Budget alternatives: Richard Werner on Digital Currencies & A New Financial System

UK Chancellor Jeremy Hunt is set to announce 12 regional growth projects with low tax and other investment incentives (ex-PM Liz Truss wanted 200 zones).  The decentralisation idea is a good one to spread new economic growth beyond the south-east into the regions but it misses a key factor in economic decentralisation - that of the money supply.  The ultimate is to have local banks which create money where everyone needs it - where they live in their local area. 

Professor Richard Werner in this new YouTube video discussion 'Why we need a New Financial System'  in discussion with Oliver Studd and George McNee,  says that digital currencies have been around for decades and ordinary licensed banks have been creating digital currency as they create bank loans for their customers.  He also adds to the current debate that central banks should create digital currencies for their monetary system (this starts at 15min on the video). He says that this would be a dangerous development which in giving everyone a current banking account with the Bank of England leads to a possibility of centralised surveillance  and control of their spending.  Do we trust that good central bank governance would always prevent such a move? In setting a centralised bank system for every citizen the normal banking system would be fundamentally changed for ever says Werner.  Such a strong pull towards centralised banking for all would weaken the normal business model of  current banks who need the deposits and relationships of their customers. The  banking currency produced by them was always digital as they did not print bank notes for the loan: Bank Digital Currency - BDC.  The only change now is to add Central to the acronym - CBDC and herein lies a danger.   

Werner says that in earlier times in Germany, monasteries would act as bankers until they were secularised and farmers, for instance, would have difficulty with their credit needs. What happened to remedy this  was the creation of local community banks designed to operate in specified localities. Now, nearly 200 years later the widespread Sparkhassen banks, the co-operative banking system and a sound locally-originating economy is a testimony to the practicality of the solution of locally created money. Britain was also a pioneer of local savings banks around the same time.  

But small local banks grow and are bought up by larger banks who tend to like to deal in large loans for large customers, leaving smaller business customers overlooked. There is a need for many small banks to be created. These preferably will have a common-good profit motive and protected through a majority charity ownership holding which distributes bank profits to local good causes and needs. This ownership model locks in  the common-good theme preventing private predatory takeovers of small successful profitable banks.

Decentralisation is needed more and more and the fundamental way to do it is to encourage the creation of local banks. Growth for special regional zones  is a start but why not target support to enable the decentralisation of the money supply to every 'local zone' by encouraging lots of tiny local community bank start-ups where the small and micro business are? Everyone knows that such businesses create the jobs and wealth. What's not to like Mr Hunt?  

    

Plamen Ivanov reveals the strange origin of the Bank of England.

At the pinnacle of our capitalist system is perched the Bank of England which Dr Plamen Ivanov calls 'this key capitalist firm'. An apt phrase given that the Bank has seemed unquestionably authoritative and essential to the economic working of the UK for over 300 years. However, inequality under this system grows despite political efforts to the contrary, so given the premier role of the Bank can it be that it is a cause of the inequality? Or is it just a neutral, disinterested player in a democratic system run by others? Dr Ivanov reveals hidden and barely understood facts around the Bank's origins that befog the truth about the mechanism working our money system even today, and which he does blame for the disparities. He shows that what started in 1694 continues to this day, powerfully unabated through all banks which operate under what amounts to a marketing franchise which originated with the Bank and is regulated by it. The know-how and procedures of banks follow the model, with the result that the loans issued by them brings enrichment to their top managers and shareholders, even today, just as happened for the Bank itself after its formation in 1694 and for 250 years after. But Ivanov is hopeful that all is not lost for fairness, as there are benign banking ownership models for us to follow.   

Dr Ivanov's doctoral paper that explores these themes is The Bank of England: A Socio-Economic Inquiry into Private Money Creation, Public Debt Financing and the Long Run Implications for Inequality in Britain and beyond (Oct 2018) and he acknowledges the insights of Prof. Richard Werner's key credit creation work in the writing of it. It is about how the Bank made waging a long war more possible for the government of the day and facilitated that by taxing ordinary citizens to the huge financial benefit of a small group of Bank directors and shareholders. But he shows how national wealth creation might be made more sustainable and be better spread through logical and proven reforms. Whilst public (government) debt with its constant demand for interest payments is used to this day by politicians as a tactic to impose austerity for citizens, Ivanov questions the need for the national debt at all.

With the takeover of the throne of England by Prince William of Orange of The Netherlands in 1688 a new era of state finance began. For centuries the ancient 'dual policy purpose of a monetary and fiscal tool' - the tally stick system - was a: 'public credit system [which] allowed state bureaucrats to spend beyond the annual tax revenue by obtaining credit from the public via the issuance of receipts of future taxes paid' (p143). The earlier rulers had resorted, apart from this tally stick system, to funding by means including borrowing from goldsmiths, customs levies, other duties and land tax, all of which, contemporary sources acknowledged, had been sufficient to pay for wars. But the new Bank of England introduced a method for government funding through the new national debt specifically secured against new taxation. This relieved the king of money worries in a novel way, and bound the taxpaying people to the enrichment of the Bank's shareholders forever, especially if long wars ensued.

The pressing political scenario preceding Prince William and Mary's English adventure was that Louis XIV of France had been empire-building on the continent of Europe for over two decades. Due to murderous religious intolerance he had caused a mass exodus of Huguenot protestants in 1685 and many fled to The Netherlands and England. As Louis' campaigns grew, unfortunately the Dutch people themselves were losing the inclination to resist and might possibly withdraw from the conflict. William was in danger of becoming isolated from his people in this and engineered to unite his domain with the English so that opposition to Louis would be strengthened with the added clout of another nation in the fight. As it happened  the protestant English were becoming restive about King James II's catholic preferences. So William (conveniently married to his own cousin Mary who was also the current King James II's daughter) saw his chance and invaded Devon with a fleet four times larger than the Spanish Armada - this was to be a campaign for certain victory.  William was rapidly accepted and arrived in London within  a few weeks. James tried to retain his throne but gave up two years later after the Battle of the Boyne (1690). For William the regime change was now complete and within a few months of his arrival in November 1688 as King William had joined an anti-French Grand Alliance of nations on continental Europe that endured as the Nine Years War. England was now locked into the continental conflict.

Ivanov shows how the Bank of England was founded through the influence of the Huguenots behind a marketing frontman, William Paterson. The Houblon family were well established citizens and prime movers with other fellow church people who met in the French Church in Threadneedle Street (the same street as the existing B of E). Their anti-catholic feeling was such that radicals there had been calling for Charles I's head in a sermon in the church four years before the execution. They had been prominent in bringing William across as king, and now, using banking know-how from Amsterdam, they devised the new Bank for the purpose of creating a new national debt for the English to fight the war whilst also bringing benefit to themselves through their personal (merchant) interests: 
         'the state unilaterally appropriates part of the income and production of ordinary taxpaying citizens and reallocates such monetary gains to national debt creditors in order to satisfy interest payments on legal, contractually-binding debt contracts . More precisely, the religious cabal of the French Church at Threadneedle Street, led by the Houblon dynasty, managed to create suitable field characteristics for the erection of a privately-owned banking enterprise to underwrite national debt with the aim of self-enrichment.' p31   

So William secured his new throne, and within a few years, the funds to wage a long war with confidence; the populace were expected to support the idea that the war was a defence of their protestantism; taxpaying citizens paid the interest on the war debt through new taxes; and the Bank shareholders and associated city merchants grew exceedingly rich.  The national debt grew by the end of the Nine Years War to £17m, with taxation guaranteeing the Bank a very profitable future. In 1832 Sir Henry Parnell reported that the then £28m a year in dividends is: 'a transfer of so much money from the pockets of one part of the public into the pockets of another part of it' p107. At that time the interest on the national debt was above 50% of total government expenditure and had averaged nearly 40% since 1700.   Parnell observed the impoverishment of the populace through taxes coincident with the new debt (chart p116) just as Dr Ivanov is showing now. 

Another chart (p133) shows how 'infrequent wars' in centuries prior the late 17th century changed following the start of the Bank. King William's desire to tie England into his continental war adventures and the Bank as a means of funding it, faciliated an increasing numbers of wars since.   

A practice discovered by Ivanov 'this surprising revelation' p72 concerns: a) the amount of the shareholder funds and b) the amount of the loan to the government. Did they match up? The shareholders were to raise £1,200,000 which was to be paid over as a loan of £1,200,000. What Ivanov has discovered is that only 60% of the shareholder's funds were actually subscribed but the full loan was paid over, with the bank issuing banknotes to represent  the entire loan (p31,p72). Ivanov points out this was an act of private creation of credit at will, and out of nothing, authorised by the Crown through Parliament, with the Bank having its monopolistic status made unassailable through a Royal Charter in return for the loan. This monopoly endured for the Bank itself until nationalisation in 1946 and endures to this day for the remainder of the banking industry which grew out of it into the UK and across the globe. 

So part of the loan to the government was 'invented'; there was insufficient gold or silver or whatever stood for acceptable value deposited by shareholders in the Bank to back it entirely; so it was a pretence to the government that it was there. The Bank issued banknotes and did whatever was needed for foreign transfers for the war payments abroad, and the paper money was spent among merchants - some being shareholders of the Bank. Money circulated into general circulation buying food and supplies, guns, gunpowder, horses, bridles, etc, to fight the French. 

Dr Ivanov champions two reforms to start to correct the imbalances of wealth and income that have grown up as the national debt pile has been renewed and grown over 300 years. Prof. Michael Hudson is the leading authority on ancient debt forgiveness in Babylonia which has been shown to have been practised when a new king came to the throne. This was to free indebted peasants from crop debts and maintain a free citizenry for public duties attached to their land holdings.  The rulers recognised that debts needed periodically to be cancelled or perpetual debt-slavery would ensue. Moses stipulated debt cancellation every 7 years and a return to ancestral land every 50 years - the Jubilee, Leviticus 25. 
Ivanov quotes Michael Hudson: 
              'Indeed, what turns out to be ironic in studying the history of Near Eastern legal practices is that precisely those parts of the Biblical narratives that hitherto have been most in doubt – the laws of cancelling debts, freeing debt servants and redistributing the land to its traditional users – turn out to be the most clearly documented Bronze Age legacy.' p156

Ivanov says we must somehow eliminate the debt.  As  'two thirds of the national debt is now owned by commercial banks and firms.' p136 to achieve the ancient feature of debt forgiveness, he advocates:   
             'governments may issue usury-free money to repay those layers of national debt owed to banking concerns without the need to resort to a great public sacrifice.' p157.  
   
The other proposal from his paper is the formation of many local community-owned banks as have been existing in Germany for more than 150 years. 
           'all of these cooperatives strictly followed three fundamental principles: they were self-help institutions, relied on solidarity, and were self-administering small financial intermediaries … These cooperatives, which adopted the common name Volksbanken (people’s banks), mainly operated in urban areas’. p160
         'Since ...the 1970, no savings bank has ever been liquidated and no creditor has ever suffered lossess. Rioural and Dawson-Kropf, 2012 p162

 

Dr Ivanov credits local banks with the success of the Industrial Revolution in the UK:
           'The increasing number of local banks in this Industrial Revolution period were drawing on their knowledge of local customers and their creditworthiness, financing the expansion of entrepreneurial activities and as a result national output (Cottrell 1980). This decentralised industrial planning through the lending policies of the growing number of countryside bank concerns was lost with the commenced centralisation of banking in London-based headquarters towards the latter end of the 19th century. This process gave rise to the domineering transactional lending approach which still troubles the British trade performance' p167
The community bank model does not involve the nationalisation of banks - which introduces the dead hand of central decision making - but moving ownership to new local, community-profiting banks which would manage themselves independently, and create money to finance local businesses and needs.     


This paper is key to the understanding and resolving of economic problems as the wealth and income gap widens. Dr Ivanov's narrative style and his detailed research, convinces. The fundamental rip-off through taxing the people to finance the national debt which was owned by wealthy people (who even invented the money lent out), is almost past belief. Even at the time alternative ownership was proposed by William Paterson who wanted the debt to benefit orphans. But Dr Ivanov gives reasons for hope for us in our day that the slate can be wiped clean and money creation transformed into benign ways. 

The Bank of England at its birth and for centuries was efficient at financing war, so surely its managers can now inspire us all and enlighten the government to direct finance to make a fairer society? They have immense power to create money for the common  good.  

Do not withhold good from those to whom it is due, when it is in your power to act. Proverbs 3.27   

Posted by Charles Bazlinton. Author, The Free Lunch - Fairness with Freedom.
Charles Bazlinton is a director of Local First CIC which promotes local banks 
 

Alan Greenspan cold shouldered Richard Werner and set back economic progress for decades

Central bankers speak in very measured ways as they pronounce on important things such as the likely track of the national or global economy, Brexit or reading the runes about future interest rates, but what are they really up to? Are they truly working for the best interest of each of us? The Bank of England set its base rate at 0.5% in 2009 which lasted for years until a Brexit dip to 0.25% in 2016/17, and last week it went up to 0.75%. Well paid officials and back up teams deliberated over this inactivity for nearly a decade. But you might say democracy is expensive. But is it democracy? Are central banks answerable to us or anybody? Is there an agenda in central banking that we don't understand? 

Professor Richard Werner who revealed the hidden workings of the Bank of Japan in his best selling book Princes of the Yen published in 2001 in Japan, has just re-published the book in a new English edition which includes a chapter that was missing from the 2003 US, English language edition. Before that US publication he became aware of a problem over one chapter in the original Japanese language edition. It related an interesting story about the US Federal Reserve's then chairman Alan Greenspan. 

Werner is renowned for his clarity on banking and he explains these for the non-expert - and for the uninformed expert - in a series of short videos.  A key banking fact is that ordinary banks create by themselves most of the money we use in society, out of nothing. They don't wait for deposits to arrive before being able to lend. They create the money, lend it to their customers then it goes into general circulation - a new deposit arises in the borrower's account at the point of loan creation so everything balances. In the UK, only notes and coins come from the Bank of England itself the rest of the money is from private banks. It has taken a lot of Werner's career so far to get acknowledgement of this money creation fact officially stated and it is only belatedly, in 2014, that a UK chancellor of the exchequer George Osborne admitted it.    

The offending chapter was that Alan Greenspan had discovered the bad effects promoted by the Fed central bank in the 1920s, which had encouraged excessive and unwise credit creation by ordinary banks. He published his findings in a 1967 paper: 'Gold and economic freedom'. And this is just what Werner discovered about Japan in the 1990s! Werner relates how Greenspan in his paper, had shown how the US Fed both allowed the 1920s bubble to arise though unwise bank lending; and then failed to prevent the Great Recession of the 1930s 'the lost decade' when it could have kept banks solvent and encouraged the flow of money into the economy. What happened then was that the political understanding grew that the banking system was powerless (wrong, it was just malfunctional) and that the government needed to take more control to get the economy moving (only needed because the banking system wasn't working benignly). This led to new federal taxes and the growth of centralised control through the New Deal the effects of which endure.      

Werner relates about his personal dealings with Fed officials and a brief encounter with Alan Greenspan when Greenspan fully acknowledged Werner's precise findings which he had studied for himself. He then embarrassingly blanked him and moved away from further conversation. 'I received the cold shoulder. I began to realise that central bankers did not like my work. I was spilling the beans on their actions'.

Werner considers Greenspan's embarrassment arose because since the 1960s he had been captured by the same power at the heart of central banking he had observed in Japan and recounts so tellingly in Princes of The Yen. For, in his time as Fed chairman 1987-2006 Greenspan behaved as the 1920s Fed had done earlier. He frequently majored on interest rates, which as Werner says are not the determinant for economic growth whilst the quantity of productive credit creation is. Soon after he retired the world economy suffered the financial crisis of 2007/08  'triggered by Greenspan's policies'  (see Foreword in Princes of the Yen). 

Werner has much to show in the new Foreword and in the missing chapter about how central banks should operate and also how they should not operate. One of his key ideas is that many local banks should be encouraged to form and supply credit to local businesses and local institutions. Central banks should encourage the growth of lending to productive businesses and employment and discourage lending to the speculative buying of assets.

See my and other reviews of Princes of the Yen, the book is very readable and insightful. Every politician bothered enough to want to bring a better life for their voters should absorb this story which needs to affect future economic policies.       

Greenspan knew what went wrong in central banking in the US in the 1920s and 1930s and failed to practice his insights when he was able to do so. Nearly 100 years of less than optimal economic and financial policy with crashes have ensued from those times. Are central banks democratic? Do they work for the interests of all? 

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom. Director, Local First CIC , Promoting Local Banks
     

8 June 2017 Election Surprises?

Party manifestos, according to Free Lunch principles, should tackle the monopolistic tendencies arising in society.  The moral basis for this is from common threads found in biblical, enlightenment and liberal values and concern human rights, equality and freedom. As the political parties ply for our votes in June how do they measure up to the implied 'fairness with freedom' ? 

The core aim of The Free Lunch - Fairness with Freedom is the common good. The book suggests ways to move towards a society where each citizen is a beneficiary of the resources of nature and those arising from community-inspired schemes. The book is anti-monopoly and what is termed rent-seeking: meaning the hunt for gain sought by monopolists. Extreme disparities of wealth and poverty are the outcome in a society where control of monopolies is lax. Enlightened politics will reduce rent-seeking outcomes. 

• How are the current political parties matching up with the aims of reformers who desire the sharing of monopoly resources via a universal income for all?  
• What do they prescribe to redress the unfairness of the land monopoly: For example what about the land value gains of home owners compared with none for renters?
• What about the resource of further education now being charged for through student fees when it used to be provided free as a common provision from the public purse?
• What about the huge credit-creating monopoly of banking which neglects small business loans as too small and unprofitable to bother with? 
• What about the ability of government to create its own money to fund public expenses for public services, safely and without inflation?
• What about extending the voting franchise to younger people?

It is natural to want monopoly rights. It makes for an easy life. Owners of homes share in the land monopoly through the valuable nest-egg that builds up over the decades associated with the underlying land value of their home.  Fred Harrison points out that:

'... owners of high-value homes are able to recoup what they pay in taxes through rising property prices. ...enjoy tax-free use of schools and hospitals... Low income earners and families that rent their homes...carry the cost of the infrastructure investments and public services that enhance the value of the homes of the rich.' 

How fair is that? What do our political gurus recommend about this particular inequality which creates a constant welfare burden?  

Universal Basic Income (Citizen's Income / Citizen's Royalty)

• The only party wanting to introduce this is the Green Party.  They would create a pilot to test the idea. 

The land monopoly: home owning or renting

• Labour and the Liberal Democrats both mention land value tax as a tax reform measure. This would retrieve the gains accruing to the land values in property prices for the public purse and allow lower taxes on income and goods or as a substitute for council tax.  
• The Greens and Labour would introduce rent controls. This would be a protection for renters as a useful half-way measure until a full land value taxation scheme was implemented payable by landlords.
• The Tory manifesto policy for care in later life was to be paid from a home sale without limit above a £100k house value. The enforced U-turn, in days, shows the political danger of taking land value gains. Whilst not having the universality of land value tax for all land, the idea that property gains should fund the care is a reasonable quid pro quo, but to have to individually account for each care package and each property is probably a bureaucratic path best not travelled, besides introducing a variable charge/cost (aka 'taxation') for every case.      
• Bedroom tax aboliton (now a liablity of council house renters)  is proposed by the Greens, Labour, the Lib-Dems and UKIP.

Student tuition fees  

• The Greens, Labour and UKIP plan to abolish student tuition fees and would introduce maintenance grants (UKIP for poor students). 
• The Lib-Dems, the original champions of the abolition of tuition fees who reneged to their great downfall after being in coalition, propose bursaries for nurses and grants for poor students.
• The Tory proposal is: forgive loan repayments for teachers; provide access to grants for technology students & 'financial support that offers value for money'. This one looks 'interesting' with the news that student debt interest rates will rise from 4.6% to 6.1% this year. Andrew Greenwood (FT letter 19 April) wonders why the Swedish model is not followed with the cost of student loans as per the cost of government borrowing at 0.34%?     

Voting age to 16 

• The Green Party, Labour, the Lib-Dems and UKIP all want this. 

Local Banks 

• Labour will get the Post Office to establish a Post Bank with full banking services in every community. They also propose regional development banks. 
• The Lib-Dems will 'Require the major banks to fund the creation of a local banking sector dedicated to meeting the needs of local SMEs'. 
• The Tories propose British Business Bank branches in several major cities for SME lending needs.

Monetary reform  No parties make any suggestion about using government money creation powers to fund some public expenses. Instead the arguments are about balancing the books for borrowing, taxing and spending. Labour suggests borrowing for extra infrastructure investment because interest rates are so low - it is bound to pay off. But no one makes the case for creating the money as an extension of the QE creation process to pay for such expense without debt or interest to repay to banks. 

Lord Turner is an exponent of this e.g. deficit financing (Book: Between Debt and The Devil) as is Prof Richard Werner e.g. broadband investment.  There is no reason why just as quantitative easing is used to create money to buy back government debt or to buy commercial bonds, that it could not be used to nationalise the water companies (a Labour Party idea but bought through bonds) or to fund general government spending. The Monetary Policy Committee of the Bank of England would need to take note of any money supply implications and outcomes and act as necessary to prevent adverse economic effects - as they do now with QE. Student education could be a modern case for debt free, interest free government money creation. No more student tuition fees.  This would be a monetary reform which only hurt the big banks.  Where are the far sighted politicians to start controlling this monopoly power? 

With the early solid Tory lead appearing to slip the contest may be more open than we ever thought. World wide electors surprise us. Will June 2017 UK be yet another one? 

Posted by Charles Bazlinton author The Free Lunch - Fairness with Freedom. Director of Local First CIC 'Promoting Local Banks' 

Conway & Giles: Election Boldness & Challenge...and so say all of us.

The 2015 election was dominated by the scare stories about the irresponsible plans of Labour against the wisdom of austerity-promotion by the Tories. Electioneering half truths, as usual.  This time the 'leader competence' issue (May vs Corben) is the main Tory theme so far.  Labour is proposing £60bn extra spending for the NHS, education and scrapping university tuition fees. The Tories are using 'nonsensical'  as a favourite word to describe Labour policies and so far Labour poll figures are inching up (but still low), but there are 3 weeks to go. The Lib-Dems are also planning to spend more on health and education. Fuller manifestos are yet to appear.

The ways of financing more spending may not give the Conservatives so much traction as earlier. We have Donald Trump promising mega-spending and US ideas may travel to the UK. The old austerity scare seems to have changed and may be ineffective with voters. Labour is promising to spend to invest.  They say they will establish a national investment bank to release extra funding - different to the British Business Bank?  But also,why not, for the benefit of local economic growth at minimal cost, encourage the establishment of  local community banks?  See this new venture. 

Ed Conway (Times May 12, 2017) 'Wanted: Some bold ideas to fix the economy' calls for radical action such as: replacing council tax with a proper land value tax; repeal of the Town and Country Planning Act - that 'simply gold plates nimbyism'; giving the Bank of England a mandate to 'target national economic output instead of inflation'. Conway thinks that the opposition should promote such radical ideas and - even if they lose the election as the polls suggest - at least they could introduce some fresh ideas into UK politics to our general relief. Let's have a proper debate over quite different issues. Please. Conway mentions that the monetary system has failed to kick-start the economy, but doesn't mention trying Government deficit financing (see Lord Adair Turner: Monetary Reform ) - maybe Labour's spending plans will incorporate something of this?  Then the Tories may surprise us with radical thinking as per the rumours of talks with Lord Glasman ('Blue Labour').    

Chris Giles (FT 12 May 2017) 'A challenge for May: reward effort over inheritance' taunts the May appeal for the 'ordinary working British families' . The Tories have borrowed from Labour the idea of capping energy bills - i.e. don't let free markets run on. Very UnTory. Giles highlights the roaring house prices of several years  (much boosted by Tory government help) and says that something must be done by a government aiming to benefit ordinary working families to make homes more affordable.  Will they do such an UnTory thing as to knock house prices?  He quotes Prof David Miles that there is no upper limit to house prices relative to incomes especially given the inheritance benefit of the current tax situation, and given that building is artificially constrained by lack of new land. Conway says that to counter the growing wealth disparity arising from favouring comfortably situated home owners for years, Mrs May needs to build on the green belt and raise more inheritance tax on property. This would really be UnTory if it happened. How reforming is Mrs May to be?

Or will Labour and the Lib-Dems demonstrate they care more about the growing minority of left-outs? There are a growing number of home renters who despair of home ownership and students who face large university debt to pay off before ever hoping to save for a house deposit. This is a radical change happening now in the UK and politicians need to tell us what is needed to bring us back to earlier fairness.  Prof Richard Werner in New Paradigm in Macroeconomics (p340-1) promotes the idea of government credit creation of $100,000 for each child born to spend on such productive things as education. Why are not for such ideas as his and Lord Turner's to be seriously proposed by opposition parties with 'nothing to lose'? They might actually gain traction. Three more weeks of dreary party bashing? Can't someone raise the intellectual game?

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom.
Director Local First CIC - Promoting Local Banks         
         

ECOBATE 2016 Prof David Llewellyn. More banking models needed for safer UK banking.

Professor David Llewellyn recommends more competition in banking to reduce the social cost of banking crises such as that which affects us still since 2007. He sees the best way to do this is through different banking models. The model that is prevalent in the UK is that of shareholder value banks and a mix is needed so that stakeholder value banks are not only encouraged but increased in number. The historical de-mutualisation of building societies in the UK was at a great cost to the stability of the banking system when these stakeholder banks were privatised, morphing into shareholding banks. The benefits of competition through more models of banks will be far greater than just adding more banks of the same shareholding kind. Typical of this genre will be community banks, savings banks, mutuals and cooperatives. These do not seek to maximise the capital return as shareholder banks do and they are likely to be less hazardous and risky. Some being locally based will encourage accountability through better relationships with customers, which will bring trust and confidence.

'Culture determines behaviour'. The bad behaviour of an individual can be dealt with (say a rogue trader), but the bad behaviour coming from underlying bad culture is very difficult to address. He wants culture to be a regulatory issue. In acknowledging Prof Richard Werner's point that in the USA small banks have a different regulator to large banks, he said that 'economists like competition' and thus competition between different regulators is to be encouraged.  

His overview of where we are now used a pendulum image. Whilst pre-crisis there was great faith in markets now we have swung to great faith in regulations. His 'series of reflections' at ECOBATE 2016 in Winchester under the general heading ' Are Banks Over-Regulated Today?' gave us a fascinating view from this ex-Chair of the EU's European Banking Authority's consulting and advisory body: the Banking Stakeholder Group (BSG). He said he would not have been able to give his talk a few month's ago when he was Chair of BSG as he would have been gagged. Now his views, as he delivered them, were his own. He is Professor of Money and Banking at Loughborough
University. He was co-author of the Bankers Oath.

The challenges for a safe banking system are firstly reducing likely failure of individual banks and secondly reducing social costs of failure if that happens. A perfectly safe banking system could be arrived at through measures such as 60% capital ratios; 50% liquidity ratios; 40% of that liquidity in German Govt Bonds, but it would be useless banking system! The problem, given that the failure rate can be reduced somewhat, is: How can we reduce the social costs arising when banks do fail? He was not for pressing for every bank to be a stakeholder bank at the expense of losing all shareholder banks. He wants a far better mix of both.  

A problem with regulation is that there is a symbiotic relationship between the regulations and banking behaviour. Both respond to each other. Banks will arbitrage the regulations ('game' them) and regulators are tempted to respond with tighter rules. But there are limits to the resulting escalation. If regulation is seen as a free good then the public will always want more of it. In fact regulation has a cost and the price of this must be taken into account. There has to be a trade off between: complexity/safety and simplicity/risk. He said that whilst individual regulations might be reasonable under a cost/benefit analysis, the totality of the regulations might not be. Excessively complex regulation might encourage unthinking 'box ticking'. Current 'one size fits all' regulations don't differentiate between what is needed for a large international bank and a small bank.  He indicated by hand the height of the stack of paperwork of all EU bank regulations - it was at about one metre off the floor.      
  
Why is culture important? Banking culture deteriorated in the years before the crisis and now trust and confidence in the banking system is as low as it has ever been. Underlying culture sets standards and influences employee attitudes which determines behaviour. He is working on a paper to cover what he outlined at ECOBATE as above, on the 'post crisis banking regulatory regime' arising out of his work with BSG.

His lecture was the Keynote Plenary held at the academic part of ECOBATE 2016 which for the first time was held at Winchester University's Business School, West Downs Campus, Romsey Road on 12th October. ECOBATE 2016 was organised by ARBE.

Centre ground politics: Citizen at the centre, Mr Corbyn?

An opportunity is available for a new politics in the UK that would advance the cause of the citizen, through a clear focus on citizen themselves, as viewed without the ideological spectacles of conventional party politics. Will Labour's Kendall, Burnham, Cooper or Corbyn manage to lift their heads from accepted wisdom? 

The Tories have set their jib and are teasing Labour to follow on and endorse their poverty-extending austerity policies, which are unhelpful to the promotion of a sustained economic recovery. As Matthew Parris in The Times (Sat 25 July 2015), has it, this is a manifestation of the 'supermarket view of politics' of our day - where voter footfall governs nuances of narrowly similar policies from all parties. Cleverly, through this shared view of what is important, Labour is in thrall to Tory policies which seem primarily designed to discomfort the opposition rather than benefit the nation itself. [See: How did the Tories do that?] Labour follows Chancellor Osborne like a dependent poodle as the Labour leadership crisis now demonstrates. The critter is not rebelling, biting off its lead and morphing into a mistress of its own destiny, but is keeping in close step. Except that Jeremy Corbyn is creating differentiation as he attracts attention with his refreshing straight talking which is panicking the three other leadership contenders - and bringing great ire from Tony Blair.

The return of the dark ages of Old Labour supposedly embodied in Corbyn belies that he has actually said some quite positive things, which any reasonable person might agree with. Such as establish a national investment bank for innovation and high tech investment  [see: Marianna Mazzucato] ; create QE for people instead of for banks; strengthen tax avoidance regulation; shift the tax burden to wealth and companies and off consumption and individuals; re-nationalise the natural monopoly of the railways.  What will be the outcome of Mr Corbyn backing into the limelight? Does he view politics through the old view: the 'dead hand' of the state - or will we get citizen-centred politics, which some of the above seem they might be?

The Universal Credit scheme is taking for ever to transform the benefits system - will it ever work starightforwardly? The Citizen's Income Trust  has proposals for a  better answer, a revenue-neutral Citizen's Income as a right for all. This would bring many benefits such as: reward unpaid carers, enhance the living wage of workers and foster job creation by small and struggling businesses; bring freedom through work/life choices that are pro-family; remove benefit traps and make work pay; enable charitable donations for community-inspired projects; and overall reduce poverty and raise living standards for countless individuals, families and groups.  Any Tory or libertarian should be able to see the individual-enhancing benefit of a Citizen's Income removed from bureaucratic means-testing, but would  Labour actually dare to introduce it and in one bound make real the doubtful 'living wage' of George Osborne? The citizen would be placed firmly at the centre of government policy making through a Citizen's Income as of right. But would Labour dare itself to trust the people this way?

Currently our socio-economic system is heavily biased towards those who own property. It is not every citizen that experiences the wealth-creating effect of property ownership. Renters are forever disadvantaged also-rans, whilst freeholders stack up a 'free lunch' of property wealth brought to them by the society-inspired wealth enabled by everyone, including the renters. No individual can ever create a rise in the value of their own land apart from being a minute part of the creative community that surrounds them.

Taxing land values on a annual basis would, along with a Citizen's Income, correct this lifetime imbalance in fairness.  A simple, revenue-neutral way to introduce it would be to levy a tax on the location value of the land alone (excluding the building value) and allow a reduction in £1 of income tax paid for every £1 land location value tax paid. Houses would become more affordable and wider ownership encouraged, more houses would be built to maximise the income from a given plot of land to pay the levy. The income tax / land value tax swap would avoid a disruptive change in finances for most households. Income-poor property owners could be allowed to defer some of the tax until the sale of the property.  The current favouritism towards property owners would be reversed bringing a new consensus - the promotion of the common good. Debt through mortgage would reduce as prices eased, releasing the income from normal jobs away from payments to bankers into useful goods and services. The evidence of a failed market shown, for example, by the pressures of international buyers on house prices shows that the land monopoly needs to be constrained to function more fairly than now. Land location tax is a major part of that answer.

Encouragement of new local community banks funded by local councils, social enterprises and a national investment bank should proceed apace.  With 7 years between now and the financial crisis it is high time that an alternative to the out-of-scale international banks is needed for local investment.  Small local banks are essential, scaled to fit the needs of small and medium sized firms which are beyond the marketing scope of the current high street banks. This too would be a policy that puts the citizen's needs at centre stage in terms of financial help for their enterprises, instead of as a supplicant at the door of the high rolling bankers only seeking mega-deals. The credit supply is artificially throttled through a lack of suitable local bank outlets. This failed market needs policy encouragement to make it function for the good of all.

Old Labour wanted the state in the centre ground of too many areas of life that are best handled by individuals, families and groups - as has been shown by deregulation. Conservatives see the free market as the answer to all, despite the existence in plain sight of obvious market failures. Recent government promotion of  housing purchase schemes, for example, are clearly counter-productive as they feed the heated house price frenzy thereby blocking off those still unfortunate to be excluded.

Conventional  politics fights over the centre ground. A new politics is needed that firmly puts the citizen at the centre ground.

Posted by Charles Bazlinton, Author: The Free Lunch - Fairness with Fredom which explores this theme of the citizen at the centre.  
The author is promoting the establishment a Local Community Bank which will pass profits to local good causes. 
                                                                                                                                    

Helena Kennedy, Oliver Kamm and what banks actually do

Helena Kennedy in the New Statesman 5 June on Magna Carta says banks rely on complexity which foxes law prosecutors and befuddles politicians. Surely complexity does not automatically imply illegality? So where does the power come from that Baroness Kennedy says is wielded by financial institutions, which in her opinion shows that Magna Carta lacks bite?  It is derived from a very simple, non-complex but fully legal right to create the money supply by banks. See this short video which explains the process:  Banking and the Economy  

From this process - the ability to create money - the banks, et al, engineer the complex financial products that rattle HK, which are the source of the profits. If this power was not available and banks had to make do with their own funds, there wouldn't  be any point in making complex products - it would be too much bother given the small margins. The profits arise for banks from the huge leverage gained by multiplying small margins on a huge base of their specially created money. See also on the ignorance of politicians from Positive Money.  The answer for politicians such as Baroness Kennedy  is not 'going head to head against large banks', but to take away their right to create money - or at least encourage the formation of independent  local community banks, owned by local trusts which don't make complex products and which channel profits back to the community.    

Oliver Kamm in The Times 11 June writes:
' the role of banks and capital markets in matching owners of capital with businesses that need it' 

This new paper by Jakab and Kumhof will enlighten:  Bank of England paper No 529 
Extract:
Mervyn King (2012), former Governor of the Bank of England: “When banks extend loans to their customers, they create money by crediting their customers’ accounts.” Lord Adair Turner (2013), former head of the UK Financial Services Authority: “Banks do not, as many textbooks still suggest, take deposits of existing money from savers and lend it out to borrowers: they create credit and money ex nihilo — extending a loan to the borrower and simultaneously crediting the borrower’s money account.”

Or see this blogpost 'Bank of England concurs with Prof Richard Werner's view on creation of money by banks'
posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom. 

Election emergency. Why? Russell Brand's view.

Russell Brand [Twitter @the trews] has decided to vote in the general election after all. He wants the Conservatives out of office and thinks that Labour's Ed Miliband will listen to the voters after gaining power, even though he isn't wholly smitten with EM.  His conversion to voting can be seen here.  Caption: Emergency: Vote to start revolution.  

Talking emergencies - a few days ago two pre-teen children were stuck in a lift.  They didn't use the alarm button or emergency phone because: 'We didn't think it was an emergency'. Instead, a bit like Russell Brand pre-conversion, they tired to raise the alarm by calling and shouting for help - for about an hour and a half. Eventually someone heard and the local Fire and Rescue services released them safely.  

Owen Jones of The Big Issue (Apr 27-May 3) - full article buy a Big Election edition - asks Russel B 'Are you basically a big megaphone for people and causes that are otherwise ignored?' Brand says his gifts are to make complicated information accessible and showing off. He wants his understanding of compassion and connection to communities see: Focus E15 (preventing housing evictions) to be leading and not his egotistical nature. It sounds promising - at least.

Better a late conversion to voting than no voting at all. A pity he didn't change his view a few weeks ago when there was time for unregistered voters to take notice. Consequences follow for failing to act - the children trapped in the lift suffered longer by not taking action in the manner expected. 

So for those who are registered to vote and will only vote if they can be convinced we are in an emergency - an emergency for fairness - consider these:

1. Is it an emergency for fairness that 8 years after the banking crisis and a taxpayer bailout of the banks, huge salaries and bonuses are still paid to bankers? Find a party that wants to reform the banking and money supply system, that promises regional or local banks. And Vote. 

2. Is it an emergency for fairness that in many parts of the country, young people will become old people before they can save enough for a deposit to start to buy a house? Find a party that aims to introduce land value tax in place of income tax and other taxes so that fairness for new home owners and renters is considered. Mansion tax is a start.  And Vote.   

3. Is it an emergency for fairness that whilst low income housing tenants are penalised  for having a spare bedroom and thereby suffer a housing benefit cut, that the Conservatives are considering raising the nil inheritance tax threshold to houses worth £1m ?  Find a party that is not so blatantly partisan in favour of wealthy property owners. And Vote.    

Russell B, says vote Miliband to evict the Conservatives but vote Green in Brighton. Few say it like Brand says it, but many of us do it - vote to achieve the least worst option. Maybe there is a need to look at a proportional voting system again?

By the way, if you are in a lift that won't move, your are in an emergency. Press the red button and/or  use the phone - they are usually down near the floor. Instruct your children. And never, never, try to climb out of a stuck lift if the doors are open between floors. 

And when you get out: Vote. 
Posted by Charles Bazlinton.  Author The Free Lunch - Fairness with Freedom 

Richard Werner on broadband investment

Promises, promises. Electioneering by George Osborne (The Times, March 16, 2015) has him saying that 'Remote homes will be first on ultrafast broadband'. A new invention, 'G.Fast' will be x4 the speed of the ordinary variety and enable easier access for more consumers.  And the government will be able to concentrate subsidies on the remote areas because of new technological developments by BT.  New subsidies are going to be available for suburban areas too. 

The background assumption of all this is that the government has had to hold back on subsidies (until election time) because of the austerity regime following the financial crisis.    

Prof Richard Werner (Chair of International Banking at the University of Southampton) has it that infrastructure investment which promotes the sustainable economy, can readily be funded with money created by the government. That is: debt-free and interest-free money.
Yes read that slowly:  D E B T - F R E E  AND  I N T E R E S T- F R E E.

In an article about this written in 2010:

It is therefore possible to finance the Broadband Initiative with the creation of government money, without anyone incurring any costs or debts, and without any interest burden.

One day a government, hopefully, will wake up and grasp powers for the common good that are currently controlled by banks. Why don't political parties champion this as they head for the election? Are they so in thrall to banks who would be by-passed for credit creation?
Posted by Charles Bazlinton. 

The Greens get it and are boldly going with it

The Green Party is intellectually well ahead of the other parties in policies for economic justice and fairness. Their preliminary outline policies are designed to promote a more equal and balanced society and include Citizen's Income (Policy EC730-733); Land Value Taxation (EC 791-793); and Monetary Reform and Community Banks (EC 660-679).

The message from Greece and Spain and elsewhere in Europe is that minority parties are catching a mood that is stirring in the political psyche of ordinary people. Even though the banking crisis hit seven years ago, new revelations of strange and dubious banking practices are just coming into the light. And still the 'legal exemption' from taxes by international firms seems an intractable problem. People are getting truly fed up. Not only perhaps by the brazen unfairness of these things but that none of the dinosaur parties intend to tackle the mess at its root. The Occupy movement has a long way to run still and the fact that the Green Party is boldly rooting around at core remedies for unfairness is excellent news and people are taking notice - membership is growing.  

Andrew Neil interviewed the Green Party leader Natalie Bennett, see YouTube 15 Jan 2015 the 'car crash interview'. Does it matter that she was unable to tell Neil exactly how the cost of the  £280bn bill works out for Basic Income - £72 per week for every citizen? Only a bit - at this stage of the election campaign - so she had to refer him to the Green Party website which will be updated in March with figures to show how this is possible.  Anyway when the time comes for actual figures the Citizen's Income Trust are well able to prove the case and have been working on this for years.

Andrew Neil's interview technique is a rather more benign version of Prime Minister's questions in the House of Commons - he actually listens and responds to the specific answer - rather than, as in PMQs, ignoring the point made and indulging in puerile name calling. But perhaps a little enquiry into the proposed different society that the Greens are planning for - more balanced and equal - might actually illuminate Neil's viewers. At least it would be more revealing and uplifting than PMQs.          

Is Labour near advocating Citizen's Income? The Citizen's Income Trust thinks they could be after reading an article by Rachel Reeves in Renewal.  But no official policy like the Greens.

What about Tory Ian Duncan-Smith's Universal Credit?  Is it a move  in the Citizen's Income direction? The Citizens Income Trust comments that it could easily be morphed into it. 

Renewal also highlights monetary reform so there is hope that Labour is at least aware of such society-transforming economic good sense and justice.

The Lib-Dems and Labour are both pushing for Mansion Tax which is a loophole for full land value tax to be levied on all land. But no party is as principled and clear as the Green Party on LVT, Citizen's Income and Monetary Reform - the three essential economic reforms for fairness. The Greens get it and are boldly going with it.