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Taking on those that scam our wealth

Nov 18 2014 16:23
Edward Ingram

ON THURSDAY, November 20 this week, a proposal straight out of the columns that I have been writing for Fin24 is to be debated in the House of Commons in the UK.

The proposal is to stop banks from creating money as they currently do and to leave that to the Central Bank alone.

Apparently I was not the only researcher to develop this particular idea and there is a substantial lobby group called ‘Positive Money’ that is behind this debate in the House.

In simple English I have explained the case for having a single Monetary Authority responsible for the creation of all money. Because it is a bit too long for this column, I refer readers to a couple of pages in my website here.

Goodbye Keynes

This idea challenges the traditional Keynesian stimulus, which, whilst well intentioned, makes a mess of an economy in an effort to help it. That has always been a feast for those that exploit the common person doing a hard day’s work. There is a much much better way.

Another feast for the exploiters comes from the very fact that banks are impelled to lend as much as they can; and in the process they create more credit and more asset price bubbles than is good for any economy or its people. This can lead to a long term depression as people take years to repay that much debt. No stimulus will take hold until that is resolved, as we have seen since 2008.

I am not blaming the banks. It is the system. There is nothing to guide a bank to a more rational way of doing things. If they resist, by lending less, they will damage their business and lose customers to the competition.

The current system is fundamentally wrong anyway.

Managing interest rates is wrong

The central banks try to manage this scenario by managing the interest rate. Higher rates slow the borrowing. THAT contradicts a fundamental principle of economics: a price (the rate of interest) is there to create a balance between the supply (of money or anything else) and the demand for anything, including in this case, money to borrow.

If we manage the supply of cash and deposits needed for almost any transaction, then people cannot over-borrow and try to spend more than the country can supply in goods and services. The price (the interest rate) will create a balance between that money supply and the demand for it. Interest rates will never sink too low. People that borrow must have a good use for the money.

If instead we manage the price, (the rate of interest), as we do currently, then we will alter both the supply and the demand and there will NOT be a balance. Imbalance is the consequence of managing any price.

We have no choice

So we have no choice. This solution will be accepted and put into practice sooner or later, and the sooner the better.

Financial stability is not the target

When we talk about creating financial stability most people, including central bankers, think of ‘fixed’ ‘immobile’ or close to that.

This is a mistake. The world economy is full of imbalances because in one way or another prices of almost everything are not free to adjust correctly. In my nearly-ready-to-publish book I will talk of adjustability and creating a balance. To create a balance throughout an economy, we have to have ways to allow the price of everything to create the balance for us. We should not intervene. We should not need to intervene.

If we get the pricing mechanism wrong, as we always seems to do, with the pricing of mortgage finance and currencies for example, (see my earlier essays), then the masses get exploited again by the experts who study and invest in the opportunities created.

Imbalance = opportunity to exploit. Too much or too little of something is not nice.

This is what I am proposing to end.

If I succeed, then everyone will be happier and more secure with their wealth and their borrowings.

That is what my series for Fin24 was all about – how to achieve that.

Now I am not writing much for Fin24. I am too busy putting it all into a short book in simple English for anyone to read. It will be called ‘Restarting Economics with New Architecture’.

*Edward’s book series will be entitled ‘Restarting Economics with New Architecture’. The first volume in the series is entitled ‘Breakfast in the Mountains’ which repeats what he told a group of non-financial church people over breakfast in the mountains during Easter 2014. They loved it. Visit his main web page for more.


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