Excerpted from Mira Tekelova’s review of the Positive Money conference.
“Josh Ryan Collins one of the co-authors of “Where does Money come From?” along with Tony Greenham, Prof Richard Werner and Positive Money’s Andrew Jackson, spoke enthusiastically and clearly on “Why there is so much ignorance about how the monetary system works.” Josh is clearly a master of his subject.
He said that he agreed with Steve Baker that there is not a conspiracy of silence on the matter of money creation, “It is just lack of knowledge.”
Josh said that “Positive Money gave us a great deal of help” with this project. He spoke about how Professor Richard Werner coined the term quantitative easing – but has not been happy with the manner in which it was implemented.
He set about demolishing some of the common myths, starting with the notion that banks are intermediaries, simply on-lending money that already exists. As he pointed out, banks are creators of brand new purchasing power. Every bank deposit is money. You can use it to pay your taxes.
Banks create this money “on the basis of their confidence”, or in some cases, “not on their confidence” that you will pay it back – which was what securitisation was all about.
He addressed the concept of the “money multiplier” and said that this was “no longer the case.” There is no compulsory liquidity reserve ratio. He said there was a better way of looking at it – there are reserves which are required for interbank payments, and banks lend basically on the basis of confidence. “The truth is they make loans first and look for reserves later.”
A third myth is that the Bank of England can directly affect credit creation through changing interest rates. He said that the truth is that if the High Street bank doesn’t have confidence, then it won’t lend, regardless of the interest rate.
A fourth myth is that credit allocation is demand driven. The truth was that credit allocation is rationed by the banks. They are incentivised to lend to short-term, quick-profit projects and into property. Indeed, he stated that the trend of modern bank lending is increasingly socially useless. The broad pattern is towards speculative and consumptive lending.
Another myth was that if we start controlling credit then we will somehow be turning into a communist state. However, only 30 years ago there were various government imposed controls over credit.
He concluded by stating that the present monetary system is systemically dysfunctional. The global debt crisis will not be solved by traditional Keynesian stimulus. This can only be done through the Positive Money reform that we are hearing about today.”