There's this guy. I'll call him Joe. Mainly because that's his name anyhow. Joe Bongiovanni.
Joe and his wife Helen like to sail their boat. Up and down the east coast of the US, and locally in Chesapeake Bay, where they live. Helen's an artist. Joe is—
—well, hard to describe, really, what Joe does. Both he and Helen have reached the age at which they qualify for Social Security benefits. And Joe 'consults' sometimes. That's a vague description, because I don't know what he consults about. Though I suspect it's money-related.
Joe has this thing about money. He figures it needs a complete reinvention.
I got Joe's take on Money Reform over a wonderfully simple Italian dinner cooked up by Helen at their home in Harborton, Virginia. Helen had done most of the talking, catching up with her niece, my daughter-in-law, on family doings and undoings. A constant barrage of words. Joe stayed quiet unless asked about something. Grey-bearded. Lean, weather-browned. Laid back to a hippy level that nobody under 30 years of age might remotely recognise.
Then— "You're a journalist, I hear?"
Well, of course, he would have. His niece would have set up the background for the people from Ireland she had brought to visit. We talked about words and writing for a while, which led to blogs. I keep a few going.
"I do one too," Joe said.
"What about?"
"Monetary Reform."
Hmmh.
Still, very soon we—well, Joe anyhow—were deep into the concepts of Joe's third passion, after Helen and sailing. I floundered a bit at the start on the idea of producing 'money without debt'. Fortunately, I'm used to asking questions. And not embarrassed to admit it when I don't understand something.
Joe's father had turned him onto it. Had gotten into the idea himself when, as a local businessman, he had once asked his bank for a loan to expand his business. He was turned down.
"I employ all these other people," Joe's father had said to his unhelpful banker. "They all have loans from you. For their houses. For their children's education. If I couldn't carry on, they'd lose their jobs. What would happen to those loans then?"
The banker had shrugged. "I have collateral committed for those loans. I wouldn't lose anything."
Of course, he wouldn't. And Joe's dad then understood the politics of providing money as a debt. The house—as the banker—always wins. That set him on a lifelong campaign for monetary reform. He didn't invent it. There were, and are, many others on the same mission on both sides of the Atlantic. He was so involved in it that he gave testimony before a government committee.
I didn't learn much more about Joe's dad, except that Joe himself didn't really accept his ideas until rather later in life. Finally, after his dad challenged him to look at all the information and find any faults, he did.
"And I couldn't disprove anything he said," Joe told me.
I had difficulty during the whole encounter. I was the designated driver because nobody else was insured to drive the car I had on loan. Which meant I wasn't going to be able to drink my usual quota of red wine and thus keep up with Joe's flow of ideas.
But here's the short version. I mightn't have it absolutely right, but it's enough to be thinking about.
Basically, Joe and those who espouse similar ideas want the bankers taken out of the money-creation business. As things stood before the recent economic crash—and maybe still do—bankers were able to 'create' money to lend on the basis of having a fraction of that amount held in other people's savings. That's fractional capitalisation or some such description.
So, essentially, banking is a kind of virtual thimblerig, with nothing under any of the thimbles that represent money lent out at a usually exorbitantly profitable rate. With the bankers—including the Federal Reserve Bank in the US, which Joe figures is just designed to make the whole shell game seem legitimate—in total control of the 'production' of money, there's no possibility that either citizens or their state won't be in debt to a private enterprise.
What Joe and friends propose is a quite different way of doing the money game. Essentially, by bringing back the 'sovereign' system of money production. "In the old days, the monarch manufactured money to pay for goods and services. I believe the state should get back to that, and produce its own money instead of leaving it to the private banking system."
Here's the thought. When a government sets out its budget for the coming year, it estimates how much it needs to spend on the services citizens require. It then works out what can realistically be raised in taxes from those same citizens. Then it generally goes out to the private banking system to raise the difference.
The state is then in hock to the banks and must find ways to repay the debt. Sometimes with supplementary taxes, sometimes by cutting services, sometimes by rolling over the debt. Often, a combination of all. "Money raised by debt," Joe says. "And outside the control of either the state or the people."
Instead, Joe proposes that the state 'creates' its own money as required, as did the sovereign monarchs of old. There would be a 'public money authority' that would determine the amount of money required to finance what economists call the potential for national economic growth (GDP). Once the new-money amount is determined, the tax amount is the result of 'expenditures minus new money'.
Sure. But money is an artificial medium that must be backed by something of value. Preferably, productivity, or the old way of pegging it to something made valuable by scarcity or high value usability, like gold. Otherwise, it's just a piece of fancy paper, signifying not much. Money is something we trust as a promise that underpins the value of each of us, in a form more negotiable than the barter system. Start printing it beyond real value, and you're heading towards the kind of hyperinflation in Germany that ended up bringing Hitler to power.
Joe agrees. But his premise, I think, is that by the state creating money to make up the difference between tax income and the necessary services to keep the country operating, it is betting on the entrepreneurial spirit of citizens to provide that growth. So it is 'created' money based on the potential of a vibrant economy. Therefore, without the risk of inflation that required German citizens to take home their wages in wheelbarrows.
And the bankers are out of the loop. At least in the finance creation end. They become simply the agents of fuelling growth by lending money, which they haven't manufactured on margins. Rather, it is the savings of those paid to provide the state's services, and those who run businesses with the help of those services. The taxes of both revert to the state that created the money in the first place, thus further decreasing the inflationary effect.
The politicians are out of the loop, too, when it comes to creating new money. Simply because otherwise they'd be tempted to print new money as a political policy, instead of making hard and practical decisions on taxation. "By having an independent monetary authority, the new-money amount is independently determined away from the political process. And the continual summing of new monies determines the permanent money supply."
Right, it is surely much more complicated than that. But I only had one short dinner at Joe's house. To get the whole thing in some better perspective, it is worthwhile to look at Joe's blog. Mostly video-based, it's a weekly chat with a colleague about today's financial situation, in a very laid-back format.
Google 'Coffee with Joe'. There are gems of wisdom there. Which I need to absorb myself.
In the meantime, Helen's Bolognaise pasta is beyond the value of anything we discussed that night in steamy Virginia.
NOTE: Subsequent to my musings above, Joe sent me a quote from Robert Hemphill, a former Credit Manager with the 'Fed' (US Federal Reserve Bank). He sums up a situation that is really kind of scary. Well, very scary.
"If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money, we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is.
It is the most important subject intelligent persons can investigate and reflect upon.
It is so important that our present civilisation may collapse unless it becomes widely understood and the defects remedied very soon."
