Written by John Lounsbury
Almost 30 years ago Prof. Richard Werner developed the Quantity Theory of Credit that explains credit booms and busts such as the Great Financial Crisis of 2008 that “nobody saw coming”. This week Prof. Werner summarizes the Quantity Theory of Credit and credit disaggregation in just 9 minutes.
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Here are bio excerpts from Wikipedia:
In 1989, Werner earned a BSc at the London School of Economics (LSE). Further studies at Oxford University were interrupted by a year studying at the University of Tokyo.[2] His doctorate in economics was conferred by Oxford. In 1991, he became European Commission-sponsored Marie Curie Fellow at the Institute for Economics and Statistics at Oxford.[2] His discussion paper at the institute warned about the imminent ‘collapse’ of the Japanese banking system and the threat of the “greatest recession since the Great Depression”.
Werner claims to have proposed the term quantitative easing, as well as the expression “QE2” in 2009 to refer to the need to implement true quantitative easing as an expansion in credit creation.[1] He has also proposed the “Quantity Theory of Credit”, which disaggregates credit creation used for GDP transactions on the one hand, and financial transactions on the other hand … which is in line with Schumpeter’s credit theory of money.[3]
Werner is currently teaching at the University of Southampton.[2] He is the founding director of the university’s Centre for Banking, Finance and Sustainable Development and organiser of the European Conference on Banking and the Economy (ECOBATE), first held on 29 September 2011 in Winchester Guildhall, with Lord Adair Turner, FSA Chairman, as keynote speaker. Since 2011, he has been a member of the ECB Shadow Council.Here are bio excerpts from Wikipedia:
In 1989, Werner earned a BSc at the London School of Economics (LSE). Further studies at Oxford University were interrupted by a year studying at the University of Tokyo.[2] His doctorate in economics was conferred by Oxford. In 1991, he became European Commission-sponsored Marie Curie Fellow at the Institute for Economics and Statistics at Oxford.[2] His discussion paper at the institute warned about the imminent ‘collapse’ of the Japanese banking system and the threat of the “greatest recession since the Great Depression”.
Werner claims to have proposed the term quantitative easing, as well as the expression “QE2” in 2009 to refer to the need to implement true quantitative easing as an expansion in credit creation.[1] He has also proposed the “Quantity Theory of Credit”, which disaggregates credit creation used for GDP transactions on the one hand, and financial transactions on the other hand … which is in line with Schumpeter’s credit theory of money.[3]
Werner is currently teaching at the University of Southampton.[2] He is the founding director of the university’s Centre for Banking, Finance and Sustainable Development and organiser of the European Conference on Banking and the Economy (ECOBATE), first held on 29 September 2011 in Winchester Guildhall, with Lord Adair Turner, FSA Chairman, as keynote speaker. Since 2011, he has been a member of the ECB Shadow Council.
This video explains why there are two types of credit issued by banks (disaggregation of credit) and how that has created recurring credit cycles with booms and busts.
Source: YouTube
A previous post which covers more detail of theories of banking and how banking operations are really carried out presents a 15 minute lecture by Prof. Werner: Documentary Of The Week: Banking System Reform.
If you want a more slow paced detailed presentation of banking operations the following longer 2016 lecture is excellent:
Source: YouTube
From YouTube:
Detailed Index – Professor Richard Werner’s Talk:
1 – Why is banking so important for the economy, society and the sustainable development of regions and communities?
– What causes the recurring boom-bust cycles and crises?
3 – What policies or banking systems have historically been most successful in avoiding these cycles and crises?
4 – What kind of banking system and banking policy do we need?
5 – While we are at it, can we solve the major problems of our time with this?
6 – What are the policies which are being pushed that we need to oppose?
4:40 – Banks create the Money
7:00 – Where is your Money Safe?
8:50 – Trade Secrets of Banking – Banks don’t lend Money, Banks don’t take Deposits!
10:40 – The bank doesn’t pay-out, it will just record its debt to you, which is called “a deposit” and we use it as Money.
12:45 – Credit Suisse & Barclays Bank – Create their own Capital
16:25 – Cash & QE
17:35 – The money supply is created and allocated by Banks
22:30 – Colwyn Report 1918 – nothing’s Changed!
22:40 – Bank Collusion
24:00 – Banking Market Concentration – The ‘Herfindahl-Hirschman Index’ – (H-HI)
26:30 – Number of financial institutions (Banks & Credit Unions) – Debate
27:00 – H-H Index for Germany
29:00 – The Creation of Boom-Bust Cycles
30:50 – Credit for GDP transactions – financial circulation credit (Asset Credit Creation)
36:10 – The East Asian Economic Miracle – Credit Guidance
40:30 – Abuse of Power by the Bank of Japan – A warning to All
47:10 – The German Banking System 51:20 – Hampshire Community Bank Project – Local First CIC
56:40 – Dangers of Centralise Money creation & allocation (Central Banks)
58:00 – The Alternative to bailing out the Banks. Ireland – what the Central Bank could have done
1:00:00 – Japanese Bank Restructuring 1945-47 and 1990s
1:06:00 – Iceland
1:06:50 – Activities of the ECB
1:07:00 – EU war on Community Banks
1:08:30 – Negative Interest Rate Policy of the ECB, favours speculators to the detriment of the economy
1:10:25 – War on Cash
1:11:45 – Lower Interest Rates do not stimulate the economy
1:14:00 – Quantity of money not the price of money that drives the Economy – Bank credit for GDP transactions drives the economy
1:15:45 – Current Central Bank War on Cash
1:19:30 – ‘Princes of the Yen’, Central Bank Truth Documentary on YouTube (247,000 views, Nov 2016) & Book plus other Publications.
Prof Werner’s Books on Amazon: https://www.amazon.com/Richard-Werner…
‘Princes of the Yen’: Central Bank Truth Documentary https://youtu.be/p5Ac7ap_MAY
1:20:00 – Irish Government – Stop the issuance of Government Bonds – 12% Vs 4% 1:22:38 –
END
The final sections of the following cover several papers by Prof. Werner and a couple of related discussions: What We Read Today 15 January 2020.
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