creating new money padova dec 2011

8/3/2019 Creating New Money Padova Dec 2011

1/31

Prof Dr Joseph Huber

Chair of Economic Sociology

Martin-Luther-UniversittHalle an der Saale

Creating New MoneyBringing back in the monetary fundamentals of finance

1st Conference Moneta Propriet

Montegrotto Terme

34 December 2011


2/31

Creating New Money

Bringing back in the

monetary fundamentals

of finance

Prof Joseph Huber


Montegrotto Terme

3

4 December 2011

www.monetative.org


3/31

Real Economy

Financial

System

MonetarySystem

Money Governs Finance, Finance Governs the Economy


4/31

Today's money supply M1 (currency in circulation) consists of

8095 % demand deposits (banks' quasi-money on current account)

520 % state money (coin) and central bank money (banknotes,reserves)

next

The MonetaryCause of FinancialCauses:

Fractional Reserve Banking

i.e. Multiple Credit Creationon a Fractional Basis of Reserves


5/31

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19 05 1 91 0 19 15 192 0 1 92 5 19 30 19 35 1 940 1 94 5 195 0 1 95 5 19 60 19 65 1 970 1 97 5 19 80 1 98 5 19 90 19 95 2 00 0 2 00 5

Demand Deposits Cash (Coin+Banknotes)

Data: Swiss National Bank, Historical Time Series, No.1, Feb 2007, 1.3, 2.3

M1 Ratio of Demand Deposits to Cash


6/31

Today's money supply M1 (currency in circulation) consists of

80

95 % demand deposits (bank money on current account)

520 % state money (coin) and central bank money (banknotes, reserves)

Banks' fractional basis of payment reserves

Cash in vault (coin + banknotes) = 2 % of demand deposits

CB reserves (operational balances) = 6 % of demand deposits

Put as banks' money multiplier: Demand deposits 17-fold of reserves

46-fold of cash

The MonetaryCause of FinancialCauses:

Fractional Reserve Banking

i.e. Multiple Credit Creationon a Fractional Basis of Reserves


7/31

Financial Capitalism: Consequences for Primary Income Distribution

Share of Earned Income decreasing (vs Capital Yield increasing)


8/31



9/31


Net Wage Ratio declining Financial and Corporate Profits going up


10/31

United States increase last ten years

M2 (broad money) 80 %

M1 70 %

GDP nominal (price-inflated) 45 %

GDP real (price-deflated) 16 %

Germany increase 19922008

M1 189 %GDP nominal (price-inflated) 51 %

GDP real (price-deflated) 23 %

The Monetary Cause of Financial Causes:Fractional Reserve Banking

i.e. Multiple Credit Creation on a Fractional Basis of Reserves

Sources: www.federalreserve.gov/releases/h6/hist; www.bundesbank.de/statistik/zeitreihen;Deutsche Bundesbank, Monthly Bulletins, tables II.2.


11/31

Expansion of bankquasi-money

as leverage forpaper investmentin financial assets

FAZ 10.5.11, 9

Taken from The Economist


12/31

Expansion of bank money as leverage (debt) for paper investment

in financial assets


13/31


14/31

Expansion of bankquasi-money

as leverage forpaper investmentin financial assets

FAZ 10.5.11, 9

Taken from The Economist


15/31

Gross Government Debt Total National Debt

Charts taken from The Economist

Chronic Budget Deficit and hence Accumulation of Government Debtalso cause an Overshooting Money Supply


16/31

Chronic Budget Deficit and hence Accumulation of Government Debtalso cause an Overshooting Money Supply

Gross Government Debt % GDP 2011Public debt per capita, Germany 2011


17/31

Marshallian 'K'according to economist Alfred Marshall (18421924)

K = 'High-Powered' Money Base M0 / Nominal GDP

orK = 'Low-Powered' Real Money M1 / Nominal GDPor

K = Broad Money M2 / Nominal GDP


18/31

Marshallian 'K'

European Monetary Union

1996

2010


19/31

Marshallian 'K'

Japan 19702005


20/31


21/31

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19 05 1 91 0 19 15 192 0 1 92 5 19 30 19 35 1 940 1 94 5 195 0 1 95 5 19 60 19 65 1 970 1 97 5 19 80 1 98 5 19 90 19 95 2 00 0 2 00 5

Demand Deposits Cash (Coin+Banknotes)

Data: Swiss National Bank, Historical Time Series, No.1, Feb 2007, 1.3, 2.3

M1 Ratio of Demand Deposits to Cash


22/31

Published by New Economics

Foundation, London, 2000.

Several translations.

Available at

http://www.monetative.de/wp-content/uploads/creating-

new-money-original-version-

2000.pdf

Seigniorage Reform

(Plain Money Approach)


23/31

Traduzione italiana 2011

da Davide Gesino

Download

http://nuovamoneta.files.word

press.com/2011/11/creando-

una-moneta-nuova.pdf

Seigniorage Reform

(Plain Money Approach)


24/31

Plain Money

All money is chartal money (state-controlled fiat money)

Non-cash money is no longer a demand deposit(moneta di giro, i.e. a claim on money),but immediate money of itself, i.e. money-on-account,as there are coins and banknotes in the pocket.

Chartal money units (cash andnon-cash) arefully valid legal tender in and of themselves.

Reserves in traditional sense thus rendered obsolete.

Transition to a plain money system smooth. Everyday operationseasy.

Other terms proposed: Genuine money, U.S. money,sovereign money.


25/31

Currency-School Policy Banking-School Practices

Money

is chartal money, a legally well-defined'token' (coin, banknote, electronic uniton account or on memory chip).Distinction between money and credit.

issued on the basis of a stateprerogative by a public authority, e.g.

the national central bank, or currencyboard, or parliament, or ministry offinance.

circulates as fully valid legal tender.

Quantity of money in circulation resultsfrom market demand and theauthority's discretion to providemoney, whilst taking into accountactual economic growth potential aswell as consumer and asset prices.

Money

emerges from market convention.Anything you (or rather banks) likecan serve as a means of payment.

is bank money (= credit), formerlyissued as private banknotes,nowadays as demand deposits;

i.e. a money surrogate, quasi money.which is used as if it were chartalmoney, although it is just a claim onchartal money.

is based on a fractional reserve of

about 2% cash and 5% operationalbalances.

Quantity of bank money in circulationresults from market demand andbanks' private business policy.


26/31

Financial stability, and

seigniorage to the benefit of

the public purse

through a system of

plain money

run by independentcentral banks

as the fourth state power,

the monetary state power(complementing the legis-lative, executive, andjudicial powers).


27/31

Currency-School Policy Banking-School Practices

Money

is chartal money, a legally well-defined'token' (coin, banknote, electronic uniton account or on memory chip).Distinction between money and credit.

issued on the basis of a stateprerogative by a public authority, e.g.

the national central bank, or currencyboard, or parliament, or ministry offinance.

circulates as fully valid legal tender.

Quantity of money in circulation resultsfrom market demand and theauthority's discretion to providemoney, whilst taking into accountactual economic growth potential aswell as consumer and asset prices.

Money

emerges from market convention.Anything you (or rather banks) likecan serve as a means of payment.

is bank money (= credit), formerlyissued as private banknotes,nowadays as demand deposits;

i.e. a money surrogate, quasi money.which is used as if it were chartalmoney, although it is just a claim onchartal money.

is based on a fractional reserve of

about 2% cash and 5% operationalbalances.

Quantity of bank money in circulationresults from market demand andbanks' private business policy.


28/31

Current monetary reform approaches share a critical analysis of the

existing fractional reserve system, and thus also share certain key

elements of monetary reform, in particular

1. restoring the full state prerogative of creating money, including coin,

banknotes, as well as money on account (today's demand deposits)

and money on mobile carriers

2. conferring responsibility for the entire stock of money to an indepen-

dent monetary authority (i.e. state-owned central bank)

3. putting an end to the creation of bank money (demand deposits)

which is credited into the books on a basis of fractional reserves

4. spending new money into circulation through public expenditure,

thereby ensuring full seigniorage to the benefit of the public purse.

Common Goals of Monetary Reform Initiatives


29/31

accruing from phasing in new sovereign money (plain money)

while phasing out old bank money.

European Monetary Union 2010

Total government debt 7.850 billion euros

Demand deposits (M1) 3.912 billion euros =49,8 % of debt

United States 2010

Total government debt 17.500 billion dollars

Demand deposits (M1) 1.829 billion dollars = 10,5 % of debt

Broad money M2 8.814 billion dollars = 50,4 % of debt

This does not include interbank demand deposits (not accounted for in anymonetary aggregate) which would have to be included in a more detailedcalculation.

One-off Transition Seigniorage


30/31

Annual increase of the money supply in recent years

M1 in the European Monetary Union 200350 billion euros

M1 in the United States 90230 billion dollars

M2 in the United States 300750 billion dollars

This was certainly overshooting. An adequate money supplywould in the long run roughly increase at the same rate as

real GPD, or be slightly higher.

But even if the creation of new money kept within the bounds ofreal-economic potential, and would thus be, say, just about half ofrecent increases, the annual addition to the stock of money wouldstill be important; i.e. 26% of total government budget.

Seigniorage foregone to the public purse


31/31

Creating New Money

Bringing back in the

monetary fundamentals

of finance

Prof Joseph Huber


Montegrotto Terme

3

4 December 2011

www.monetative.org

creating new money padova dec 2011

Documents