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The Positive Money system – in Plain English

Screen Shot 2013-03-01 at 17.31.01This proposal for reform of the banking system explains, in plain English, how we can prevent commercial banks from being able to create money, and move this power to create money into the hands of a transparent and accountable body.

It is based on the proposals outlined in Modernising Money (2013) by Andrew Jackson and Ben Dyson, which in turn builds on the work of Irving Fisher in the 1930s, James Robertson and Joseph Huber in Creating New Money (2000), and a submission made to the Independent Commission on Banking by Positive Money, New Economics Foundation and Professor Richard Werner (2010).

Taking the power to create money out of the hands of banks would end the instability and boom-and-bust cycles that are caused when banks create too much money in a short period of time. It would also ensure that banks could be allowed to fail without bailouts from taxpayers. It would ensure that newly created money is spent into the economy, so that it can reduce the overall debt burden of the public, rather than being lent into existence as happens currently.

Screen Shot 2013-01-31 at 17.59.14A more detailed explanation of the reforms is available in the book MODERNISING MONEY.

It also covers the transition process between the current and reformed monetary systems. It covers the economic, social and ecological consequences of the current monetary system and explains how the reforms would address these issues.

With Foreword by Prof Herman Daly, Professor Emeritus School of Public Policy University of Maryland, Former Senior Economist at the World Bank.

 

 

 

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  • HC
    • Mira

      Thank you! It’s fixed now.

  • Anthony

    The PDF button 404s, but the image is a valid link. Still needs correcting of course, but that’s your work-around.

  • Muhammad

    a very good effort to educate people :)

  • Muhammad

    a very good effort to educate people :)

  • Mike Ellwood

    In “The Grip of Death”, which I’ve just been reading (having read Ben Dyson’s mention of it elswhere on the site), suggests that the national debt is tackled at the same time as the initial move to debt-free money. Not paid off all at once – that would be destabilising – but as the bonds matured, they would be paid off in debt-free money, and also the interest paid in debt-free money. This would end the current nonsense of paying off the interest each year in yet more debt-bearing bonds!

    “TGoD” explains that at present, the National Debt is the only means that the government can inject debt-free money into the system, ironically enough. i.e. it’s money that the public and businesses don’t owe any debt on – the government accepts that debt on our behalf, on the basis that it will never be paid off. It’s a crazy system though, and must be phased out, gradually.

    It also points out the the most successful countries (at the time it was written), namely USA, Japan, and Germany ran far higher PSBRs than we did, and ours is the lowest in the developed world. It helps to underline that our present “austerity” programme is about the worst thing we could be doing, and could only have been introduced by true economic illiterates.

  • montmorency

    reply to the plain language PDF:-

    Some further thoughts:

    1. The MCC is supposed to be independent (so is the MPC supposed to be), but how do you guarantee that independence? Where will these people come from? The banking sector? Politics? hmm…. And who will appoint them?

    2.You say “Between 1970 and 2010, the banks have been inflating the money supply by an average of 11.5% per year. While consumer prices have only experienced low levels of inflation during this period, the housing market has experienced significant levels of inflation.” hmmm…..low levels of inflation? Really? in the 70s for example? Or even now? (Does anyone believe that inflation is really only 2.7%?)

    Inflation is a pretty crude measuring instrument in any case, and (as you point out), inflation in different sectors can be widely different. Therefore you need specific measuring instruments and tools for specific sectors, and not just crude control of the money supply. For example borrowing controls (like the old “corset”), and specific lending and borrowing controls for the housing market. And strict control over the “buy to let” market, which has distorted prices and availability in recent years.

    You seem content with an inflation target of 2%. Compounded over many years, that is actually quite high. Given debt-free money creation, inflation should hopefully come down naturally, but only if you tackle existing debt, private and public.

    3. Leading on from 2:

    3a: Public Debt:

    There is nothing wrong with running a public deficit (PSBR). The then most prosperous countries in the world ran huge deficits at the height of their success. Ours is currently among the lowest in the developed world (in terms of % of GDP). In that sense I agree with you that the national debt is cheap, and should not be paid off, but the way it is constituted DOES need to be tackled. There can be no meaningful reform of currency without reform of the national debt.

    At present, the annual repayments on the debt are made with…..more debt bonds! So we repay debt with debt. That is crazy. There is a pretence by government that the repayments are made from tax revenue, but there is a shortfall, and that is made up by more debt bonds, so nothing is actually paid off.

    What could happen is that the annual repayments are made from debt-free, newly created money, and as bonds mature, they are also repaid from debt-free, newly created money. The tax revenue that might have been used to make repayments or pay the interest would all be available for public spending.

    3b: Buy to let, at least as presently recognised, would be effectively regulated out of existence. This could be by a number of means, but, for example:

    - BtL landlords with large portfolios on which they own less than (say) 75% of the equity would be forced to sell the property to the government or local authority for the amount that the landlord put down as a deposit. The government would pay off the mortgage with debt-free money and put this on the “new national debt”. (The landlord hasn’t exactly lost out, since he’s been collecting rent).

    - Houses so acquired would be sold to 1st-time buyers at regulated (low) prices with low mortgages, and would not be able to be sold on at a profit, at least not for many years.

    - existing (non BtL) mortgage holders would be offered a write down of their mortgage, on condition that they surrendered any profit made on subsequent sale to the government, to the value of the write-down. The government would pay the mortgage from debt-free money, on condition that the lender lent it on to a first time buyer (or in the case of a bank, it could be a genuine business (not a BtL landlord).

    - Prospective BtL landlords would have to put down a stringently high deposit on properties before being able to have a mortgage (e.g. 75-90%).

    House prices and size of mortgages relevant to income need to come down (not simply to mark time). This needs urgent radical action. Rents also need to come down.

    There may need to be some support for house builders, i.e. subsidy, so houses continue to be built, but at prices people can afford, without going into massive debt.

    3c: Credit cards, as presently constituted, would be effectively regulated out of existence. Details to be worked out, but e.g. holding more than one card not allowed; debt write off offered in exchange for loss of card (and no new one); interest rates and credit limits regulated and method of interest repayment made more transparent. If people are paying by credit card, it means they don’t have enough money, but putting them in debt (which a credit card soon will do), means that they will end up with less money overall.

    3d: “pay day loans” would be abolished.

    You say that in the new system, interest rates would be determined by the markets. hmm…that would be those markets that have let us all down so badly in the past would it? Where are you on the private debt problem? What is your stance on building societies and credit cards? Where is the targeted lending for productive investment, e.g. by community banks to local businesses? Why have you not considered a people’s/citizens’ bank which will lend productively, when the private banks have singularly failed do so?

    4. I realise that you are trying to keep things as simple as possible, and also trying not to frighten the horses, but you are in danger of not being radical enough, and perhaps inadvertently, merely propping up the system that has failed us.

    Regards,
    Mike Ellwood, aka Montmorency

  • montmorency

    reply to the plain language PDF:-

    Some further thoughts:

    1. The MCC is supposed to be independent (so is the MPC supposed to be), but how do you guarantee that independence? Where will these people come from? The banking sector? Politics? hmm…. And who will appoint them?

    2.You say “Between 1970 and 2010, the banks have been inflating the money supply by an average of 11.5% per year. While consumer prices have only experienced low levels of inflation during this period, the housing market has experienced significant levels of inflation.” hmmm…..low levels of inflation? Really? in the 70s for example? Or even now? (Does anyone believe that inflation is really only 2.7%?)

    Inflation is a pretty crude measuring instrument in any case, and (as you point out), inflation in different sectors can be widely different. Therefore you need specific measuring instruments and tools for specific sectors, and not just crude control of the money supply. For example borrowing controls (like the old “corset”), and specific lending and borrowing controls for the housing market. And strict control over the “buy to let” market, which has distorted prices and availability in recent years.

    You seem content with an inflation target of 2%. Compounded over many years, that is actually quite high. Given debt-free money creation, inflation should hopefully come down naturally, but only if you tackle existing debt, private and public.

    3. Leading on from 2:

    3a: Public Debt:

    There is nothing wrong with running a public deficit (PSBR). The then most prosperous countries in the world ran huge deficits at the height of their success. Ours is currently among the lowest in the developed world (in terms of % of GDP). In that sense I agree with you that the national debt is cheap, and should not be paid off, but the way it is constituted DOES need to be tackled. There can be no meaningful reform of currency without reform of the national debt.

    At present, the annual repayments on the debt are made with…..more debt bonds! So we repay debt with debt. That is crazy. There is a pretence by government that the repayments are made from tax revenue, but there is a shortfall, and that is made up by more debt bonds, so nothing is actually paid off.

    What could happen is that the annual repayments are made from debt-free, newly created money, and as bonds mature, they are also repaid from debt-free, newly created money. The tax revenue that might have been used to make repayments or pay the interest would all be available for public spending.

    3b: Buy to let, at least as presently recognised, would be effectively regulated out of existence. This could be by a number of means, but, for example:

    - BtL landlords with large portfolios on which they own less than (say) 75% of the equity would be forced to sell the property to the government or local authority for the amount that the landlord put down as a deposit. The government would pay off the mortgage with debt-free money and put this on the “new national debt”. (The landlord hasn’t exactly lost out, since he’s been collecting rent).

    - Houses so acquired would be sold to 1st-time buyers at regulated (low) prices with low mortgages, and would not be able to be sold on at a profit, at least not for many years.

    - existing (non BtL) mortgage holders would be offered a write down of their mortgage, on condition that they surrendered any profit made on subsequent sale to the government, to the value of the write-down. The government would pay the mortgage from debt-free money, on condition that the lender lent it on to a first time buyer (or in the case of a bank, it could be a genuine business (not a BtL landlord).

    - Prospective BtL landlords would have to put down a stringently high deposit on properties before being able to have a mortgage (e.g. 75-90%).

    House prices and size of mortgages relevant to income need to come down (not simply to mark time). This needs urgent radical action. Rents also need to come down.

    There may need to be some support for house builders, i.e. subsidy, so houses continue to be built, but at prices people can afford, without going into massive debt.

    3c: Credit cards, as presently constituted, would be effectively regulated out of existence. Details to be worked out, but e.g. holding more than one card not allowed; debt write off offered in exchange for loss of card (and no new one); interest rates and credit limits regulated and method of interest repayment made more transparent. If people are paying by credit card, it means they don’t have enough money, but putting them in debt (which a credit card soon will do), means that they will end up with less money overall.

    3d: “pay day loans” would be abolished.

    You say that in the new system, interest rates would be determined by the markets. hmm…that would be those markets that have let us all down so badly in the past would it? Where are you on the private debt problem? What is your stance on building societies and credit cards? Where is the targeted lending for productive investment, e.g. by community banks to local businesses? Why have you not considered a people’s/citizens’ bank which will lend productively, when the private banks have singularly failed do so?

    4. I realise that you are trying to keep things as simple as possible, and also trying not to frighten the horses, but you are in danger of not being radical enough, and perhaps inadvertently, merely propping up the system that has failed us.

    Regards,
    Mike Ellwood, aka Montmorency

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