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 March 31, 2015  Posted by at 8:30 pm Finance Tagged with: , , , ,
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Gottscho-Schleisner Plaza buildings from Central Park, NY 1933

Who knew that the revolution would start with those radical Icelanders? It does, though. One Frosti Sigurjonsson, a lawmaker from the ruling Progress Party, issued a report today that suggests taking the power to create money away from commercial banks, and hand it to the central bank and, ultimately, Parliament.

Can’t see commercial banks in the western world be too happy with this. They must be contemplating wiping the island nation off the map. If accepted in the Iceland parliament , the plan would change the game in a very radical way. It would be successful too, because there is no bigger scourge on our economies than commercial banks creating money and then securitizing and selling off the loans they just created the money (credit) with.

Everyone, with the possible exception of Paul Krugman, understands why this is a very sound idea. Agence France Presse reports:

Iceland Looks At Ending Boom And Bust With Radical Money Plan

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

According to a study by four central bankers, the country has had “over 20 instances of financial crises of different types” since 1875, with “six serious multiple financial crisis episodes occurring every 15 years on average”. Mr Sigurjonsson said the problem each time arose from ballooning credit during a strong economic cycle.

He argued the central bank was unable to contain the credit boom, allowing inflation to rise and sparking exaggerated risk-taking and speculation, the threat of bank collapse and costly state interventions. In Iceland, as in other modern market economies, the central bank controls the creation of banknotes and coins but not the creation of all money, which occurs as soon as a commercial bank offers a line of credit. The central bank can only try to influence the money supply with its monetary policy tools.

Under the so-called Sovereign Money proposal, the country’s central bank would become the only creator of money. “Crucially, the power to create money is kept separate from the power to decide how that new money is used,” Mr Sigurjonsson wrote in the proposal. “As with the state budget, the parliament will debate the government’s proposal for allocation of new money,” he wrote.

Banks would continue to manage accounts and payments, and would serve as intermediaries between savers and lenders. Mr Sigurjonsson, a businessman and economist, was one of the masterminds behind Iceland’s household debt relief programme launched in May 2014 and aimed at helping the many Icelanders whose finances were strangled by inflation-indexed mortgages signed before the 2008 financial crisis.

Home Forums Iceland To Take Back The Power To Create Money

This topic contains 19 replies, has 13 voices, and was last updated by  Nick Egnatz 1 year, 8 months ago.

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  • #20216

    Gottscho-Schleisner Plaza buildings from Central Park, NY 1933 Who knew that the revolution would start with those radical Icelanders? It does, though
    [See the full post at: Iceland To Take Back The Power To Create Money]

    #20217

    DEG
    Participant

    It will be interesting to see what develops in Iceland. It’s obvious that this is the direction needed. Are TPTB strong enough to thwart this effort?

    I was married to an Icelander for 20 years and did business there. They are one big family. They are all well educated. If any culture can take their power back from the banksters, they can do it. Once they reach critical mass on anything, they always follow through.

    #20220

    Raleigh
    Participant

    Even the British Parliament held a debate (too bad more couldn’t have attended) on the creation of money, something that has not been debated for more than 170 years (since the Bank Charter Act of 1844 which prohibited the private banks from printing paper money). Michael Meacher begins at 1:08:

    “According to Bank of England figures for the decade until 2007, 31% of additional money created by bank lending went towards mortgage lending, 20% towards commercial property, and 32% to the financial sector, including mergers and acquisitions, and trading and financial markets. Those are really extraordinary figures. […] It means that only 8% went to businesses outside the financial sector, with a further 8% funding credit cards and personal loans. It is only this last sixth (the two 8%’s – lending to businesses and consumer credit) that has a real impact on GDP and economic growth, only that 16%.

    The conclusion I think is unavoidable: we cannot continue with a system where so little of the money created by banks is used for the purposes of economic growth and value creation, and instead…the overwhelming majority of the money created has the effect of inflating property prices, and therefore pushing up the cost of living.

    Now, in a nutshell, the banks have too much power and they have greatly abused it. Firstly, they have been granted enormous privileges since they can create wealth simply by writing an accounting entry on a register, and they decide who uses that wealth and for what purpose. And they have used that power of credit creation to hugely favour property and consumption lending over business investment because the returns are higher and more secure, and thus the banks maximize their own interests, but not the national interest.”

    http://market-ticker.org/akcs-www?post=229959

    #20221

    V. Arnold
    Participant

    @ Ilargi

    Thanks for that Krugman comment; I have never understood his apparent standing in the economic community.

    #20222

    Professorlocknload
    Participant

    First task is to define “money”, before figuring out how some anointed aparatchick is turned loose in “creating” it.

    #20224

    Professorlocknload
    Participant

    But then Gresham had a theory about that.

    #20225

    Raleigh
    Participant

    V. Arnold – Krugman is pretty much the laughing stock of the blogosphere, but because he speaks “bankerese”, the bought-and-paid-for media keep his name alive. The guy does nothing but kiss ass, toe the banker elite line. Isn’t life wonderful and laughable? A Nobel Peace Prize for Obama and a pseudo-Nobel in economics for Krugman. That says it all!

    We also have the Supreme Court case in Canada that Ilargi posted a few days ago:

    http://www.globalresearch.ca/the-case-to-reinstate-the-bank-of-canada/5430132

    #20226

    polistra
    Participant

    I don’t think the location of money creation matters nearly as much as the event which causes value to increase.

    The real problem is not that banks can increase the supply; the problem is that LOANS are the event that triggers creation.

    Loans do not create value. Labor and investment are the sources of value, whether the investment came from borrowing or from saving. And it’s tremendously better for everyone when the investment comes from saving.

    Ideally the banks (or some other agency) should increase money supply whenever they see a transaction that increases REAL VALUE. Part of this mechanism already exists in many countries. The VAT registers creations of value. If banks can increase the supply of money to match the numbers given by VAT, we’d have a real-value system.

    #20228

    XYZ
    Participant

    Hello,

    Polistra wrote:
    “Ideally the banks (or some other agency) should increase money supply whenever they see a transaction that increases REAL VALUE. Part of this mechanism already exists in many countries. The VAT registers creations of value. If banks can increase the supply of money to match the numbers given by VAT, we’d have a real-value system.”

    That is an interesting idea. Could you elaborate on that?

    For example, would banks receive a credit allocation? How would that allocation be calculated? It would certainly be useful to provide smaller, local banks with room to grow while scaling down the larger banks.

    Would a return to Glass-Steagall still be a useful reform?

    A VAT-based system is an interesting starting point that raises many questions.

    Ciao,
    XYZ

    #20229

    Dr. Diablo
    Participant

    Wonderful to see it discussed at last. In ‘high’ places. That’s certainly a critical first step, because a child can see the present system is failed.

    However, no one can tell what adds ‘value’. How about binary math, so critical to the function of the modern world? Sorry, ‘invented’ in 1679. Fiber optics? Gorilla Glass? 1870 and 1960, respectively. Flying cars? Invented ages ago but never valuable. ‘Tis a muddle.

    At the same time, government overseeing money NEVER works. Ever. That’s how the present Central banks were chartered, and although perhaps independent at first, the two quickly form an alliance to support each other at the expense of people who actually create ‘value’ (whatever that is) and material goods with their labor. Whoever creates money cannot be trusted, as Meyer Rothschild so aptly said, “Give me control of a nation’s money and I care not who makes its laws”, because, as they found when they disbanded the 2nd U.S. Central bank after a mere 20 years in 1836, nearly every U.S. Congressman was already on the payroll of the bank. (The present U.S. bank has been in place 102 years.)

    So why should anyone control the money supply at all? Well, to prevent the business cycle, presumably, to stop the breathing in and breathing out of living systems, which has created disaster merely EVERY time in HISTORY it has been tried, storing up 4, 10, 100 winters in a row to cascade on the economy all at once, destroying the children of the system’s founders. …But who cares about them, right? Party on Wayne.

    Anyway, if you’re not d–n fool enough to hubristically attempt to stop all economic season and cycle, then you find nobody needs to authorize, create, or monitor money or its supply. Without decree, money–or base money, anyway, not its paper derivatives–tends to be a commodity. This commodity will fluctuate in value as all things do, although it is used as the yardstick and counting measure. That is fine, it causes no problems that aren’t there anyway. The one thing it DOES do, however, is contain the fraud, theft, and power of men and their governments, because ultimately they cannot create this base commodity out of thin air. They have to do work. They have to put up. Their attempted controls of this commodity are more visible to others to defend themselves. Any time men are involved in creating, controlling, or dispensing the money, you have to ask, quis custodiet ipsos custodes? Who watches the watchmen? Bad men circle the system of power until they find a way to overtake and control it, and you’re back where you started. We have no way to cure the ambition of men; the best we can do is make distributed systems which lack power centers which can be hijacked against us.

    Any system that starts, “we will give the Department of X unrestrained power over money” is certain to be a system that destroys you, regardless of who X is.

    #20242

    John Day
    Participant

    It’s DIABOLICAL!
    I love the concept of Iceland making bankers into simple bookkeepers.
    It one-ups the Bank of North Dakota in a way.
    Yes, this smacks of the kind of change which could actually be brought about and could dovetail into the transition of money into a steady state system. This is a reset, which could be reset as needed, but politically, not by game theory.
    It does not require systemic collapse in order to come about.
    Go Iceland!

    #20243

    Mcatter
    Participant

    They would be wise to get rid of their currency and create the worlds first digital currency controlled by the Central Bank using the blockchain technology. The could control credit issuance, cut costs while having a eye on every transaction. They could then move to eliminate taxes and implement a consumption tax which would eliminate non taxed transactions. The Bank of England, in a report in September 2014, described the blockchain’s open ledger as a “significant innovation” that could transform the financial system more generally.

    http://www.reuters.com/article/2015/03/12/us-bitcoin-ibm-idUSKBN0M82KB20150312

    #20245

    John Day
    Participant
    #20275

    Nick Egnatz
    Participant

    Money is an abstract legal Power that belongs to the state to promote the general welfare of its people by enabling trade and commerce to exist and flourish in a society.
    Linking Social Justice to Monetary Reform should help understanding the nature of money.
    http://www.alpheus.org/linking-social-justice-to-monetary-reform/

    #20287

    Justin Walker
    Participant

    All is perhaps not quite what it seems. A bit worried about Iceland issuing its money through its central bank which is ultimately controlled by the very little known Bank for International Settlements (https://www.bis.org/about/member_cb.htm?m=1%7C2%7C601), a secretive and elitist bank which oversees 95% of the world’s money supply and which is where the leading banking dynasties control what goes on. If Iceland is to have its own sovereign money which is debt-free and interest-free, it must be issued by the nation’s treasury and the elected government must decide how that money is to be used. Please check out the Bradbury Pound which illustrates this very well http://www.britishconstitutiongroup.com/campaign/bring-back-the-bradbury

    #20297

    bailintheboat
    Participant

    To the government, more government is always the solution. Politics never distorted any “issue”, right?

    #20301

    Nick Egnatz
    Participant

    “True monetary reform must take a better path. The American Monetary Institute’s (monetary.org) research indicates that money, properly defined, is a legal institution of society and government; not a commodity or economic good of the markets; that if money is a legal institution, then the control of monetary systems can be rightfully viewed as a proper function of government; much as the law courts are.” Stephen Zarlenga, Director

    #20302

    Nick Egnatz
    Participant

    “The Mistake lies in fearing money and trusting debt.”
    Henry Simons, University of Chicago economist from the depths of the Great Depression in the 1930s

    #20303

    Nick Egnatz
    Participant

    “When society loses control over its money system, it loses any control it might have had over its destiny.” Stephen Zarlenga, Director American Monetary Institute

    #20304

    Nick Egnatz
    Participant

    For those that fear government being in charge of money creation, how can you be comfortable with the current system of banks creating our money? With the current system we need only listen to U.S. Senator Richard Durbin when he famously said that “the banks own Congress.”
    The only way the people can own the U.S. Congress or any other government is if the government creates the money. Otherwise who ever creates the money will own Congress or any other government.

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