The Power to Create Money in the Hands of the Banks

[mother earth]

The same financial institutions that created the financial crisis are now entrusted with one of the most powerful tools to shape the economy - and many elected officials have no idea, says Ben Dyson of Positive Money

[JEFF9K]

1. Who is Ben Dyson?

Is he associated with Eric Sprott, who promised that gold would end the year over $2,000.00?

[mother earth]

2. That would be better answered if you visited the website: Positive Money.org

Our Mission

Positive Money is a movement to democratise money and banking so that it works for society and not against it.

Positive Money has identified the following problems with the current money system:
1.Asset price bubbles: The almost limitless creation of money by banks for unproductive purposes can lead to asset price bubbles. Asset price bubbles have three major effects on the economy: ◦They increase the levels of private debt relative to incomes in the economy: Asset price bubbles in necessities, such as housing, either push the price of these assets out of the reach of the majority, or force individuals to take on excessive amounts of debt in order to purchase the assets. An increase in debt, without an increasing income, lowers individuals’ disposable income.
◦They increase inequality: Inflation in asset prices leads to an upwards transfer of wealth as assets tend to be highly unequally distributed. Further, the fact that most money is created as debt creates an upwards transfer of wealth due to interest payments on the debt. Taken together, an increase in borrowing for asset purchases means an increase in interest payments – leading to large dividend payments for bank shareholders and larger wages for bank staff.
◦They increase the likelihood of recessions and financial crises: Money creation is pro-cyclical – too much is created in a boom, and too little in a recession, causing the boom-bust cycle. However, money creation for unproductive purposes can also lead to asset price bubbles, which themselves can lead to financial crises.

2.It leads to bank runs, bailouts, and subsidies: Financial crises inevitably end in bank runs and/or bailouts, increasing the cost of a financial crisis to the taxpayer. In order to prevent bank runs, governments provide deposit insurance to their citizens. This creates a subsidy to the banking sector, and can create moral hazard amongst bankers. It also creates moral hazard amongst depositors, who no longer need to monitor bank’s activities to ensure that the bank is acting in their best interests. Aware of this, banks are able to pursue higher risk strategies, at the expense of the taxpayer.
3.It’s bad value for UK citizens: The current system requires taxes to be higher and/or government spending on services to be lower than it otherwise could be. Bank bailouts divert funds that could be used elsewhere to propping up the banking system. Likewise, by giving up the power to create money to the banks, the government gives up a source of revenue and therefore must either lower spending, increase borrowing or raise taxes.
4.It is undemocratic: Banks decide where in the economy they lend to, depositors have no say over how the money that they lend to their bank is used. Furthermore, there was never any democratic decision to give banks the power to create money. Banks have no legal obligation to use this massive power in the interests of society as a whole, and we have no way of holding them accountable when they use it badly.
5.It harms the environment: As depositors do not get to decide how their money is used, environmentalists could find themselves inadvertently funding activities that may be harming the environment. There is also evidence to suggest that the current monetary system is incompatible with a steady state economy.

Positive Money is supportive of ideas and policies which move towards our end goal. However, we do believe that our end goal can only be reached when the following three things have been achieved:
1.Prevent the private creation of money or money substitutes.
2.Transfer the power to create money from the banking sector to a democratic, transparent and accountable process working in the public interest.
3.Ensure that new money can either be spent into the economy free of corresponding debt. Alternatively, if required, newly created money could be lent in, for on-lending into the productive sector.

Positive Money is not:
1.Positive Money does not act on the behalf of any particular lobby or interest group.
2.Positive Money is not a political organisation. We don’t campaign for either a bigger or a smaller role for government. We campaign for changes to the money system which would benefit the economy as a whole, and which is therefore compatible with the aims of all political parties.
3.Positive Money is not against privately owned banks. Privately-owned banks have an important function in providing payment services, a secure place for our money, investment opportunities, and to make loans.
4.Positive Money is not against bankers. Most people who work in banks do not understand the money system and its effects, and are simply trying to provide a service for customers and earn a living. Undoubtedly some bankers have abused their power, but this is not the root cause of our financial crisis; the root cause is our current money system.
5.Positive Money is not against lending, or charging interest on loans where an investor is lending their money to somebody else.
6.Positive Money does not believe that regulation alone can solve the problems with banking or the money system. Regulation has been shown to be ineffective, and easily reversed, but furthermore it does not alter the root causes of the problem. What is needed is legislative change.
7.Positive Money is not a campaign for general financial reform, alternative economics or complementary currencies. While there are many other reforms that also need to take place, Positive Money has a specific and narrow purpose – to change the national money system in order to create a fairer and more stable economy.
8.Positive Money does not support the use of illegal or violent means to bring about change. We campaign for the money system to be changed with minimal social and economic upheaval.

[mother earth]

3. He's not espousing putting money into gold, nor that we are headed for a crash. Not familiar with

ES, but if you decide to watch the vid. I think you will understand more about the issues at hand which are very much in line with democratic beliefs, and not about nationalizing banks which I'd be willing to take a look at myself (but that's me), but then again, without a doubt, we actually need reform, and if banking is to remain private, reform is absolutely essential or we will suffer the consequences.

[valerief]

4. Future tense not needed. nt

[jtuck004]

5. +1 n/t

[mother earth]

6. TY, you are absolutely correct. We ARE suffering the consequences and continue to. nt

[JEFF9K]

7. I'm not understanding this.

Aren't banks limited in their lending by the amount of deposits they have?

I read everything by my economic gurus, Paul Krugman and Thomas Piketty, but Ben Dyson's name or ideas don't come up.

Are you sure this isn't an infomercial?

[mother earth]

8. :) No infomercial, Jeff, please read more at TRNN for transcript of full interview.

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=12668&updaterx=2014-11-20+12%3A16%3A46

Ben Dyson is co-author of Modernising Money: Why our monetary system is broken and how it can be fixed. He argues that a design flaw in the banking system, which allowsbanks to effectively create more than 97% of the money that our economy runs on, is responsible for the financial crisis, unaffordable housing and the government's reliance on unsustainable credit-fuelled growth. The proposals were recently featured by the Financial Times. He is the founder of Positive Money, a campaign for a banking system that works for society and not against it. More information at www.positivemoney.org

Transcript
The Power to Create Money in the Hands of the Banks
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.

Positive money--what is it, can it be used in the public's interest for common good--is the topic of our next discussion with Ben Dyson. Ben Dyson is coming to us from U.K., London. Ben is the founder of the U.K.-based campaign group Positive Money and the author of Modernizing Money: Why Our Monetary System Is Broken and How It Can Be Fixed.

Ben, this is your first time joining us. Thank you for joining us.

So let me begin with Positive Money, the organization. Why did you find it necessary to create it?

BEN DYSON, FOUNDER, POSITIVE MONEY: Well, I watched the financial crisis playing out, and there seemed to be some fundamental problems at the heart of the whole crisis that were not being talked about either in the press or in policy circles, or even by professional economists, who should have understood certain issues. And the biggest problem was about the way that money is created in the current banking system.

PERIES: And how is money created in the current banking system?

DYSON: Well, most people, if you ask people on the street, they'll tell you that money can only be created by the government. That only actually only applies to about 3 percent of all the money that exists, and that 3 percent is the cash and the coins. Ninety-seven percent of money just exists as numbers in a computer system, and that money is created by the banks. So every time that you walk into a bank and take out a loan, that money isn't coming from somebody's lifesavings; it's actually new money that is created through a really simple accounting process at the point when you take out that loan. And this is how most of the money in the economy is created when people go into debt.

PERIES: So it used to be that you would deposit money in a bank, they would take your money and put it in the vault and then give it back to you when you need it to buy something. And that doesn't happen. And this transition actually occurred with the ability for electronically transferring money. Explain to us, to an ordinary person, how we are in this situation now of electronic transfer and how that allows banks to actually create money.

DYSON: Well, a lot of people have the idea that when you put your money into a bank and then they go and lend that money out to somebody else, that would only work if the only kind of money that they could use was paper. But because most of the payments that people make now are made electronically, they're actually able to make these transfers using electronic money. It's really just an accounting entry. And it means they can effectively create new money whenever they make a loan through this simple accounting process. There's nothing illegal about it. It's just the way the entire financial system works today.

[mother earth]

9. Per Ellen Brown:

Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans

Posted on October 27, 2014 by WashingtonsBlog


By Ellen Brown.

Many authorities have said it: banks do not lend their deposits. They create the money they lend on their books.

Robert B. Anderson, Treasury Secretary under Eisenhower, said it in 1959:


When a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposits; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.

The Bank of England said it in the spring of 2014, writing in its quarterly bulletin:


The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

. . . Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

All of which leaves us to wonder: If banks do not lend their depositors’ money, why are they always scrambling to get it? Banks advertise to attract depositors, and they pay interest on the funds. What good are our deposits to the bank?

The answer is that while banks do not need the deposits to create loans, they do need to balance their books; and attracting customer deposits is usually the cheapest way to do it.

For the rest of this article: http://www.washingtonsblog.com/2014/10/banks-want-deposits-hint-make-loans.html

[JEFF9K]

10. If the bank has to balance its books ...

and is limited in how much it can lend by how much it takes in, and the depositor doesn't have his money to spend, how is there any new money in circulation?

[mother earth]

11. You are not reading from the links I'm posting. From above link:

Robert B. Anderson, Treasury Secretary under Eisenhower, said it in 1959:

When a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposits; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.

[JEFF9K]

12. I DID read it.

It's word play! If the bank is limited in it's lending by amount of deposits, and depositer can't use the deposited money, then only one person is using that money!

[mother earth]

13. It is not word play, who says the banks are limited by their deposits? They simply create the

deposit at the time of the loan, so how is that limiting?

The money is used via the loan, but it is created by an electronic deposit via the one the bank creates after approving a loan. You are right about one person using the "money", the bank isn't printing anything, it's loaning it. Either you are using word play or simply not understanding.

[JEFF9K]

14. Banks can't lend an unlimited amount of money.

So the amount of the limit, which isn't mentioned in your post, determines whether or not they are "creating" money. If the limit is more than 100% of deposits, then they are indeed "creating" money.

[mother earth]

15. You are saying their lending is limited by deposits in their bank?

I am saying when they approve a loan, that loan is balanced by a deposit account they create.

The "gold standard" gone, and now there is the "electronic" creation of money.

[mother earth]

16. Who creates money? How much money do they create? What do they do with the money they create?

Uploaded on Jan 10, 2012

http://www.positivemoney.org.uk

Ben Dyson gives clear answers to 3 Key Questions: Who creates money? How much money do they create? What do they do with the money they create?

He shares some very interesting and profoundly important facts and shows how far the reality of banking is away from the text-book model of banking and which major implications the current system has on our lives.

How do banks create money out of nothing? How do they create money as debt? Has money been privatised?

We recommend it as an educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system.

Presented at the Positive Money Conference in London.

This is a 20 minute extract from a longer talk; you can watch the full 52 min version here: http://bit.ly/AE14sO