Why is this recession so Unique?

[Paul Ferguson]

The following article was published by News Beacon Ireland. It helps to explain why this recession is so unique

Why is this Recession so Unique?

Despite the efforts of politicians and central bankers, economies around the world remain stubbornly resistant to significant growth. Tracing our use of digital money could provide a reason why.

Somewhat under the radar, essentially all of today's money exists as numbers on a computer screen. While this does enable many efficient methods of payments, digital money has different properties to cash, not all of which are beneficial to the economy.

For example, cash becomes a permanent inclusion in the economy's money supply. In contrast, digital money is only a temporary addition.

The transient nature of digital money can be determined when tracking a bank loan application to its final settlement. When processing an application the bank will investigate that it meets the many necessary criteria. Once approved, the bank will increase the borrower's current account without lowering any other account.

Finally, as a loan is repaid both the debt and the borrower's account return to zero which is why there can be less money during a recession.

Apart from its impermanent nature, digital money has another property which can be
undesirable in excess. Because digital money is only ever created through the loan process every digital euro has a corresponding debt.

Today's economy, in which every unit of currency exists in parallel with a debt, behaves quite differently to the economies of previous generations in which a substantial portion of the money supply was created publicly and issued debt free.

However this change to a fully digital currency has happened largely through arbitrary advances in our electronics payments systems and not through careful consideration by economists.

Having been leapfrogged by the recent digital money phenomenon, it's no surprise the economics profession is advising traditional remedies to kick starting the economy to no avail.

Ending this recession will most likely happen through introducing a second source of digital money to compliment or replace the first.

To demonstrate how difficult our kick starting efforts might be until such a change bear in mind that every euro has a corresponding debt and lowering the debt lowers the money supply by the same amount. Any new money required for growth will also come with a matching debt. Hence the conundrum of controlling excessive debt while maintaining an adequate money supply for trading.

The soul solution with bank credit as the only source of new money would be to dwarf the existing money supply through higher collective borrowing year on year. Indeed, the money supply across Europe has doubled about every decade since the 60s. Doubling every decade, or quadrupling every twenty years, growth in the money supply has been intense in recent decades. While this explains the apparent functionality of our system during this time it should be clear that such a surge is not possible again. The main reason for this is that mortgages,
from which most of our money originates, now take two concurrent careers to repay and cannot increase further.

For the first time in history new money can only be borrowed into existence and there is no one willing or able to borrow any significant amount.

Looking forward to the resolution of a very unique recession, there are many possible ways in which we could run our economy better.

One such proposal is that of Sensible Money’s. It would involve a public organisation, most probably the Central Bank, gauging the need for money sufficient for trading within the economy.

The Central Bank would monitor signs that more money was needed to facilitate
business. Factors such as rising unemployment, inflation trends, increased credit card use, population growth, the velocity of money and so on could indicate an adjustment to the money supply was needed.

Once the required alteration was needed a new balance would be typed into the Government’s bank account whereupon the money would be indistinguishable from that collected through taxes. This money would be the modern day equivalent of the regular debt free additions of cash that previous economies required. Replacing cash with it's digital form is the easy bit.

Controlling the creation of money by banks needs a bit more thought. Perhaps the best way to do this is to define digital money as legal tender, as opposed to an
agreement to pay legal tender upon request. From then on banks could only lend existing money and would have to attract the funds they need for lending. No longer could they increase a borrower's account without lowering another.

Attracting funds for lending would be satisfied through the demographics of the country. A portion of the population would always be saving and assure the funds for would-be entrepreneurs. Inflation would be controlled through the permanency of the money supply. At present our money is regularly deleted through loan repayments. However under the proposal the money supply would rarely be lowered overall alleviating the constant pressure for new money, which can ultimately lead to inflation.

The transition would involve removing current accounts from the balance sheets of the banks. Still managed by the banks as legal tender, these accounts would have no place as liabilities of the banks. Debtors would also be removed as assets of the bank and would temporarily be accounted for at the Central Bank. As loans agreed before the transition date are settled the money would be transferred to the Central Bank whereupon it would be removed from existence as a victim of the double entry bookkeeping system which happens under the present system.

Since the vast majority of our money exists as the mortgage holders agreement to repay, we could expect the transition to last not longer than thirty years. After such a time, the entire money supply would exist debt-free overall and, if we got it right, business would be held back by things other than an inadequate medium of exchange.

For more detail on this proposal please visit www.sensiblemoney.ie.

[Ragnarok]

No mention of the imposition of interest on the money at the point of issuance. A reshuffling of the deck chairs on the sinking ship.

[Paul Ferguson]

Hi Ragnarok,

In the article we don't mention that currently money is issued by banks to be repaid with interest. This is why we owe more than exists as demonstrated by the chart at the link below;

http://www.sensiblemoney.ie/how-modern-economies-operate/#whats-dif...

Under the proposal however, banks wouldn't be allowed to create the money they lend. The entire money supply would be created by the state and would be entirely debt-free and hence interest-free at the point of issuance. I hope this helps.

Paul Ferguson

Sensible Money

Ragnarok said:

No mention of the imposition of interest on the money at the point of issuance. A reshuffling of the deck chairs on the sinking ship.


[bobby d]

Created by state and getting it's value from where?

[Jackie Grant Vel'oice: Harper]

Has anyone seen this?
Actually watched it?
Europe - Dicing With Debt - 45' min 28'' sec [12 March 2012]
Will Ireland spark another round of financial panic across the globe?

http://www.journeyman.tv/63215/documentaries/dicing-with-debt.html

[Jackie Grant Vel'oice: Harper]

"Was it fair that Ireland agreed to pay all failed bank bondholders, while holders of Greek Government debt are being asked to take losses? Many experts now agree Ireland will struggle to repay its debts, and the terms must be renegotiated. If that happens it's possible the reaction will set markets staggering again, in a new shock wave that will be felt beyond Europe" http://www.journeyman.tv/63215/documentaries/dicing-with-debt.html

Here is the transcript: http://www.journeyman.tv/?lid=63215&tmpl=transcript

[Jackie Grant Vel'oice: Harper]

COLM MCCARTHY: "The current position, just to be clear for your viewers, is that the Irish government - which is bust in the IMF programme - is being required to pay unguaranteed senior bondholders in banks that had been closed down. and that are no longer open for business. It's made the domestic political situation very difficult. because the government is seen as cutting expenditure, raising taxes. and it's doing both of those things, while it's simultaneously paying off people who bought bonds in banks that have gone bust many, many times over."

[A Solas]

bobby d said:

Created by state and getting it's value from where?

Guns, propaganda and psychotropic drugs.

[Paul Ferguson]

Hi Bobby D.

We are proposing a Fiat currency, or one which is not exchangable with any commodity at the central bank.

The reason for this is that a commodity currency is fixed and finite and a growing population with growing productivity needs more money to function well. Equally a natural lull in economic activity requires a lowering of the money supply to avoid inflation.

The money would have value simply because it could be exchange for goods and services in the future. It would also be the only legal tender and so you could only pay national taxes using it so this would give it value.

Any other worries?

Paul Ferguson
Sensible Money

[Ragnarok]

Can't forget the Human trafficking, black market organs and other nefarious generators of wealth.

A Solas said:

bobby d said:

Created by state and getting it's value from where?

Guns, propaganda and psychotropic drugs.

[Ragnarok]

Thanks for the clarification Paul

Paul Ferguson said:

Hi Ragnarok,

 

In the article we don't mention that currently money is issued by banks to be repaid with interest. This is why we owe more than exists as demonstrated by the chart at the link below;

  http://www.sensiblemoney.ie/how-modern-economies-operate/#whats-dif...

 

Under the proposal however, banks wouldn't be allowed to create the money they lend. The entire money supply would be created by the state and would be entirely debt-free and hence interest-free at the point of issuance. I hope this helps.

 

Paul Ferguson

Sensible Money
Ragnarok said:

No mention of the imposition of interest on the money at the point of issuance. A reshuffling of the deck chairs on the sinking ship.

[A Solas]

Paul, I don't go along with your ideas, they seem foolish, do you intend to force me to use your monopolistic currency?

[komurchu]

Paul, save yourself alot of time and effort, research "Mathematically Perfected Economy", a model designed by Mike Montagne and the only real alternative.