Monetary Reform in Ireland

[Jimbo1]

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.

 

[Sunny]

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?

 

[Jimbo1]

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

 

[Purple]

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

Explain what will happen to money supply when this happens.

 

[DannyL]

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.

 

[DannyL]

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.

 

[Chris]

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.

 

[Jimbo1]

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.

 

[Chris]

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.

 

[Jimbo1]

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.

 

[Purple]

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.

 

[Jim2007]

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.

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...

 

[Chris]

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.

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.

 

[urbane]

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

 

[Donald]

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.

 

[Donald]

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

 

[Donald]

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).

 

[Donald]

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?

 

[Jim2007]

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....

 

[urbane]

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.