What monetary reform is all about is to promote a bill that has already been drafted in various formulations here in the USA. One in the 1930s and one from 2012. And it concerns a radical change in the current monetary system.
In western countries, the proportion of bank money is about 93-97%. If everyone were to pay off their debt, only a very small amount of money would remain (3-7%).
What most people, including bankers and economists, do not understand is that the money supply comes from banks issuing credit. Most people think that if you borrow for example $200,000, a bank already has that money in the form of deposits from other customers (or equity), and then passes that amount on to the borrower. Not so. The bank creates credit as debt which ‘circulates’ in the economy as if it were money. And when you pay off your loan, the principal is written off, and the money supply decreases (sort of destroying that money). The interest goes into the pocket of the bank.
This sounds counter-intuitive, but this phenomenon has long been known to some economists, sociologists, historians, politicians and critics. Only a few see the consequence that an economic article of faith, i.e. investments follow from savings, is incorrect. The savings are the result of bank lending.
The credit-based monetary system is inherently unstable. If the bank debts are not paid properly, the bank money loses its backing. The government must then help. In this system, the greatest concern is that everyone continues to pay their debts properly. However, debt levels have become unsustainable. In a non-commercial monetary system, this could be easily solved, by putting extra cash into circulation with which to pay off debts. However, the current credit-based monetary system focuses on commercial exploitation. In that system, no debts can be canceled and no money can be given away “for nothing.” Within this commercial system, unsustainable debts will have to be addressed through inflation. This prevents the loss generated by the rickety monetary system from ending up with the banks. The public and society are left with the tab. That is unnecessary and perverse. Hence, I am recruiting you to promote a monetary system that serves society, rather than the oligarchy that exploits it for its convenience.
The very dangerous side of this system lies in the short-term thinking of the banks. Most people expect banks to be prudent, but they are not. Too many loans when things are going well in a boom, and too few during a bust. As a result, the money supply and the economy fluctuate like a yo-yo with repeated financial crises and dramatic consequences for the citizen.
Some even think that this ‘invention’ of bank money is the semi-secret engine of imperialist capitalism and is pushing the world to its doom. All this bank money is manically looking for returns and just waltzes over citizens, governments and nature in search of the greatest possible profit.
What we are now proposing is a system of sovereign, stable money that is issued by the state and managed by a monetary authority. Banks are no longer allowed to create money themselves and will finance their loans with either their own capital, raised capital or savings.
And the monetary authority then has the responsibility to ensure that enough money flows through the economy such that neither inflation nor deflation takes place. And a growing and stable economy thus needs a proportional increase in the money supply, which is calculated by the monetary authority and then gives Congress the green light to spend it democratically as debt-free money.
According to economic analyses and computer models, this system has the advantage that bank runs will no longer take place, the economy is more stable, economic inequality decreases, and that public debt and debt in general will decrease. And because the state now (again) has the right to be the first to spend new money, and it can do this democratically, there is much more leeway to tackle the major social problems. The austerity mindset can be lifted and society can be freed from the political power and malignant priorities of the banking system. Banks naturally have a social function, such as evaluating the creditworthiness of citizens and companies, but they are no longer allowed to run the monetary system.
The monetary system should be seen as a utility company and history provides many examples that the state can do this better than private institutions.
In the Netherlands, our sister organization is called Ons Geld (Our Money) and has put this subject on the political agenda through a citizens’ initiative and with the help of the theater group De Verleiders (The Seducers) and their play Door de Bank Genomen (Taken by the Bank). The political process is a bit slow, but they continue to work towards a socially responsible monetary system.