Foray into an area reserved too: money - Part 2
Foray into an area reserved too: money - Part 2
I come back on a very good study by ATTAC independent group that not only returns to the basic historical that led us to the current economic situation of the entire planet, but was widely anticipated and explained the risks that have occurred since the book which dates from 2004 ... the group continues its observations and interventions, and I am personally quite agree with their conclusions, and history:
See beginning Part 1
Creation ex nihilo by banks
Explain this effect with an example:
Let's say you make a deposit of 1,000 euro notes (also called base money "first level") with your bank. Not only that bank can then use its discretion to those 1,000 euros, knowing that you must (it is written in his books), but also because of the deposit, it is allowed to open, for another customer, a credit in the amount slightly lower, the difference being which corresponds to "reserve requirements". If this reserve is 10 to 100, a "reserve ratio" or "coverage" c = 0.1, your deposit of 1,000 euros allows your bank to open 1,000 x (1 -0.1) = 900 euros of extra credit (or credit second level) for another client. The latter, by spending it, draws a check which will inevitably lead to a bank, or another, and it will then open, too, an additional credit of 90 900 less mandatory reserve or 810 euro credit graduate level. The bank will therefore 900 + 810 = 1,710 euros on its deposit account. At the fourth level of the chain of credit from another bank will create even 729 euros, 656 euros a fifth, etc. This is a mathematical series whose theory shows that the sum of all these appropriations from the initial 1,000 euros is 1 / c, in this case 1/0,1 = 10 times the initial amount. In other words, if the reserve requirement imposes a coverage c, banks can increase the credit they create the multiplier N = 1 / c.
Until the 1970s, each country was free to set its own coverage. But the activity of banks has become increasingly international, it was necessary to harmonize these rates. The first agreement was signed in Basel in 1974 and a common value was first adopted by a dozen major Western countries, and then accepted by over 100 countries in 1988, it is the ratio Cooke which set the mandatory reserve c = 8%. This system gave then to the secondary banks the opportunity to multiply 12.5 by the amount of bank money in circulation.
The only limit to creation is the risk to the bank if ready for clients unable to repay, to be drawn into their bankruptcy. This "cover" had no other purpose than to avoid the danger to banks.
Arbitrary power, unknown and dangerous
This privilege to pay N times more than what is given to them give private banks and other credit institutions arbitrary power over the economy: they have the choice of customers for whom they are creating this currency, and they are taking full benefit by the interest that they require. While they do not bear all the risk because funds that are open and are private money without warranty, unlike the monetary base.
This is a huge hidden power, so misunderstood, because private money and monetary supply the same accounts, which can be drawn from the same checks. And private currency and legal tender blend for use, credits are created ex nihilo indeed change for those receiving checks as payment, regardless how were provisioned accounts on which the checks are drawn .
Everything is fine as long as customers have confidence in the banking system. But when they all come at the same time withdraw "liquid" supposedly equivalent to their holdings, it is the collapse of the system and ruin it for all its customers, as was seen in late 2001 in Argentina, s' occurred in 1998 in Russia earlier in Thailand and Malaysia, and Indonesia, etc. Where to next?
Or credit institutions not only have the power to create money and bring it back to them, which allows them to buy what they want, but they at the same time, an interest in the heritage of their debtors when they are failing. To understand it, still use an example: you have a field and you need 10,000 euros to build your house on it; you are forced to borrow it for the 10,000 euros to your bank. This one, for you open the credit, do not take them to another customer. She enrolled in the accounts that you owe him 10,000 euros, plus so much per cent interest (which, ultimately, can, say, 18,000 euros), and it takes a mortgage on your property. If, ultimately, you pay him 18,000 euros, it will void your debt, but it will collect 8,000 euros in interest.
And if you can not adjust the 18,000 euros, she is entitled to be paid on the sale, which it will force you, your property or your home. So that the permission given to banks to create counterfeit money, forgiveness, private money, makes them winners in all cases unless they have lent to insolvent clients.
It includes all the efforts, surveys, advertisements, procedures, often in collusion with real estate agents and other traders (who are licensees in sales to organized credit is the case for car dealers) to organize hunting to customers who pay to get the maximum, even for ... plucking. The fight against excessive debt is to discipline the customers trapped, but not to prohibit such practices. We can also understand why the offices of banks are beautiful buildings ... Compare the office in which you receive your bank to enter into a credit, with the "local" in which you received the teacher of your children to talk about their future !!
How else by these creations of money ex nihilo, companies such as France Telecom, Vivendi and how many more would they have been able to buy as "asset" to the point that their companies have found themselves in debt for tens of billions euro ...? Who can not make millions, but to borrow so many billions?
These examples point to the role of credit throughout the economy. And this preview is staggering. We discovered that the banking organizations that produce nothing tangible, actually, thanks to this private money they create from scratch (so to speak ...), control of the destinies of nations and the global economy : they can control the world's monetary resources, lead governments to beg, they can even handle, and therefore make or break entire nations.
Imagine, this is pure fiction, a landmark of the banks sufficiently venal politician to accept to borrow money to build up a formidable machine to destroy it incites then to plunder an entire country to repay its debt before collapsing ... it will be time when it lends money to the country to rebuild and make sure that taxpayers pay him interest ... this leads us to think of the financial obligations of the state.
The institution responsible for enforcing the budget law, which establishes, for each calendar year, the income and expenditure of the State is the Treasury. This mission asks her two balance problems. For one thing everyday, because the amount of revenue the state on any given day is obviously not equal to that of spending by him on the same day. On the other hand the annual state budget is rarely balanced, it is almost always in deficit, so the Treasury has to ensure all expenditure, also play a role of treasurer, not just a manager, for find additional funding to tax revenue, which is the additional public debt.
How does the Treasury to carry out these two balances? It features first in coin, since the state has control of its manufacture as we remembered.
But it makes very little since the amount of all parts is hardly one percent of the money in circulation. Most of the money available to the Treasury is essentially entry form, but, unlike other banks, without the right to create. This currency is made up of deposits on behalf of the Treasury and postal checking accounts (CCP). The former are made by the Treasury correspondents. Before 1 January 2002 any individual could be corresponding Treasury, that is to say have an account, but since then, it is forbidden and Treasury correspondents are no longer exclusively, as public or semi-public and local authorities. By against, any individual, association, and any corporation, public or not, can have a CCP. These accounts are managed, such as bank accounts, by post (8), but they are included in liabilities of the Treasury
Explain this: when you have an income, such as wages or retirement, you can choose to file either a bank account or on a PCB. If you choose a bank account, the bank at which you are registered for this sum of its liabilities, which means that it agrees to pay you (and you trust it) and records at the same time this sum to his credit, which means that it becomes the owner, allowing him to dispose of, for example to lend or open loans, which earn interest to its shareholders. If you choose an account to Giro, the Post included this amount in liabilities of the Treasury, which means that the State agrees to reimburse you (which is guaranteed a priori more serious than that of a bank private), the Treasury can then dispose, but unlike the commercial banks not to open new credit and only to smooth, day to day, the revenue and expenditure of the state.
And by the way that all citizens, let alone any officer, did not scruple to choose a CCP for help rather public services that affect us all, that the private interests of banks, especially since none of those -Ci is nationalized, that is to say that the state does not endorse. It is likely that this attitude results, again, ignorance of the public vis-à-vis all these mechanisms, ignorance coupled with a state maintained by preconceptions mind: for example the Post is often referred contemptuously as the "bank for the poor", which does not make sense. (YH: Note here that even the Post has lost its status as an intermediary with the state and has since been privatized by the last French Liberal governments!)
When the state is forced to borrow private ...
Since the deposits on the Treasury accounts are not resources for the state, one wonders what additional resources compared to the tax revenue the state treasurer may find when the budget is in deficit. We discover that the bank of the state has another disadvantage compared to commercial banks. Among the functions of the Central Bank, we will come back, it is the "lender of last resort" for all commercial banks who can call her when they need funding.
One naturally thinks that the banker of France may, like others, seek, if necessary, at the Banque de France. It was possible, and then it gave a credit to the government directly on behalf of the Treasury, which corresponded to a direct creation of central bank money.
But the Act of August 4, 1993 ended that possibility by redefining the status of the Bank of France (which like many other banks had been nationalized in 1945). To prepare for the Economic and Monetary Union in Europe, this law required the independence of central banks vis-à-vis governments. In Article 3 prohibits the Bank of France "to allow overdrafts or to grant any other type of credit to the Treasury or any other agency or public enterprise." The Bank of the State and was barred means that banks of all individuals and all businesses have! Incidentally such a transfer of part of the powers of government had been ruled unconstitutional by the Constitutional Council ... Never mind, we found an arrangement!
So what resources he remains in the state, which must make public investments that can potentially benefit many generations, while its current revenues can not insure?
Of course, the government may decide to "selling the family silver", while supplies last, that is to say, selling its real estate (9), privatize public enterprises, selling shares that still holds the State eg Air France, EDF, SNCF, etc.
And, of course, bring in private.
The Treasury issues for the purpose of treasury bills, negotiable medium-term, 2-7 years, and longer-term obligations. So the people who can afford it can move without risk, money to the state, and it is required not only to repay maturing but also to find additional resources to pay for their interests , which are also guaranteed.
The State thus puts a secure investment available, maybe not richer because they prefer better and faster returns, but of all those who have more money than they have the immediate use.
And since the banks, they have retained the right to create money, they can, like other private credit establishments, such as American pension funds or other ... pay the State to draw interest guaranteed!
In short, as it is not part of the "credit institutions that are approved by the monetary authorities to create bank money" and he abandoned most of its sovereign right to coin money, the state is obliged, when tax revenues are insufficient to invest in the public domain and to finance the public service, to borrow from the private organizations. And taxpayers should therefore repay, by paying more interest.
In a manual collection "Fundamental" Hachette higher learning, which is the collection "Library Basic Law student politics, economics and management," written by a professor at the University of Strasbourg, we read that when a community of payment, France for example, financing needs that exceed their ability to pay, "it is the role" of the financial system to address this imbalance by money creation, which is the mechanism by the banking system which meets the needs when fundraising is not enough. Point. It is taught as if it were a law of nature, an obligation as unavoidable as gravitation. It seems to ignore or consider that it is without significance since no allusion is made, the fact that this is how the currency created condemns all taxpayers to pay an annuity to financial institutions ...
So anyone wondering if it's not, on the contrary, the bank of the State should have the sole right to create money, even, of course, to limit this right by rules so that the currency of the public interest is created within the productive capacity of the country, but in the public interest without payment to private.
Served by a private taxpayer cash
It's not that the money is created ex nihilo is abnormal. It is absolutely necessary that a currency is created prior to production, it is natural that funds are advanced and used to allow the provision of means of production. What is intolerable is to give some individuals the power to decide these investments to make a profit for them and paid for by taxpayers.
Because these interest payments, called elegantly debt service, are far from being of the order of magnitude of "overheads". Instead, it is amazing to see their importance, what can be done easily by reading simply sheet sent annually by the Ministry of Finance with the declaration of income. This service is in effect one of the most important budget lines:
In 2001, after the biggest expense, one devoted to preparing for the future, that is to say, the education and research (21%), had five budget lines of the same size (between 12 and 13%) and the debt service, or 240 billion francs, was one of them! The taxpayer then paid almost as much to pay such interest, arising from the choice of method of creating our money, as for the whole of justice, security, environment, culture and agriculture (ie 244 billion francs)!
For 2003, the planned distribution of state spending, the largest share is still, thankfully, one that prepares for the future, 21% for education, research and development. The second line, or 15%, is expected to benefit local communities (the government has undertaken to discharge the state on them, it must be a part of their budget back). And the debt service comes third row just behind, with 12% of the budget is flush with spending for national defense (10). Thus the state has spent more in 2003 for "the service of the public debt" to ensure that employment and solidarity, or 10% of the budget (11). Taxpayers paid 2% more to pay the rent to private and to try to reduce the "social fracture" ... (YH = talking 2003 here ... but listen to these politicians who speak only of rigor and 'increases in taxes, VAT, debt repayment over the world in 2012 ... as if it had not been done for ages, to no avail ...)
Comparing the budget revenues, we find that two-thirds of income taxes from taxpayers are used to pay the interest to private individuals.
(9) even consider selling public buildings, such as prefectures, town halls or schools ... probably subsequently rented to the owner? (Yh = note in Greece in 2012, it became possible to hire the services and equipment of the national police ... that the majority of Greek ports and rail services have moved to private interests and completely .. Chinese. ...)
All countries today are in debt, but the cake back in the United States whose national debt already reached 6.116 billion dollars in August 2000, but the deficit has been greatly increased by the tax cuts, by d other fiscal measures and increased military spending of the administration of GW Bush. In October 2003 it reached 400 billion a year, the forecast of Congress adjusted on November 17, posing 480 billion for 2004 (12), not foreseeing a possible balance, we do not know, moreover, how that from 2012 (YH today we know that it's even worse and we no longer talk about balance but "limitations"). To finance the debt of the federal government, the United States obviously looking to sell in dollar government bonds. They are already for a mere 3.500 billion. But in recent years, the US Treasuries were mostly bought, not by a few rich Americans (who now prefer to invest in Europe, where interest rates are higher ...), but many (40%) by Central Banks Japan and China.
Although we talk a lot more, the debt of the least developed countries is less than that of the world's richest country known, but it exceeds 2.500 billion in total. That of France rose from 1.782 billion francs (271.66 billion euros) in 1990 to € 948 billion in 2003 (6.218 billion francs) ...
(10) including the famous asbestos removal Clemenceau just wander through the Mediterranean without finding a port ...
(11) At last report (March 2, 2004), public debt of France would be around € 1,000 billion, and "service" would be more than 40 billion euros, the second after the civil budget of Education.
(12) but in February of that year he already reached $ 540 billion.
The fascination with gold, with empirical measures taken in an emergency so that the public does not lose confidence in the banking system until the recent installation of the dictatorship of the markets throughout the economy, history of money, under each of its three forms appears as the ongoing struggle between the greed of those who want to be the instrument of their power and concern for those in charge of damage control.
The system of the gold standard
For centuries, the currency of France was defined as a certain weight of gold, that is to say, it was part of the system known as the gold standard. This reference does not yet guarantee stability, the weight of gold in the monetary unit declined gradually over time. Thus, John the Good franc weighed 3.87 grams of fine gold, while in 1785, that of Louis XVI in weighed more than 0.29 grams (13). The Convention, which gave the book the name of franc (14) and defines the size and weight of the pieces (15), fixed by the law of 7 Germinal (March 28, 1803), the value of the franc germinal to 0.290 grams fine gold. But the continued devaluation (16 since.
The mid-nineteenth century, the system of the gold standard was seen as a way to "unify performance and economic policies of nations" (17). He effectively ruled for fifty years, gold being then the only reference currency of 59 countries, which facilitated trade between them. These convertible currencies remained until World War II. In the United States the 1929 crisis led to so many bank failures (18 that, upon taking power in 1933, Roosevelt was forced first to close all banks to stop the rush of the audience from the counter claim his due gold, and subsequently abandon the convertibility of the dollar, but retained its reference to gold ($ 35 an ounce, or 31 grams) for trade against other currencies.
Bretton Woods, signed in 1944 between 44 nations, together constituted an international system which fixed the exchange rate. Gold continued to play a monetary role at the international level, through the dollar, who thus a leading role in other currencies. But the deficit of the balance of payments of the United States, related to their war against Viet Nam, altered the trust of other countries and external convertibility of the dollar could not resist, Nixon officially abolished August 15, 1971. since then, the creditors of the United States can no longer, as did De Gaulle, demand payment in gold amounts that are owed. The demonetization of gold at the international level has been effective since 1976 (agreements Kingston), where any reference to gold was removed from the statute of the International Monetary Fund (IMF). Gold is no longer anywhere in the world, a legal tender, but central banks still retain in their coffers, because this metal is still considered a safe bet ...
(13 In 1541, the Gold Coin (2 pounds) of Francis I in weighed more than 1.46 grams.
In 1602, the golden crown of Henry IV (under 3 pounds 5) weighed 0.99 grams.
In 1640, the Louis Louis XIII (10 pounds) weighed 0.62 grams.
In 1700, that of Louis XIV, 0.44 grams.
In 1726, that of Louis XV (24 pounds), 0.31 grams.
(14) Law of 18 Germinal (April 7, 1795)
(15) Law of 28 Thermidor (August 15)
(16) The 25 / franc reduced to 0.059 grams of fine gold 6/1928, or 20.3% of the franc germinal
1/10/1936 0.044 g 15.2%
21/7/1937 13.5% 0.039 g
11/12/1938 0.025 g 8.6%
8/11/1942 0.021 g 7.2%
26/12/1945 0.0075 g 2.6%
20/9/1949 0.0025 g 0.86%
24/7/1958 0.0021 g 0.72%
12/27/1958 0.0018 g 0.06%
1/1/1960 g 0.001 0.000018%
11/8/1969 g 0.000016 0.000
(17) John Kenneth Galbraith Money, whence it cam, Where It Went.
(18) (659 bankruptcies in 1929, 1,352 in 1930 and to 2,294 in 1931)
The choice of gold as a standard was not the panacea for many reasons. The reference to a metal, whatever its physical qualities, is completely arbitrary and that this choice does not ensure the stability of the currency is not its biggest flaw. It indeed gives undue power to producers of the metal, simply because the money available depends on them. Thus the European economy in the sixteenth century was dominated by importing silver from the mines of South America newly conquered, while the metal was, in fact, far from being a matter first vital to the economy of Europe. Similarly we know the bitterness of the gold rush in the Klondike and power exercised by the owners of the gold mines of South Africa. Not only the economic role of the metal chosen does not match reality, but there is also no objective reason that makes the change in the mass of metal mined is one that suits the financial needs of the economy.
In fact, it is the abandonment of any reference to the currency in the reality that is far-reaching. If it is not secured on a measurable physical quantity, and if the state does not guarantee them, it is so easy to arbitrarily increase the weight that you can not know what one receives when we accept this money in payment.
The vagaries of legal tender
About the origin of banknotes, we saw that their use was first poured freely, then a group of bankers acquired the privilege of only the issue pretext thus limit their uncontrolled proliferation.
Several confidence crises occurring, sometimes turned into panic, he had to find "instruments" to avoid a catastrophe that will cost the public's faith in the banking system. Which? "The precursor of all the instruments of reform was the Bank of England. No economic institution has never enjoyed as long as a prestige ... and it's a well-deserved reputation as the art of managing money, as well as almost all of the mystery in which he exudes, was born there . "writes JKGalbraith (19), explaining how the Bank of England, from 1720 to 1780, was affirmed in the role of guardian of the money supply and manager of the financial problems of the government. She began by removing her London tickets competitors. Its own notes were then easily converted into metallic money, so ... no one asked the conversion! Tickets from its competitors is far smaller inspire the same confidence, the Bank of England became virtually the only source of paper money, the others being only commercial banks, which were willing to loan these deposits. Then later when Britain had to conduct two wars, against its American colonies and against Napoleon, and he took it for the money, the Bank of England suspended the convertibility of its notes in coinage : the tickets were then forced currency.
In 1844, after several adventures, the Prime Minister, Sir Robert Peel (1788-1850,) fixed by the Bank Charter Act the total amount of emissions allowed tickets (14 million pounds at the time), this amount being guaranteed by state good. In addition, the Notes will be guaranteed only in proportion metal crate. The Bank of England was no longer able to fulfill one of the functions that would have averted a catastrophe provide funds if all account holders came to collect their due from banks. The application of the law was nevertheless suspended whenever she would be too embarrassed the Central Bank ...
Similarly, in France, the government had to intervene whenever a crisis of confidence threatened. Until 1848, the notes were not legal tender, that is to say that no one was forced to accept them as payment, but they were convertible. At the time of the 1848 revolution, and the legal tender fiat were reported and then alternately removed and restored, and finally recovered since 1939.
This is the example of the Bank of England which was followed by other countries to define the roles of central banks such as the Bank of France or group of banks constituting the Federal Reserve (abbreviated to the "Fed" ), established in the United States by the Federal Reserve Act of December 13, 1913.
The Bank of France has never been required to maintain a ratio of the amount of its gold reserves and the amount of its notes in circulation. It expected commercial paper and consented lombard. The amount of notes issued depended, in principle, the needs of trade, but this program was limited in 1870 to a maximum set by law. But when the ceiling threatened to be punctured ... a new law would raise him!
Everything changed in France with the outbreak of the First World War. From August 5, 1914 the "carriers" of tickets rushed the counters of their banks for the issuance of their due. And there were obviously too many tickets for the commitment to repay, there was yet registered, to be honored! So the government decided that the Bank of France was released from his promise: he decreed the moratorium and forced air, which, since they had no intrinsic value, represented now nothing.
A very partial convertibility was restored from 1928 to 1936, but since then the notes of the Bank of France had legal tender fiat, until they give way to the tickets of the European Central Bank.
(19) Money, whence it cam, Where It Went be found throughout the epic of the creation of central banks and the definition of their duties.
Yves Herbo 02-10--2014 (more)