Prof Richard Werner, a prominent international exponent of the reform of credit creation was interviewed by the Financial Times Deutschland (FTD) on 26 November.
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In the article by Erich Gerbl, Werner says that the world economic system is unsustainable as it is and he challenges governments to act to change this. But he says that despite much discussion about reforming the banking system he does not hope for much change. He explains that whilst it is illegal for ordinary people to create money, banks are licensed to do so and in fact make about 98% of the entire money supply. He emphasized that it is not the central banks that do this but privately owned banks which are in the business for their own profit. They do not have to justify the use they put the created money to and this leads to speculation in such things as oil and financial products. This type of activity does not help the true productivity of the communities they are in. Sometimes the results are destructive, as now when hedge funds are driving up the price of oil. Governments have rescued the banks, but have left them with the power to continue behaving in the same way. Werner says that we will continue to see the repetition of financial crises (100 already world-wide in the last 40 years) as long as we allow this to continue.
Governments could easily bring pressure to bear on banks to end the credit shortage by challenging banks to divert new money to productive use. They could threaten to withdraw their banking licenses or even to take over their money creation rights. Challenged by the interviewer that such statements are quite extreme, Werner responded that the current system is extreme. His minimum compromise position would be to impose strict conditions on banks: to prohibit them lending to any activity that did not contribute to the gross domestic product, thus preventing credit-driven speculation and the subsequent banking crises.
Werner has been increasingly focusing on credit creation as key to macroeconomics from his long insider experience in banking and finance in Japan from 1990. His ideas are essential for any media editor who has the freedom to follow new leads in the hope that some may lead to answers for the sorry state of our economic system. The message may be getting through - this week Werner appeared on the UK’s BBC1 TVnews and Radio 5, as well as in the FTD, as above.