# Monetary Reform in Ireland



## Jimbo1 (19 Sep 2012)

The fundamental problem is that in Ireland, and indeed all EU countries including the UK, up to 97% of the money supply, which is represented by the digital numbers on computers, is credit, created by private banks as interest-bearing debt. The remaining 3% of the money supply is cash, created by the Irish Central Bank, and approved by the European Central Bank. 


The Irish State rightly benefits from the cash component of the money supply. This is called seigniorage. However, the Irish state currently gets no benefit by allowing private banks to issue the remaining 97% of the digital money supply. 


This system is currently having enormous negative consequences on our society, with emigration once again and mass unemployment. In order to address this, complete reform and redesign of the process by which digital money is created must be recognised by Irish economists and politicians as the "greatest public policy challenge of the 21st century".

There is an alternative solution to our current banking system, and our system of money creation - which is known as fractional reserve banking.


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## Sunny (19 Sep 2012)

What do you think fractional reserve banking is or are you saying we need to look at alternatives of fractional reserve banking? What's your alternative system?


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## Jimbo1 (20 Sep 2012)

*Full Reserve Banking*

Fractional reserve banking is the ability of banks to create money out of thin air for their own benefit. This is our current system of banking.

Full reserve banking is when the Government issues 100% of the money supply credit as well as cash.

Full Reserve Banking means no more banking crises, no more booms and no more busts.

I can explain more if you wish


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## Purple (20 Sep 2012)

Jimbo1 said:


> Fractional reserve banking is the ability of banks to create money out of thin air for their own benefit. This is our current system of banking.
> 
> Full reserve banking is when the Government issues 100% of the money supply credit as well as cash.
> 
> ...



Explain what will happen to money supply when this happens.


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## DannyL (20 Sep 2012)

I recommend _End of The Road _to everyone interested in the subject. It's a documentary about current monetary chaos and where it may lead us. It's on Netflix and easily findable online.


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## DannyL (20 Sep 2012)

Jimbo1 said:


> Full Reserve Banking means no more banking crises, no more booms and no more busts.


I disagree with you on that one. Even gold standard can't procect you from booms and busts. They are just a part of free market economy and change of trends. 

What would be completely eliminated is inflation though.


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## Chris (20 Sep 2012)

Jimbo1 said:


> Fractional reserve banking is the ability of banks to create money out of thin air for their own benefit. This is our current system of banking.
> 
> Full reserve banking is when the Government issues 100% of the money supply credit as well as cash.



No, full reserve banking is when nobody can legally create mo ey out of thin air. This is not achieved by giving the government the sole authority over credit creation. I would trust politicians as much as central bankers when it comes to being in charge of mo ey creation.
If you want positive monetary reform then allow competing currencies through a free banking system. Precious metals would very quickly emerge as the winners.


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## Jimbo1 (24 Sep 2012)

I am involved in two organisations Positive Money for the UK and Sensible Money for Ireland, both of which are advocating for monetary reform. Check them out for detailed solutions to the problems we currently have.


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## Chris (25 Sep 2012)

I had a quick look at the site you refer to and I do not believe that your propositions would make any difference. 
Quite: "The central bank would decide how much to create and the Government would decide how best to spend. This is the main safeguard against hyperinflation."
Do you honestly believe that a government controlled central bank first of all knows how much more money is needed and secondly would not create more money than needed to keep politicians happy? And the statement about government deciding how best to spend it just made me laugh. What you are advocating is exactly how the biggest hyperinflations of world history happened, i.e. central banks directly monetizing government debt and spending.
The main safeguard against hyperinflation is to physically back money with something that cannot be easily created.


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## Jimbo1 (26 Sep 2012)

*Money Supply*

Hi Chris,

what we are proposing is to first of all stabilise the money supply. Currently the money supply is falling in Ireland, because people who can are repaying loans and banks are reluctant to lend causing the money supply to drop. The evidence for this is that house prices continue to fall and further job losses and bankruptcies are inevitable. We are in a deflationary spiral.

The proposal is to increase the money supply by spending it on creating new infrastructure, schools roads ports rapid transport etc. By creating new goods and services with the increase in the money supply there will be no inflation.

I am familiar with the UK figures and the money supply there increased by 10% year on year every year for 40-years up till the end of the boom in 2007. 

Monetary reformers are calling for an increase of at most 3% per annum in the money supply, which would be alot less historically than under fractional reserve banking and would herald in a new era of almost 0% inflation.


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## Purple (26 Sep 2012)

Jimbo1 said:


> Monetary reformers are calling for an increase of at most 3% per annum in the money supply, which would be alot less historically than under fractional reserve banking and would herald in a new era of almost 0% inflation.



Gordon Browne, when UK Chancellor of the Exchequer, gave his now infamous speech about the end of boom-bust cycles. 
The only thing that will do that is a change in human nature. As long as we are capable of feeling fear and allowing our emotions to influence our thought processes we will have booms and busts. As long as investment is media led and as long as funds track the indices  we will have booms and busts. The only thing we can hope for is that this particular lesson of history is not forgotten as quickly as most are forgotten.


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## Jim2007 (26 Sep 2012)

Jimbo1 said:


> Hi Chris,
> 
> what we are proposing is to first of all stabilise the money supply. Currently the money supply is falling in Ireland, because people who can are repaying loans and banks are reluctant to lend causing the money supply to drop. The evidence for this is that house prices continue to fall and further job losses and bankruptcies are inevitable. We are in a deflationary spiral.
> 
> ...



Just one of the many flaws in your understanding of economics - Ireland has little or no control over money supply and any attempt to do so would be uncontrolled...


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## Chris (26 Sep 2012)

Jimbo1 said:


> Hi Chris,
> 
> what we are proposing is to first of all stabilise the money supply. Currently the money supply is falling in Ireland, because people who can are repaying loans and banks are reluctant to lend causing the money supply to drop. The evidence for this is that house prices continue to fall and further job losses and bankruptcies are inevitable. We are in a deflationary spiral.
> 
> ...



Ireland is not in a deflationary spiral, everything except houses are up. My car insurance renewal came today and it's up, my health insurance is up, I've been monitoring food prices for 9 months by keeping receipts and they are up a lot more than what the government figures show, my tank of oil is up 15%, coal is up 8%, petrol is up, taxes are up, the list goes on.
It is total nonsense to suggest that we are in price deflation. But even if we had price deflation then why on earth would that be a bad thing for the cash strapped public? When prices fall then more people can afford to buy stuff, which especially affects those least well off. 
Your recommendation is create inflation and drive prices even higher. That is the last thing this country needs.


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## urbane (28 Sep 2012)

The ECB lends money to private banks. They make money on this. The private banks dont profit from seignorage.


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## Donald (29 Sep 2012)

DannyL said:


> I disagree with you on that one. Even gold standard can't procect you from booms and busts. They are just a part of free market economy and change of trends.
> 
> What would be completely eliminated is inflation though.



You say that you agree that it would eliminate inflation but not stop booms and busts.  The boom is inflation. Asset inflation.  The gold standard could protect you from booms and busts if used in the correct manner (alongside credit controls etc.)  The problem with the gold standard as I see it is that they get rid of it in times or war, lack of confidence (in the ratio of gold to paper money) or simply when people want to exchange their money for gold reserves at 25 to 1 (just an example, I have no idea what the ratio would be).  But my understanding, is that it matters not what backs a currency as it is the quantity of the currency in circulation which is most important.


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## Donald (29 Sep 2012)

urbane said:


> The ECB lends money to private banks. They make money on this. The private banks dont profit from seignorage.



Could you give me your source on the ECB lending money to the private banks of the EU?  I dont believe this to be true.  I think they only have control of the base rate and the responsibility for bank bailouts(lenders of last resort).  The private banks create their own 'credit' money.  Your right though, banks don't profit from seignorage.  Only the treasury/government of a sovereign nation would.  As Ireland has given up their sovereignty to the technocrats of Goldman Sachs, Im not sure who would take the profit.  But I would still guess that it would be the governments of the nation states of the EU.  Not sure


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## Donald (29 Sep 2012)

Chris said:


> Ireland is not in a deflationary spiral, everything except houses are up. My car insurance renewal came today and it's up, my health insurance is up, I've been monitoring food prices for 9 months by keeping receipts and they are up a lot more than what the government figures show, my tank of oil is up 15%, coal is up 8%, petrol is up, taxes are up, the list goes on.
> It is total nonsense to suggest that we are in price deflation. But even if we had price deflation then why on earth would that be a bad thing for the cash strapped public? When prices fall then more people can afford to buy stuff, which especially affects those least well off.
> Your recommendation is create inflation and drive prices even higher. That is the last thing this country needs.



We are in a deflationary period.  You say its nonsense that the inflation rare is reducing? The CPI would be a better indicator (though not perfect) than individual markets.  Auto insurance could be going up for instance due to more claims, loss of revenue from investments, profit etc.  Oil and petrol, due to a lessened supply, a rise in demand, a consequence of peak oil, or IMO market speculation.  Tax rises would be due to a fall in tax revenue because of an increase to benefit claims and a corresponding fall in GDP (job losses and a drop in corporation tax etc.), an attempt to balance the budget, etc.  I dont think you will find any support for deflation by any economist.  Prices get cheaper as the cash strapped public don't spend enough to keep businesses profitable.  So businesses reduce their profit margins to weather the storm and reduce stock.  As prices get cheaper, people hold on to their money expecting them to get cheaper, and cheaper. And thus businesses go bust, people lose their jobs and join the dole que which is reflected in higher taxes.  Its important to note that the markets are anything but free.  They are completely manipulated by speculators or even computers now a days (70% high frequency trading).


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## Donald (29 Sep 2012)

Chris said:


> I had a quick look at the site you refer to and I do not believe that your propositions would make any difference.
> Quite: "The central bank would decide how much to create and the Government would decide how best to spend. This is the main safeguard against hyperinflation."
> Do you honestly believe that a government controlled central bank first of all knows how much more money is needed and secondly would not create more money than needed to keep politicians happy? And the statement about government deciding how best to spend it just made me laugh. What you are advocating is exactly how the biggest hyperinflations of world history happened, i.e. central banks directly monetizing government debt and spending.
> The main safeguard against hyperinflation is to physically back money with something that cannot be easily created.


I had a quick look (3 hrs.) at the Positive Money website also (UK).  It doesn't say that the central bank should create the money.  It says an independent, accountable body with full transparency should create it. Government should have no influence as well as the Central Bank (as vote seeking politicians and profit seeking bankers can not be trusted)  using all of the tools available to monitor the inflation rate (including mortgages) with a target set at (0% to 2%). I don't see how you can see this as inflationary let alone hyper inflationary.  As the inflation rate rises, they stop creating currency. End of.  The money will be created and spent democratically for social benefit, or it could be used to make up for a lessened tax revenue when regressive taxes are abolished (VAT)or tax being completely removed from the poorer in society, thus creating more spending power for the public at large to pay down debt or to spend.  You advocate backing a currency with something that cant be easily created, but if the currency itself cannot be easily created, would it not make a reserve system obsolete and out dated?


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## Jim2007 (29 Sep 2012)

Donald said:


> As the inflation rate rises, they stop creating currency. End of.  The money will be created and spent democratically for social benefit, or it could be used to make up for a lessened tax revenue when regressive taxes are abolished (VAT)or tax being completely removed from the poorer in society, thus creating more spending power for the public at large to pay down debt or to spend.



This totally ignores the basic function that money plays in an open economy!  Me thinks it's for some 101 economics....


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## urbane (29 Sep 2012)

Donald said:


> Could you give me your source on the ECB lending money to the private banks of the EU?  I dont believe this to be true.  I think they only have control of the base rate and the responsibility for bank bailouts(lenders of last resort).  The private banks create their own 'credit' money.  Your right though, banks don't profit from seignorage.  Only the treasury/government of a sovereign nation would.  As Ireland has given up their sovereignty to the technocrats of Goldman Sachs, Im not sure who would take the profit.  But I would still guess that it would be the governments of the nation states of the EU.  Not sure



The base rate is the rate at which the ECB lends to private banks. The ECB lends in a variety of ways. Its all on the ECB website.

They also take overnight deposits.


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## Donald (29 Sep 2012)

urbane said:


> The base rate is the rate at which the ECB lends to private banks. The ECB lends in a variety of ways. Its all on the ECB website.
> 
> They also take overnight deposits.



Ill take a look, but i'm sure its in regards to reserves, not broad money.  Assuming that it works the same way as the B of E. Using Repos, Reverse Repos, Discount Window, etc.,and as of late the outright purchasing of Government debt.  You didn't mention Base money so I assumed you meant Broad money as we the people don't use Central Bank Reserves besides the coins and paper money in circulation (%2.6 in the U.K.)

You were right!  Holy crap!  Ireland has no control via their Central Bank except for borrowing and paying back loans to the ECB.  Quite sad isn't it.  Sold their soul for a penny roll.  Thanks for the chat


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## Donald (29 Sep 2012)

Jim2007 said:


> This totally ignores the basic function that money plays in an open economy!  Me thinks it's for some 101 economics....



Deflection, brilliant! I know plenty about what 'basic function' money plays.  Its no secret.  Store of value, unit of account, means of exchange, means of final payment...Obviously I don't have the time to fill in the blanks for you Jim. You can also keep your patronizing comments to yourself. Am I chatting to a teenager or a man?  One wonders.  If you've studied Economics and didn't see this financial crisis coming, i'm afraid you don't have much to add to the conversation, except the same old repetitive rubbish that has done nothing but land us in the situation we are in today.  Delusions of grandeur will get you nowhere in life.  

It seems the I.M.F. totally ignores the basic function of money as well.  Just if they would have asked Jim2007, could have saved a lot of time and effort.  Google, IMF 'The Chicago Plan revisited'  Showing the benefits of %100 reserve banking.


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## urbane (1 Oct 2012)

Donald said:


> You were right!  Holy crap!  Ireland has no control via their Central Bank except for borrowing and paying back loans to the ECB.  Quite sad isn't it.  Sold their soul for a penny roll.  Thanks for the chat



Yep, Irish Central Bank is just a branch of the ECB, a bit like your local AIB is just a branch.

If it's any consolation we never really had proper control of the money supply, just partial control from about 1979 to 1999.


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## Chris (2 Oct 2012)

Donald said:


> We are in a deflationary period.  You say its nonsense that the inflation rare is reducing? The CPI would be a better indicator (though not perfect) than individual markets.  Auto insurance could be going up for instance due to more claims, loss of revenue from investments, profit etc.  Oil and petrol, due to a lessened supply, a rise in demand, a consequence of peak oil, or IMO market speculation.  Tax rises would be due to a fall in tax revenue because of an increase to benefit claims and a corresponding fall in GDP (job losses and a drop in corporation tax etc.), an attempt to balance the budget, etc.  I dont think you will find any support for deflation by any economist.  Prices get cheaper as the cash strapped public don't spend enough to keep businesses profitable.  So businesses reduce their profit margins to weather the storm and reduce stock.  As prices get cheaper, people hold on to their money expecting them to get cheaper, and cheaper. And thus businesses go bust, people lose their jobs and join the dole que which is reflected in higher taxes.  Its important to note that the markets are anything but free.  They are completely manipulated by speculators or even computers now a days (70% high frequency trading).


Ok, so let's look at the CPI. It is up, not down.
It is also total nonsense to say that people do not buy stuff as the prices go down. There is absolutely no way you can say that less mobile phones and computers are being sold each year because prices are going down and quality up. As prices go down more people are able to afford the goods meaning that there are more potential customers.
You are also completely ignoring input price for businesses. If there were wide spread price deflation then businesses would be able to lower their prices because their input costs would also go down. The price level doesn't matter to a business, only the margin.
Prices falling is the best thing that could happen.




Donald said:


> I had a quick look (3 hrs.) at the Positive Money website also (UK).  It doesn't say that the central bank should create the money.  It says an independent, accountable body with full transparency should create it. Government should have no influence as well as the Central Bank (as vote seeking politicians and profit seeking bankers can not be trusted)  using all of the tools available to monitor the inflation rate (including mortgages) with a target set at (0% to 2%). I don't see how you can see this as inflationary let alone hyper inflationary.  As the inflation rate rises, they stop creating currency. End of.  The money will be created and spent democratically for social benefit, or it could be used to make up for a lessened tax revenue when regressive taxes are abolished (VAT)or tax being completely removed from the poorer in society, thus creating more spending power for the public at large to pay down debt or to spend.  You advocate backing a currency with something that cant be easily created, but if the currency itself cannot be easily created, would it not make a reserve system obsolete and out dated?


But we already have a 2% target, but rather than a ceiling it has become a floor. Any amount of new money added to an economy results in the overall price level being higher than it otherwise would be. If without newly added money the price level were to shrink by 5% but with new money it were to shrink by on 2% then there is still inflation, as prices would be higher than without the intervention. 
If money printing is all it takes to achieve prosperity, then why are there poor countries? Why isn't Zimbabwe booming? Money is only a medium of exchange, it does not in itself create prosperity or wealth.


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## Jim2007 (2 Oct 2012)

Chris said:


> It is also total nonsense to say that people do not buy stuff as the prices go down. There is absolutely no way you can say that less mobile phones and computers are being sold each year because prices are going down and quality up. As prices go down more people are able to afford the goods meaning that there are more potential customers.



The problem with economics is that it assumes people act rationally, despite ample evidence to the contrary!  So yes in countries such as Ireland who have technically experienced deflation it has not been long enough to mould behaviour and so people tend to buy more when the prices start to fall.  However in Japan, where they truly experienced long term deflation, things are indeed different - purchasing decisions  are often put off by both individuals and companies on the basis that thing could well be cheaper in a few months time!

I well remember in the 1990s working with some Japanese people here in Switzerland, who were unimpressed with sales and special offers by the Swiss shops, as they always expected things would be cheaper next month anyways.... by the same token I remember we had a Brazilian woman with us, who for about the first six months kept acting as if she was still in Brazil, every month on pay day, she withdrew her salary from the bank and bought up as much goods as possible on the assumption that the prices would have doubled by the next month!  In both cases it took many many months before they accepted that in Switzerland things were very stable and that we had neither rampant inflation or deflation...

The assumption that people act rationally is one of the reason why so many economic theories have crashed and burned over the years.


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## Jimbo1 (3 Oct 2012)

*Irish Money Supply*



Jim2007 said:


> This totally ignores the basic function that money plays in an open economy! Me thinks it's for some 101 economics....


 
The Irish Money supply is dropping year on year. By money supply I mean money in circulation bank-account money 94% and cash 6% in Ireland. what is happening is that the money supply is dropping year on year becasue the bank-account money in criculation is dropping. This explains the fall in all asset prices particularly houses and the increase in unemploymnet and emigration.

As Milton Friedman famously said it's all about the money supply and I mean the real money supply - the money in circualtion.


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## Paul F (3 Oct 2012)

I think a lot of the confusion over how money is created and destroyed can be addressed by looking at Positive Money's 'Banking 101 course' document or 'How Banks Create and Destroy Money' by an organisation I'm involved with, Sensible Money.

Positive Money also do a great job of describing what economists learn in theory about money creation and show how very little of it translates well into practise. Primarily both organisations are trying to educate about banking but we each have the same proposal for how to fix the economy if the debate gets that far.

Paul Ferguson
Sensible Money


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## Chris (5 Oct 2012)

Jim2007 said:


> The problem with economics is that it assumes people act rationally, despite ample evidence to the contrary!  So yes in countries such as Ireland who have technically experienced deflation it has not been long enough to mould behaviour and so people tend to buy more when the prices start to fall.  However in Japan, where they truly experienced long term deflation, things are indeed different - purchasing decisions  are often put off by both individuals and companies on the basis that thing could well be cheaper in a few months time!
> 
> I well remember in the 1990s working with some Japanese people here in Switzerland, who were unimpressed with sales and special offers by the Swiss shops, as they always expected things would be cheaper next month anyways.... by the same token I remember we had a Brazilian woman with us, who for about the first six months kept acting as if she was still in Brazil, every month on pay day, she withdrew her salary from the bank and bought up as much goods as possible on the assumption that the prices would have doubled by the next month!  In both cases it took many many months before they accepted that in Switzerland things were very stable and that we had neither rampant inflation or deflation...
> 
> The assumption that people act rationally is one of the reason why so many economic theories have crashed and burned over the years.


Japan has not suffered deflation, their CPI is practically unchanged for the last 20 years. That is not deflation by any stretch of the imagination. 
The ability to buy stuff is dependent on the ability to first produce stuff.



Jimbo1 said:


> The Irish Money supply is dropping year on year. By money supply I mean money in circulation bank-account money 94% and cash 6% in Ireland. what is happening is that the money supply is dropping year on year becasue the bank-account money in criculation is dropping. This explains the fall in all asset prices particularly houses and the increase in unemploymnet and emigration.
> 
> As Milton Friedman famously said it's all about the money supply and I mean the real money supply - the money in circualtion.


Irish money supply has been dropping because first of all corporations had to move their money to safer banks which simply do not exist in Ireland; and secondly because many private citizens moved their money out of the country, so it is technically no longer counted as Irish money supply, even though it is still held by Irish residents. 

The reason asset prices are dropping is because we had a massive bubble. Bubbles burst, sometimes in a spectacular fashion, and that is a good thing. What you seem to be advocating is a reinflation of a bubble by increasing the money supply.

But let me ask you this. How will creating new money, directly by government, not result in all other prices except for some assets to go up?


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