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posted on 03 April 2016

Further Considerations On Lord Turner's Monetary Finance Proposal

Written by , Director, The Kettle Pond Institute for Debt-Free Money

Has a Frankenstein Been Proposed?


In my previous posting on the policy considerations contained in Lord Adair Turner's new book, 'Between Debt and the Devil', a truly excellent read, I respectfully questioned Lord Turner's failure to embrace his own Permanent Overt Money Finance(OMF) proposal as 'the replacement' to our present failed debt-contract based money system.


Turner clearly identifies this present system as THE major cause for today's economic maladies. This unprecedented economic situation has become marked by modern scribes as 'secular stagnation', 'debt-overhang' and our advancing 'balance sheet recession'; but monetarily speaking, all of them are based in the fractional reserve banking (FRB) system, whose time has passed.

I again ask Lord Adair's acceptance of this posting in the spirit in which it is written - that of promoting a greater monetary-economy understanding. Privately Lord Adair has informed me that his postulation of 'public money' as being 'the demon' was not an opinion that he was personally advancing - but that he was merely stating the opinion of 'the central bank orthodoxy' as such. I find this an encouraging fact, indeed.

But, What to do about our secular stagnation and debt saturation? And when?

I can readily accept Lord Adair's observation that 'perhaps' the time is not yet ripe, politically speaking, for acceptance of a complete reversal from private money creation to the public money alternative - in one fell swoop as it were. But I would emphasize the word PERHAPS.

What are our strategic alternatives, as right now we are seeing a problematic deflationary trend to new money costs (NIRP) emerge as the next popular 'policy tool' among the resource-starved central banks? So, if not NIRP, then what? And if not now, when? And what is the alternative? Is PERHAPS simply a waffling in the face of an existential threat?

As I said above, 'PERHAPS' a fundamental change is not politically expedient today. So how do we move the 'political-acceptance' meter forward, if not with a national monetary commission* to broaden political understandings? Perhaps correcting some public money misinformation would help.

*The last national monetary commission in the U.S. was created by the Aldrich-Vreeland Act of 1908 and resulted in the formation of the Fderal Reserve in 2013. Most recently the formation of a national monetary commission was put on the Parliametary agenda of Iceland.

Mythological History

I had pointed out to Lord Adair earlier the oft-cited error by foes of public money, that the hyper-inflation of Weimar Germany after WW I was governmental in nature. This is banker-school myth. It was not. Those wheelbarrows were filled with private banker issued paper monies, printed on their private printing presses. This 'private money' relationship was as required by implementing the Versailles Treaty's terms against the German government. Perhaps Lord Turner has never read "The Lost Science of Money" by Stephen Zarlenga, the Director of the American Monetary Institute(AMI). I strongly recommend it.

Let's settle this error once and for all, and educate our politicians* otherwise. That might help.

Adair, please explain. Better yet, just join us.

* My dad's description of monetary ignorance went like this, being based on his experience: "Ninety Percent of Bankers, Ninety-Five Percent of Economists, and Ninety-Nine Percent of all politicians do not understand how the money system works. Period." More about my dad later, below.

I move to these 'further considerations' with a remaining premise that Lord Adair still owes his readers an expaination just why his position has not advanced to a 'proposal' or a 'framework' for 'OMF-public money' as a replacement 'system', and not merely as some policy-filler.

Of course, Lord Adair could readily avoid that stalled-policy explanation by more fully embracing the debt-free money proposals of those early 20th century economists he says he admires most today. They all said - change the system.

Such a public utility money system could readily - some believe 'seamlessly' - become our future method for creating national purchasing power outside of, and in alternative to, the present fractional reserve banking system. I did send Lord Adair information related to the less renowned, never published, 1939 Program for Monetary Reform, authored by Fisher , Douglas, Graham and others, and supported, publicly, by over 400 economists at the time.

An Aside

Many consorts of mine are aware that everything I know about the money system and the need for reform I learned from my Father - the true grassroots reformer in our family. One of his lasting observations was that if indeed this debt-contract based money system was moving inexorably toward insolvency by its failed design, as we agreed it was, then the call for reform was more likely to come from above than from below. Even central bankers, he said, would rather avoid the unnecessary suffering of the masses for the mere sake of a needed repair to the broad architecture of modern money.

I believed him. Still do, and that is one reason I lean so heavily on Lord Adair's deep understandings of how this 'money' thing really works - the proof being his grasp of the reality today that the real wisom of old on money matters has gone unrecognized and has thus far been wasted. Agreed. So, until when?

It was for this same reason that I dragged into my previous posting (BIS - OECD's) Dr. William White's cautions against 'central-banker' (more debt) monetary policy initiatives, or any other proposals that bring another 'liquidity' solution to an 'insolvency' problem with our money systems. Dr. White's vision and candor have advanced an unprecedented level of caution against further central-banking based solutions. Dr. White also responded that he agreed on the need "to fundamentally change .... our established financial system".

If perhaps Dr. White and Lord Turner could ever come to a common understanding and approach for reform, then everything is possible. Having said that, I also have to agree with Minsky that when systemic financial instability manifests to cause such substantive reforms as these to be considered, as it does today, then a new national monetary commission is indeed in order.

So, what's the problem with Turner's "Betwixt" proposal?

Having praised all of that monetary understanding , I opine again that Lord Adair's piecemeal, money-power sharing approach is not well thought out, and seems just plain unworkable. I hope that FRB's wholesale replacement remains under his consideration.

But why not this Frankenstein-like approach? .... with equal respect to both Mary Shelley and Lord Adair. From a monetary economic perspective, the technical answer is that systemically, endogenous money and exogenous money are just like oil and water .... will not mix.

I recall a tenet of management that if there were two people (here entities) responsible for any job, then there was nobody responsible for that job. Apply that principle to the two systems of public(exogenous) and private(endogenous) money system administration and you get the setup for the failure of Turner's 'Betwixt' picture.

Unfortunately indeed, Lord Turner first defers money-issuance to the private DEBT-based system, declaring FRB alone (for some reason I do not understand) essential for financial innovation and economic growth, even though acknowledging that FRB remains broadly problematic. Only when this private money system is again failing (see to Chapters II and III of Adair's book) do we add any public money fix - here OMF - in small, 'manageable' doses, to the money policy objective of achieving growing national GDP.

Undoubtedly, somehow the certain failings of such a system as Adair proposes would be sourced to an incorrect dose - assumedly too large - of the Devilish 'public money' poison.

Setting Public Money Up for Failure

I think Lord Adair is setting himself, and all public money, up for failure. This is not what Ruskin, MacLeod, Soddy, Simons, Fisher, Friedman and others who have proposed public money deserve, and it will not work for the future of money. It seems hardly worthy of the effort to bring about such a Frankenstein. And were it implemented, its failure will merely postpone again the needed reform that can fix our money-economic problems. It's first stumble will be a near fatal setback, as public money would again resume its historic position as a well-deserved money taboo. We deserve a better shot at success than can be drawn from this 'both fish and fowl' design.

So, for the record here, Lord Adair's suggestion is upside down as a workable mechanism, and shows a remaining lack of understanding of how public money would 'really' work.

I do apologize if that sounds boorish, or even cavalier. May I explain?

Successful Public Money Administration

With public money administration, private 'credit' creation still remains FULLY available for the innovation necessary to advance our modern monetary economies. Fully available. Under public money administration, every monetary unit created and issued, through OMF or otherwise, by the government IMMEDIATELY becomes a deposit in a private bank account. There is no alternative to this mechanism. From there, this deposit can be saved, accumulated and lent or invested for any purposeful economic growth. Every pound and every Dollar*. All of it is immediately available for credit on its actual owner's terms ..... being as it should be. What more could anyone possibly want from monetary operations? Is there any postulation that successful financial innovation requires risk to the money system rather than to the banker making the loan? I hope not.

*But not for the euro because it is not a sovereign monetary unit.

A foundational problem no longer exists when an operating POMF system similar to both Fisher's and Friedman's proposals is implemented. We would have resolved Fisher's greatest monetary-economic concern with fractional-reserve banking ..... that which must be resolved in order to avail ourselves a long term solution to the boom-bust cycle ....... Being ..........

"ending the lawless variability in the supply of our national circulating media" .

How about the 'real money' option? Money by Rule. Plain and simple.

The best laid out example of such a solution ..... Money by Rule under Public Administration ..... is as contained in the Kucinich-AMI legislation found under HR 2990 of the 112th US Congress.

What else makes the 'public-private money partnership' unworkable?

As proposed, another major probem is the mixing of 'permanent' with 'temporal' monies. All of the OMF, the AMI - Kucinich and the UK's Positive Money proposals recognize the need for an alternative money system that is permanent, and NOT (pro-cyclical boom and bust) temporal in nature ... such that the nation's 'permanent' money supply becomes completely unaffected by commercial banks making, and consumers repaying, loans.

This construct, once adopted, would mark the 'end of the lawless variability' referred to by Fisher.

The ultimate result of this full transition would be that making loans or not making loans will never again have an effect on the nation's supply of money ..... only the supply of 'credit'. But if you mix-and-match, as in the cautionary advance by Turner, then you have not 'firewalled' the money supply from banking preferences for making or calling in loans. Monetary, Financial and Economic stability are all achievable through 'money by rule'. And ONLY through money by rule.

Of course, over the long-term such a Turner approach, adding 100 Billion Pounds of (P)OMF here and there, would eventually result in a replacement of the temporal banker-school money supply. But given the fungibility of money identities, a long term bout of unprecedented management of required reserves will also be in order. Not impossible. Only unnecessary.

Also, of course, under POMF and Kucinich and PM, no reserves would ever be required as the money supply is 'itself' the exchanged media, both in open economic commerce and within the CB-depository national payments system.

Not a Conclusion, but ...

In conclusion, my Dad always said that due to monetary ignorance* he would never be able to reform the money system. He also assured me that given compounding interest and an exponentially expanding debt-saturation of the national economy over time, either I would have to fix the money system (meaning In These Times) or the future well-being and prosperity of the people, and their planet, will have been smothered in an ever-growing pile of unpayable, debt-paper. You (and we) are here.

"Ninety Percent of Bankers, Ninety-Five Percent of Economists, and Ninety-Nine Percent of all politicians do not understand how the money system works. Period."

It's only paper. Let's do what we can to give the Grandkids a chance on this planet.

For the Money System Common.

Joe Bongiovanni, Director

The Kettle Pond Institute for Debt Free Money

March 2016

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