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Bernard A. Lietaer is the former head of The Central Bank of Belgium. Here he gives a talk at the EFC Conference in Belgium in 2009 on the what and why of the current monetary system and what maybe done to improve it’s robustness. I do not agree with all his ideas and suggestions but it is worth a look and listen as he does bring up some very valid points. Such as why it’s taboo to talk of the monetary system and why any suggestion to improve it is quickly shot down. Hint – to maintain the status quo.
h/t to Ives Smith at Naked Capitalism for posting one of the 5 parts to this presentation.
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Thanks for sharing that. Very interesting. Rec’d.
For whatever its worth, when Lietaer asks about chartalism and the Kansas City school of economics, which he compares to Siberia, is the University of Missouri, Kansas City, Department of Economics, which is the hub of Modern Monetary Theory (MMT) also known as neochartalism. They tend to focus on government-issued money more than on bank-credit money. It turns out that coins are the only government-issued money in the U.S., hence the current discussion on trillion-dollar coins, etc. (But you knew all that already.)
You might compare Lietaer’s claim that banks have a monopoly on the issuance of credit, etc., with this from William F. Hummel:
If you’ve not seen it, you might find Hummel’s entire web site to be of interest.
Good work.
Greenspan said “Unless you change human nature, we’re going to have other crashes.” I agree that The Flaw is much bigger than Greenspan, but Greenspan himself made billions in a Hedge Fund betting that the collapse would happen.
Money is the invention that could eat us. And allowing ultra-high-speed computer trading caused a crash in the 1990s, and it will again, though there is a ‘governor’ device built in now that has stopped trading on the floor at least once, when a crash began.
And the monetary indicators quoted by stock market experts ignore basic truths. They say house prices need to go up, when in fact they are already so high that millions of people are homeless. They say we need more car sales, when more sales mean that our cars are no good and don’t last, and again need to be replaced.
The law says we should have full employment, but influential economists say that if we ever let that happen, we will get run-away inflation: Because, if people are working, capitalists will raise their prices beyond a “fair” profit, to as high as the market will bear. (Can there ever be an actually fair profit, since profit means charging more than you paid for it?)
The Constitution charged Congress with the creation and regulation of money. Congress unconstitutionally ceded that authority to a privately held corporation, the Federal Reserve, and by law we are not allowed to know who they are.
Greenspan, Bernanke, and other Fed Chairmen, however influential they may seem, apparently speak for the bankers for whom they work, in reality.
When banks or the Government want to borrow money, they don’t borrow money that already exists: The Federal Reserve creates more money for them to owe on – the Debt-based economy.
We need to move to a Production-based economy instead. Instead of depending on exploitation and extraction, we need to move to cooperation.
It’s a bit more complicated than that, but not a whole lot.
The Fed is prohibited from loaning money directly to the government. The can, however, do so indirectly by buying treasuries on the “open market,” which is what QE1, QE2, and QE3 are all about. But even when the Fed owns them, those bonds count toward the debt limit, although the interest paid to the Fed counts and profit to the Fed and reverts to the Treasury at the end of the year, with some “overhead” taken out.
The deeper fact is that whenever any bank buys a security or makes a loan, they do so with freshly issued money that they themselves create out of thin air, right there on the spot. In the words of John Kenneth Galbraith: “The process by which banks create money is so simple that the mind is repelled.”
Well, in all fairness, the Powers that Be have to keep it simple – otherwise, how could the likes of Ben Bernanke spend ten minutes a day, over a period of several months, distributing some 15 to 16 trillions of dollars to his Big Banking Firm buddies across the globe.
You really wouldn’t want to have him spending twenty minutes a day doing this, right? If he had to spend the twenty minutes, then where would he find the time to let “Sixty Minutes” interview him? And in the interview, he wisely explained to Sixty Minute Staffers that this is nothing for the American tax payers to worry over – it’s not real money that has been printed up, just money created in digitized accounts that he creates using his computer.
When that unreal money comes flooding into the real economy, it will have to be taxed back out through real taxes paid by real tax payers.
And whether it is actually printed, or otherwise injected into the economy, it must cause hidden inflation.
Too much new money into the systemkdsssssssssj will certainly cause inflation, unless we claw it back via taxation.
Too much new money into the system will certainly cause inflation, unless we claw it back via taxation.
That’s a video worthy of being frontpaged.
And it’s so very easy to roll out knee jerk responses without taking seriously Litauer’s argument.
First of all, historically there have been societies without a monopoly on bank-debt money.
There is a taboo about talking about alternatives to having a monopoly on bank-debt money that is enforced by the economics profession and lobbied by the central banks.
The monetary system is a circulation network that experiences effects that are emergent from its geometry.
The drive to increase the efficiency of the circulation of money through all sorts of markets, financial products, risk management and so on pushes the system to frequently occurring failures.
The current global monetary system in general, and the European monetary system in particular, is well beyond the point of sustainability and further efforts at efficiency makes the next crash more likely.
The system of a monopoly of bank-debt financing has the same failings as agricultural monoculture and for the same reasons.
What I could not grasp because Litauer covered it too fast was his complementary monetary system discussion. He says that Uruguay and Brazil have implemented it. But it is not clear to me how it operates and what makes it complementary.
wigwam, are you clear about what he’s talking about?
Unfortunately, no. And, I had lunch today with a mathematical economist who knows (of) Lietaer, but the topic got changed by other at the table, and I never got to follow up.
I’ve been reading a bit on money-as-debt in the Wikipedia, on William F. Hummel’s web site, in some of Ellen Brown’s writings, etc.
The general theory seems to be that any system of money consists of transferable IOUs that are denominated in some unit and are redeemable in the sense that if you owe me and present me with one of my IOUs in those same units, I must write your debt down by the amount of that IOU.
The notion of “legal tender for all debts both public and private” goes a bit further. If you present anyone within the U.S. with a government dollar-denominated IOU of the U.S. government (coin or banknote), that person must write you debt down by that much.
But a check drawn on a commercial bank isn’t an IOU from the government but rather from the bank. Nevertheless, it is readily exchangeable for government IOUs, and the government will accept (even prefer it) in payment of your tax debt.
So, “money in the bank” (i.e., credit in a bank account) is a sort of secondary money that piggy-backs on the strength of the dollar.
As I noted above, per William F. Hummel:
That astounded me when I first read it. But Lietaer seemed to be talking about related notions:
* First of all, Lietaer clearly has regard for what mainstream economists derisively call “the Kansas City school” meaning MMT (a.k.a. neochartalism).
* He spoke of the fact that there is now something of an underground monetary system based of frequent-flyer miles, and I had noted the same thing with S&H Green Stamps several decades ago.
* His local monetary systems were a systematic generalization of the normal business practice of letting your customers buy “on terms,” i.e., 30-days, 60-days, 90-days, accounts receiveable, factoring, etc. All of which are standard business practices.
But, all of that is to say, “I missed exactly what he was saying.” Neverless, I intend to look into it.
Exactly, on both points.
First of all, it is forbidden to speak of covering our deficits with anything other than borrowed money. In fact, when I first got involved in this trillion-dollar coin idea, I was told that there’s a law that requires that deficits be covered by borrowing. But, it turns out that there isn’t. That is simply a policy, beneficial to the bankers, that’s left over from the gold standard. But the knee-jerk mention of the Weimar Republic and hyper-inflation is very predictable, even among Nobel winners such as Krugman. (But, Stiglitz has never made that mistake.)
The instability follows from the fact that banks get to buy securities with “funny money,” i.e., money that they create by changing numbers in computers. With that kind of a structure, how could we not have speculation bubbles. The people who were making and bundling subprime mortgages and stamping them AAA were indulging in a legal version of counterfeiting. Banks are allow to generate money in exchange for rational loans etc. The money that was backed by subprime mortgages was the equivalent of gold-standard money backed by lead.
One of the things about the credit default swap collapse was that insurance and the “funny money” were essentially operating to create the illusion of stability and efficiency. But the credit default swaps functioned as a global money system outside the regulation of any government. We have seen this before–for example, the Eurodollar crisis of the late 1970s that was a part of the whole stagflation system.
I agree about CDSs. But I wasn’t paying attention during the late ’70s, so I don’t know about the Eurodollar crisis.
BTW, I’m in the middle of watching the TEDxBerlin version of that talk by Lietaer. It’s a much slicker production.