For a guide to moneymaking look at this post last year (Nov 28). Prof Richard Werner, through an interview with Erich Gerbl exposes the legal mechanism by which bankers create credit. This gives them the key to high profits as they literally create the money that firms or individuals need to launch a new scheme, or that speculators want to be able to buy an asset low and sell high. The bankers can be in the game twice: 1) By charging interest on the money they lend, less a small amount to the resulting depositer of the new loan, and by 2) Joining in the speculation.
Thinking of a career choice? If you want a good one for purely making money, banking must be very high on your list. One trouble is, one only has to mention bankers in conversation with non-banking friends and all sorts of bad stories come out - so your true friends may become limited to finance and banking circles. Very few people really understand the banking credit creation mechanism. I suspect many people who enter a career in banking or finance do not understand it - perhaps many in the lower ranks never do? Certainly the vast majority of the general public do not. If we did there would be an outcry and credit creation would be taken into the control of the democratic process, just like the control of the issue of notes and coins is and just as every aspect of modern life is controlled for the public good.
Think where we would be without the regulation of medical training; without food purity standards; without engineering standards for bridges or vehicles. Why is banking so different? Wonder no more that financial crises proliferate and will do so into the future until a democratic hand grasps credit creation for the good of all.
Prof Werner made his own submission to the Basel 3 proposals for banking reform. Read it for a clear academic view on the supreme function of banks: credit creation. And watch out - probably quite in vain, alas! - for any changes to this vital process as the Basel 3 proposals gradually firm up.
posted by Charles Bazlinton
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Monday, August 23, 2010
Saturday, November 28, 2009
Latest interview with Richard Werner
Prof Richard Werner, a prominent international exponent of the reform of credit creation was interviewed by the Financial Times Deutschland (FTD) on 26 November.
If you cannot read German, a Google toolbar button will translate the text. Click here to install the Google toolbar.
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.
If you cannot read German, a Google toolbar button will translate the text. Click here to install the Google toolbar.
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.
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