Money and Banking for Transition

Essential Knowledge for Transition

By Marco Vangelisti

Website: ek4t.com

Contact: ek4t.com/about/contact

Notes prepared by Russ Faure-Brac 3/19/2014

1. What’s possible?

• Massive government employment program to:
  • Rebuild our infrastructure
  • Improve the education system
  • Improve health care and prevention
  • Climate adaptation
  • Environmental restoration
  • Rebuild the local food system infrastructure
  • Repopulate rural areas and transition to organic agriculture

1. Motivation

• The design of the money and banking system is directly implicated in all the largest problems we face:
• Increasing levels of debt (public and private)
• Economic instability
• Concentration of wealth
• Loss of democracy
• Environmental and climate disruption
• We cannot solve those problems without a radical redesign of the money and banking system

1. Punch Lines

• All money is created as debt
• No money is created to repay the interests on the debt
• The private banking sector has the monopoly on money creation
• Money is an agreed upon fiction
• The debt-based money system is in the process of collapsing

1. Definition and History of Money

• Three Ways a Sovereign Government Issues Fiat Money
  • Spend it into existence
  • Lend it into existence
  • Borrow into existence (US and most modern governments with a private central bank!)

1. Understanding Money Creation

• A $1,000 deposit creates a total of $10,000 in the system, given a 10% reserve requirement. System Design and Key Questions

1. Bail-out and Bail-in

• TARP
• Government Bailout
• Cyprus style bail-in

1. Problems with the Current System

• Money is created with issuance of debt but no money is created to repay interest on that debt
• Impossible contract
• Debt repayments/defaults shrink money supply
• Money is created by unaccountable private entities, its quantity driven by profit motive
• We the people, through the taxing power of our government, are ultimate backers of money created and directed by banks
• Our money = banks’ IOUs
• Banks’ IOUs backed by banks’ risky assets
• Payment system linked to credit and investment risk
• Government on the hook when those risks blow up
• Bailouts require additional borrowing by government
• Moral hazard and perverse incentives
• FDIC
• Too-big-to-fail

1. Systemic Solution and New Possibilities

• Our debt is our money supply
• What we need is a national currency
• How do we get out of this pickle?
• Remove the power of private banks to create money
• Return that power to a transparent and accountable process
• Create money free of debt
• Create money only when inflation is low and stable
• Make sure that new money goes into the real economy instead of financial market (or real estate speculation)
• Path toward the Solution
  • Build understanding and awareness
  • Build on public banking movement
  • Nationalize to-big-to-fail banks (at the next crash)
  • Break them apart and turn them and the rest of the banks into financial intermediaries
  • Nationalize the Federal Reserve (branch of US Treasury) –depository of electronic money
  • De-link money and payment system from assets of banks
  • Promote a diversity of local monetary systems
  • New Possibilities:
    • Reduce power of private banks and money on government
    • Remove artificial scarcity in the money system
    • Government as employer of last resort
    • National dividend until we reach full employment and full capacity utilization
    • Reduce government and private debt
    • Massive government employment program to:
      • Rebuild our infrastructure
      • Improve the education system
      • Improve health care and prevention
      • Climate adaptation
      • Environmental restoration
      • Rebuild the local food system infrastructure
      • Repopulate rural areas and transition to organic agriculture