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Peak Money What does it mean?

Peak Money What does it mean?. Tony Greenham nef (the new economics foundation) Transition Network 25 th April 2012. A few questions of minor importance. What is money? Where does it come from? What is the relationship between money, debt & economic growth? What happens next?.

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Peak Money What does it mean?

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  1. Peak MoneyWhat does it mean? Tony Greenham nef (the new economics foundation) Transition Network 25th April 2012

  2. A few questions of minor importance • What is money? • Where does it come from? • What is the relationship between money, debt & economic growth? • What happens next?

  3. What is money?

  4. Money is a social relationship • Unit of account, means of exchange, store of value, means of final settlement • Classical/neoclassical economics: a ‘neutral veil’ lying over the ‘real’ economy (exchange/production) • Truth: social relation (of credit and debt) determined in an abstract money of account (Innes 1913; Ingham 2004) • The state/monarch has been determining the money of account for over 4000 years (Keynes 1931) • i.e. money (credit/debt) precedes the capitalist market economy (Graeber 2011) • Control of money is a social and political issue

  5. What do banks do? Look after our gold? Lend our savings out to businesses and fellow citizens?

  6. Banks create new money Source: Ryan-Collins et al. (2011) Where does Money Come From?, nef (the new economics foundation), p56

  7. Central bank vscommercial money Source: Ryan-Collins et al. (2011) Where does Money Come From?, nef (the new economics foundation), p59

  8. Central bank money ‘merry-go-round’ Source: Ryan-Collins et al. (2011) Where does Money Come From?, nef (the new economics foundation), p63

  9. The tail wags the dog ‘In the real world, banks extend credit, creating deposits in the process, and look for the reserves later.’ Alan R. Holmes, Federal Reserve Bank of New York (1969) ‘In reality the sequence works more in the opposite direction with banks taking first their credit decisions and then looking for the necessary funding and reserves of central bank money.’ VitorConstancio, vice president of the European Central Bank (2011) Source: Ryan-Collins et al. (2011) Where does Money Come From?, nef (the new economics foundation), p23

  10. So debt and deposits take off Source: Bank of England, Interactive Database, data series LPQAUYM (M4), LPQVQKT (notes and coins), YWMB43D (Central bank reserves).

  11. Where has the money gone? Source: Ryan-Collins et al. (2011) Where does Money Come From?, nef (the new economics foundation), p109

  12. Growing Inequality Debt / money slides Reproduced from the Economist http://www.economist.com/blogs/graphicdetail/2012/01/daily-chart-8

  13. Where are we now? Reproduced from Business Insider http://articles.businessinsider.com/2011-12-04/markets/30473957_1_household-debt-uk-safe-haven

  14. Debt: an economics blindspot? “I’m all for including the banking sector in stories where it’s relevant, but why is it so crucial to a story about debt and leverage?” “I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.” Paul Krugman (2012), http://krugman.blogs.nytimes.com/2012/03/27/minksy-and-methodology-wonkish “It proved extraordinarily difficult for economists to recognize that bank loans and bank investments do create deposits.” Schumpeter, J. A. (1954) History of economic analysis, Allen & Unwin, p1114.

  15. Money, debt and growth • Argument: money created as debt requires growth • Contested whether this is necessarily true in theory • But given the inequality of debt, and tendency of the current system to create money for financial speculation means it is likely to be true in practice • The sheer quantity of debt appears to be overwhelming the economic system

  16. What happens next? • Repay it: ‘Austerity’ • Requires increases in real income, growth or redistribution • Real income is falling – the ‘paradox of thrift’ • Redistribution of income and wealth? Yeah, right • Ecological limits and the end of growth? • Default • Likely the wealthiest will protect themselves. Social and economic damage could be extensive • ‘Slow default’ – inflation and financial repression • Debt jubilee + debt-free money produced by state or people

  17. More information tony.greenham@neweconomics.org www.neweconomics.org/projects/monetary-reform

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