FX MONETARY POLICY
save the financial system, the most economical (to taxpayers) method was to have the Government, as in Sweden or Finland in the early 1990’s, nationalize the troubled banks [and] take over their management and assets … In the Swedish case the end cost to taxpayers was estimated to have been almost nil.”
Typically, nationalization involves taking on the insolvent bank’s bad debts, getting the bank back on its feet, and returning it to private owners, who are then free to put depositors’ money at risk again. But better would be to keep the nationalized mega- bank as a public utility, serving the needs of the people because it is owned by the people.
As argued by George Irvin in Social Europe Journal in October 2011:
“[T]he financial sector needs more
than just regulation; it
needs a large measure of public sector control—that’s right, the n-word: nationalisation. Finance is a public good, far too important to be run entirely for private bankers. At
the very
least, we need a large public investment bank tasked with modernising and greening our infrastructure . . . . [I]nstead of trashing the Eurozone and going back to a dozen minor currencies
26 FX TRADER MAGAZINE April - June 2014 fluctuating daily, let’s have a
Eurozone Ministry of Finance (Treasury) with the necessary fiscal muscle to deliver European public goods like more jobs, better wages and pensions and a sustainable environment.”
A Third Alternative – Turn the Government Money Tap Back On
A giant flaw in the current banking scheme is that private banks, not governments, now create virtually the entire money supply; and they do it by creating interest-bearing debt. The debt inevitably grows faster than the money supply, because the interest is not created along with the principal in the original loan.
For a clever explanation of how all this works in graphic cartoon form, see the short French video “Government Debt Explained,” linked here.
The problem is exacerbated in the Eurozone, because no one has the power to create money ex nihilo as needed to balance the system, not even the central bank itself. This flaw could be remedied either by allowing nations individually to issue money debt-free or, as suggested by George Irvin, by giving a joint Eurozone Treasury that power.
The Bank of England just admitted in its Quarterly Bulletin that banks do not actually lend the money of their depositors. What they
lend is
bank credit created on their books. In the U.S. today, finance charges on this credit-money amount to between 30 and 40% of the economy, depending on whose numbers you believe.
In a
monetary system in which money is issued by the government and credit is issued by public banks, this “rentiering” can be avoided. Government money will not come into existence as a debt at interest, and any finance costs incurred by the public banks’ debtors will represent Treasury income that offsets taxation.
New money can be added to the money supply without creating inflation, at least to the extent of the “output gap” – the difference between actual GDP or actual output and potential GDP. In the US, that figure is about $1 trillion annually ; and for the EU is roughly €520 billion ($715 billion). A joint Eurozone Treasury could add this sum to the money supply debt-free, creating the euros necessary to create jobs, rebuild infrastructure, protect the environment, and maintain a flourishing economy.
Ellen Brown
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