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James Robertson on monetary reform - current situation

 
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Leonie Humphreys



Joined: 23 Sep 2008
Posts: 216
Location: West Dorset, UK

PostPosted: Sat Aug 15, 2009 9:57 am    Post subject: James Robertson on monetary reform - current situation Reply with quote

I hope this is useful, Leonie:


James Robertson on monetary reform

More and more people in democratic countries must be realising that the present arrangements for providing our national money supplies put us and our governments at the mercy of the banks.

Top UK bankers became outstandingly rich by creating too much money to lend in the recent boom. When the consequent bust arrived, they had to be given billions of taxpayers’ money to persuade them to put enough into circulation to keep the economy going.

Now the banks are making it difficult and expensive for people and businesses to borrow that money. They are diverting it to their own needs and purposes: to rebuild their balance sheets; to continue to pay huge bonuses to their best qualified staff; and, in the case of banks that had to be “nationalised”, to restore the value of their shares to enable them to be sold back to the private sector at an acceptable price.

This is happening not just in the UK, but also in the USA - see www.globalresearch.ca/index.php?context=va&aid=14357 - and the Eurozone - see http://au.biz.yahoo.com/090713/33/27edf.html.
The blindingly obvious conclusion is that it is an absurd mistake for governments to continue to entrust the function of creating the public money supply to commercial banks.

Quite apart from the other serious economic, social and environmental reasons for NOT creating virtually all the national supply of money as debt, to give the bankers this privilege inevitably incites them to create frequent credit booms for their own profit, then to be bailed out in the busts at great expense to everyone else, and then to fail to provide the money needed to revive economic activity.

The sensible way to avoid this damaging pattern of events is to transform the present emergency measure of "quantitative easing" into normal procedure. This will involve transferring to central monetary authorities (central banks) the function of actually creating the public money supply. They should create it in the public interest debt-free, and then give it to their governments to spend into circulation under normal democratic budgetary procedures and safeguards.

That is the point of the reform now urgently needed. The Sunday Times’ forlorn protest on 9th August, "It's now time for the banks to do their duty - www.timesonline.co.uk/tol/comment/leading_article/article6788649.ece - misses it completely.

4. OUR LEADERS ARE MISSING THE POINT TOO

The UK government recently published its White Paper on Reforming Financial Markets. Its proposals centre on closer co-ordination between the Bank of England, the Financial Services Authority (FSA) and the Treasury.

The Treasury Select Committee, " Banking Crisis: Regulation and Supervision, report and press notice", found the government's proposals"largely cosmetic". John McFall MP, the Committee's Chairman, said:

“Major banks have managed to establish themselves in a powerful position in the economy. By becoming too large and complex, they can hold the taxpayer to ransom, because no government could allow them to fail. ... This has to stop. Tweaking the capital requirements to prevent this happening may work, but we should not rule out more drastic action, such as forcibly shrinking the banks or separating out the riskier functions.”

Meanwhile, the Conservatives would change the furniture differently:
by transferring responsibility to the Bank of England for financial stability, with power to regulate banking pay structures and decide how much capital each individual bank should hold; and by replacing the FSA with a Consumer Protection Agency.

Vince Cable is the only leading UK politician generally thought to understand these financial questions. But even under his guidance the Liberal Democrats appear to have no clear programme of reform to bring these recurring banking booms and busts to an end.

Other countries' leaders are also stumbling in the fog. Why have they all missed the point so far?

5. WHY IS MONETARY REFORM A CENSORED SUBJECT?

Machiavelli pointed out that "He who introduces a new order of things has all those who profit from the old order as enemies, and he has only lukewarm allies in all those who might profit from the new" (The Prince, 1532). Very true. But we need to pursue the question further.
Why do virtually no politicians, officials, economists, academics, media commentators, and bankers and other finance professionals acknowledge publicly how our money supply is now created? And why do they avoid discussing the possibility of a better way than allowing the banks to create it as profit-making "credit"?

And what about the multitude of charities and pressure groups and NGOs around the world, focused on poverty, overseas aid, the environment and each of the many other spheres in which people suffer from our dependence on banks to create the world's money supplies? Are they so concentrated on raising money for their own activities that they don't recognise the present way of creating money as a cause of the ills they oppose? or are they just scared of offending the banks?

These are not academic questions. To some people they will be hostile. To others they may be helpful. Corrupting and corrupted self-interested opponents of monetary reform will contest them or try to ignore them. But, to the larger number of people passively unmoved by the need for reform, a less hostile approach will be more effective.

We are all motivated to some extent by how we perceive the balance of risk and reward between the different courses of action open to us. That applies to all the professionals directly concerned with money, and to the press and broadcasting media, as it does to everyone else. To some extent, the careers, reputations, earnings, pensions and investments of thousands of influential people in our legislatures and press and broadcasting industries as well as banking are directly affected by the fortunes of the banking industry.

To create the necessary momentum in favour of monetary reform we have to find ways both of combating the actively negative influence of corruption, competing commitments, over-cautious inaction and passive lack of concern, and of strengthening positive interest and committed support for reform.

Those two approaches together are needed to convince public and electoral opinion strongly enough of the need for monetary reform to compel increasing numbers of the professionals in charge of managing the money system to change their thinking in that direction too.
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Peter Fennell



Joined: 27 Sep 2007
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Location: London

PostPosted: Sat Sep 19, 2009 5:36 pm    Post subject: Separate the riskier functions Reply with quote

Quote:
Dr. Robertson quotes Treasury Select Committee chair John McFall proposing "forcibly shrinking the banks or separating out the riskier functions"

'Too big to fail' sounds like a ransom note to the taxpayer. On the other hand size can spread risk making failure less likely.

The problem is not the size but the mixing. Mr McFall's second point. That effectively uses consumer banking as a human shield to the riskier merchant and speculative stuff. Which then can't be allowed to fail because of the collateral damage to the real economy. So the 'separate out' proposal is not arbitrary but recognises a principle, a difference of economic categories.

See Dutch economist Dirk Bezemer on separating 'real economy' banking from 'FIRE sector' (Finance, Insurance and Real Estate) and why the standard macro models didn't see the crash coming.
http://mpra.ub.uni-muenchen.de/15892/
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Leonie Humphreys



Joined: 23 Sep 2008
Posts: 216
Location: West Dorset, UK

PostPosted: Wed Sep 30, 2009 8:58 pm    Post subject: Banks Reply with quote

Peter, can you say that in English please! Leonie
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Peter Fennell



Joined: 27 Sep 2007
Posts: 53
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PostPosted: Thu Oct 01, 2009 6:35 am    Post subject: Using civilians as human shields Reply with quote

ok.
In the 'real economy' families have savings and firms have overdrafts and loans. When their bank gets in trouble it first cuts the overdrafts and calls in the loans from good businesses causing them crisis or collapse. If that doesn't plug the gap then the bank collapses and savings are lost.

It is to protect these customers (who also happen to be the electorate) that governments bail out banks.

But these are not the banking activities that ran into trouble. Banks also engage in forms of gambling, arbitrage and property speculation

The old Glass-Steagall Act 1933 prevented those banks that provided the high street service from also playing with FIRE (Finance/trading Insurance Real Estate) http://en.wikipedia.org/wiki/Glass-Steagall_Act says: "provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act. .... The repeal enabled commercial lenders such as Citigroup, ... to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities."

Whether repealing Glass-Steagall was the major mistake in bank regulation I do not know. But if the banks serving the real economy were separate from those engaging in speculation two good results might follow
1) the speculators might have less real cash to gamble
2) they could be allowed to fail without bringing the real economy down with them

It is the second point that calls to my mind an image of cornered financial desperados using civilians as a human shield against the guns of the government regulators.

Dirk Bezemer goes further and explains why finance ministers and central bankers didn't see the crisis coming and why some economists did.
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Richard Glover



Joined: 29 Sep 2008
Posts: 185
Location: Ealing, London, UK

PostPosted: Fri Oct 09, 2009 1:00 pm    Post subject: James Robertson's action list Reply with quote

"To create the necessary momentum in favour of monetary reform we have to find ways both of:
- combating the actively negative influence of corruption, competing commitments, over-cautious inaction and passive lack of concern
- strengthening positive interest and committed support for reform."

Any ideas on how can participants in this forum can engage with either of the above?
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Peter Fennell



Joined: 27 Sep 2007
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PostPosted: Sat Oct 10, 2009 6:15 am    Post subject: 2010 Green Paper on Bank Regulation Reply with quote

I think corruption is a word to be used in extremis. Gamesmanship yes, pushing the limits within the rules. But my feeling is if government enacted good rules the same intelligence currently invested in speculation could be directed to creation.
The purpose of this thread should be to establish what those rules should be. If we agree on the principle (do we?) then the next step would be to have a go at drafting policy, a green paper.
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Leonie Humphreys



Joined: 23 Sep 2008
Posts: 216
Location: West Dorset, UK

PostPosted: Fri Oct 16, 2009 3:12 am    Post subject: Banks Reply with quote

Peter wrote:

Quote:
Whether repealing Glass-Steagall was the major mistake in bank regulation I do not know. But if the banks serving the real economy were separate from those engaging in speculation two good results might follow
1) the speculators might have less real cash to gamble
2) they could be allowed to fail without bringing the real economy down with them

It is the second point that calls to my mind an image of cornered financial desperados using civilians as a human shield against the guns of the government regulators.

Dirk Bezemer goes further and explains why finance ministers and central bankers didn't see the crisis coming and why some economists did.


Thanks Peter, that makes sense!

Is this kind of remedial action taking place now?

I think that the fundamental reforms of the monetary system that those such as the Money Reform Party suggest are unlikely to happen but what you suggest in this kind of regulation to protect the real economy is surely possible?

Leonie
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