Spain. It is a country with a long lasting recession:

A graph of Circulating Money for Spain. Graph by Andy Chalkley. Creative Commons Attribute

In this next graph, you can see that the Cash Currency has not fallen. It is not the supply of Cash Currency that is the problem, it is the lack of available Bank Credit:

A graph of Money Supply and Debt for Spain. Graph by Andy Chalkley. Creative Commons Attribute

In the above graph, you can see that the Money Supply has stagnated. You can see the bank lending has halted because the Private Debt has fallen. Government debt has expanded. All very sad in an environment where the economy relies on the availability of Bank Credit.

In the next graph, I can shock a few of my German friends. They believe their economy is going well. In late 2007, M1 fell by 3.9%, although there was no fall in M3 or M2. M2 and M3 had negligible increase. In 2008-2009, the Circulating Money fell by 8.9%. Yet again we see the characteristic that Circulating Money falls by more than the Money Supply. Shame also about the debt! This debt is not repayable because there is more debt than money. Germany is also in a financial straight jacket.

A graph of Money Supply and Debt for Germany. Graph by Andy Chalkley. Creative Commons Attribute

Private sector debt has slowly increased which has allowed the Money Supply to increase that has enabled a buoyant economy.

I drew a graph for my Polish friends. Poland had almost no problems in 2008. Its economy would have been a bit flat in about 2002:

A graph of Money Supply and Debt for Poland. Graph by Andy Chalkley. Creative Commons Attribute

Here is a graph showing Money Supply and Debt for the Euro Area. The ECB may be creating the money of Europe but between the banks, they have created a situation where there is ‘more debt than there is money’. Very little of the Money Supply of Europe came from the ECB. Most of it is created when the banks make loans. When the banks make loans they do not need to get advances from the ECB. They simply create money and debt in equal quantities which has the clever effect of keeping their books in balance. One million Euro of fresh money written into their books and one million of fresh debt written in the books at the same time keeps their books in balance.

A graph of National Debt for the EuroArea. Graph by Andy Chalkley. Creative Commons Attribute

Here you can see that Europe has a general recession due to a lack of Circulating Money.

A graph of Circulating Money for the EuroArea. Graph by Andy Chalkley. Creative Commons Attribute

We move on to a country that has actually paid back much of its debt but has just about destroyed itself in so doing. It did not do it intentionally. It was denied further credit. It kept paying back loan repayments and interest in a manner that cleared much of its debt.

A graph of Money Supply and Debt for the Greece. Graph by Andy Chalkley. Creative Commons Attribute

A public bank would be the best fix for Greece. However, the private banks will not allow their master to do this. The lack of circulating money can be fixed by raising the velocity of money. I have a separate book devoted to Greece.