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Some small thoughts – On the power-struggle between ‘money’ and debt.

Think back to the neo-liberal glory years when every ‘right thinking’ person could see clearly that governments simply had to be shrunk and their spending and debt reduced. Isn’t it interesting that this was also the era when the old limits on bank leverage  – how much the banks could print – were removed. It was also the era, or the dawn of it at least, of the vast increase in personal debt. Debt was regarded as a mark of being savvy. The slick people knew how to move money from one card to another, how to juggle zero percent interest rate deals, how to use the equity in one property to buy another and then another.

Governments, right thinking people insisted,  had to be less in debt. And yet those same right thinking people also felt it was very fine, if not desirable, for both banks, businesses and ordinary people to get in to more and more debt. People ‘taking on debts’, that a generation earlier would have been seen as far too high a proportion of their incomes, was not only encouraged by lenders, it became a vital and explicit part of the almost universally accepted economic and political model. The consumer had to consume. And since wages were not shooting up, debt had to instead. We personally got into deeper and deeper debt. Mostly to the banks who themselves increasingly issued and carried more and more  debt on less and less capital.  Think about RBS.  For a century it was s small, rather staid Scottish bank. How did it go from that to a globe bestriding behemoth in a little over a decade?  The answer is debt. RBS was the poster boy for using the debt markets for funding.

It is the simultaneity of the two convictions – that government debt is bad and those who don’t or won’t see this are misguided, even dangerous, socialists, statists or worse, Keynesian! While those who advocate the free flow and use of private debt are thrusting,  financial geniuses – that makes me wonder.

When governments print up money there is a chorus of disapproval. Yet when banks leverage more lending and debt into the financial system, there is hardly a murmur. If anything is said it is usually along the lines of, ‘Isn’t it good to see bank lending recovering’. People seem to be encouraged to see these two actions, government printing and bank leveraging, as quite different.

Are they?  It seems to me they not. I see them as almost the same. Certainly one prints money the other creates debt. But both ‘money’ (government printed money) and credit/debt (issued by private institutions) are both ways of increasing the supply of “tokens of credit” in to the economy. Both kinds of ‘money’ can be used to purchase goods and services, both can be used as collateral to get either cash or more credit. Both are held by banks and are regularly exchanged one for the other. Government’s print money. Banks print credit/debt. Government debts are analogous to bank leverage. Both are ways of talking about the ratio of debt to underlying ‘capital’ or productive, profit making capacity.

It seems to me, the main difference is who issues them. One is public the other is private. And therein, I think, lies the real ideological battle of our time.

When experts from the financial world warn darkly about the dangers of governments printing up money, what are they really saying?  They would claim they are simply speaking out, trying to protect us from weak, stupid or power hungry politicians who will ruin our economy with their incontinent money printing. But given that these same financial experts are often drawn from banks who we now know spent a decade incontinently printing up credit/debt, one has to question their honesty or their understanding, or perhaps both.

I think it might be helpful for us to wonder if, when bankers complain about governments printing, they are merely trying to talk down the actions of their main competitor in the money printing business. The real argument between government and market, isn’t about how much is being printed – after all the banks are terribly keen for money to be printed whenever they need some government hand outs – no, the real argument, I think, is over who should control the printing – governments or banks. Public or private. What we are really talking about is a battle over the privtization of the money supply and who has the power to control it.

In the era when the bulk, or at least a very large percentage, of the over all money supply was made of government printed ‘money’ and privately created credit/debt was, by contrast, relatively small, governments controlled the money supply and thus the macro-economic conditions of the economy. They were in charge. The modern, neo-liberal, free market era from Thatcher and Reagan onwards to today, has challenged if not actually changed this.

It has been an article of free-market faith that governments and politicians cannot be trusted to manage the economy because they cannot be trusted not to print willy-nilly, for the buying of political popularity and to enrich their in-group friends at the expense of the rest of us who have to suffer their currency printing and debasement. The flip side of this belief is that the Free-market, of which the banks are a major and controlling force, can be trusted to ‘print’, ( create and leverage credit/debt) sensibly and for their ‘printing’ to be for the  greater good of the market and all those who sail in her.

Of course, I fail to see any actual evidence to say that the private sector/ markets/ banks are any better, or any more disciplined about printing up credit than governments are about printing money. The Great Depression was very clearly the result of ‘the market’/ the banks printing up far too much credit. The Great Depression the US was not the result of the government of the day having printed up too much money. The banks had created too much debt/credit and allocated it unwisely. Ourn present crisis was precipitated by the exact same creation of too much credit, too poorly alloacted and all too often granted fraudulently.

However, we are not talking about proof and logic here. We are talking about ideology and the struggle for power. The fightis between the ‘old’ order of supreme power being vested in government along with the ideal (even an unrealized ideal has value) of democratic accountability and control of those governments, and supreme power being moved to the market which is not democratic and in which we, as people, have no controlling say at all.

Leaving the facts where they are traditionally left – in the ignored margins – the free-market world view says Governments will not allocate for sound economic reasons but always for shallow reasons of self interest and maintaining their own power, while the market/banks will allocate for growth and prosperity for all. If you believe this then it does make sense to try every way you can to reduce the size and role of governments and to diminish the importance of their ability to create and allocate the money supply, and to turn this function over to the markets as far as is possible.

That means to run the markets on their own currency with as little recourse as possible to government money. This was done. The shadow banking system and debt markets are the result. It means removing from government as many funding powers as possible and turning these over to the markets. What this means is that instead of a government funding the building of lets say a hospital in the way it might once have done, by printing up government money to pay for it, the government no longer prints but now goes to the markets to ‘borrow’ money – which means the banks create the money supply in the form of credit/debt. The banks print not the government. Only they call it elverage as if this makes it all right. Nasty dirty government printing. Nice clean, powerful and profitable bank leverage. See how wonderful the new one is and how grubby the other?

And if you also privatize ‘health’ itself, turning it from a government service, a vertiable drain on productiveity, and turn it  into a pofitable, market industry – of course call it a service industry for the sake of sounding ‘caring’ – and viola what was once a ‘drain on the markets’ is now a porfitable part of those markets. It’s a win, win win. Down comes taxes, shrivel goes the state and up goes the stock markets as more businesses make more profits. And behind the scenes the market now not only has captured the power to create the ‘money’ it also has a far greater influence of how much gets allocated and spent where.

This is not economics. it is politics and ideology. It is a struggle for power. Specifically for power to be removed from government and governance and put instead into markets and management. Voter power is to be eclipsed by consumer power. Sound reasonable? “Express yourself in the market place.”  How much power do you have? How does one dollar one vote sound?

Having achieved much of this ideological and actual shift in the last few decades, the next logical step is to import this logic and the people who believe in it, in to the ‘enemy’ camp – IE government. A difficult step. But fortune smiles upon the determined and the present crisis has had several silver and gold linings. One of the most threatening, to my mind, is the invention of the idea of the ‘Technocratic government of national unity.”  A new vocabulary to allow new forms of power to slide in with as little friction as possible. What is a technocratic government? Is it elected? No it is not. Is such a form of government democratic? No it is not. Of course it is only temporary. Of course. But will such ‘temporary’ ‘governments’ become regular, ‘temporary’measures, each time something ‘difficult’ or unpopular ‘as’ to be forced through?  A precedence has been set.

Who will deicide when the next ‘technocratic’ government is essential? Will it be you? No. By definition it will not be you. ‘Technocratic’ means putting hand picked rulers in place ‘temporarily’ when democratic voting does not seem to be coming to the decisions the markets deem essential and desirable.  How long do you think till the next crisis and the next technocratic interregnum it will surely ‘require’?

A concluding thought.

Credit/debt backed ‘money’, the type which banks ‘print’ and control makes up the bulk of the present global money supply. This is power. As it was before the great Depression so it is again today. It is power that thought it was ascendant. Until the brittleness of their debt backed model of fiat, free-market debt backed money, imploded in on itself in 2008-09.

The crisis made one thing clear – debt backed, market fiat money, is not yet robust enough to survive without a central bank to issue national money in times of crisis of market confidence. Or to put it another way the markets – mainly the big financial players, the banks, funds and insurance companies  – suddenly realized that what their system, their currency did not have but in times of crisis badly needed, was a system of central, back-stop banks.

Well they have them now.

One way of looking at event of the last two years is to see the role and allegiance of the central banks changing. Ask yourself – who do the central banks work for? Is it you and your welfare that they concern themselves with primarily? Or have the central banks come to see their role as defending the integrity, profit and power of the system of banks which preside over the markets and the market’s debt backed wealth?

I suggest it is at least worth considering who ‘our’ central banks now work for. I personally think they no longer work for us, for the nations and peoples whose names they still carry, but are now increasingly a part of a non-national, global system. Is this so ridiculous? Well who runs the central banks? How many of them are former employees of the big banks? Are the central banks and those in them controlled by elected governments or have they become increasingly ‘independent’?

Such a useful word ‘independent’. We are encouraged to think it means independent of any outside influence. An impartial, Solomon-like force. Sadly that is clearly not what our central banks are or how their independence was initially conceived. Their ‘independence’ was ‘independence from’ governments. Think back, ‘indepedence form governemtn’ was what was trumpeted. Nothing was said about their relation to the markets was it?

The global banking system now, has was it lacked in 2009 – a system of central banks to back-stop it.

I know Basel III is supposed to change it all. WAKE UP! They are already gutting it. Weakening collateral and capital rules even before it comes in to force.

I know there are new proposals for how to wind up big banks that might fail. I have read those proposals. They are hollow. I will write about them soon

These are, as I said in the title – just thoughts. Small and incomplete ones. Thoughts in progress. I offer them in hopes they might be useful spurs to better thoughts and provide a starting place for those better informed to offer correctives and alternatives. I look forward to reading them


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77 Responses to Some small thoughts – On the power-struggle between ‘money’ and debt.

  1. bill40 January 17, 2013 at 12:21 pm #


    I have written often here on the fact that there are now competing currencies in the UK debt, the currency of banks, and money that is the currency us serfs have to use. A subtle point often lost is that we don’t use debt as a currency when we borrow we use money. Debt ownership is not for we serfs.

    The neo liberals will have their mantras primed such as “crowding out” and “misallocation of capital” as if they were handed down to Moses as law. The simple truth is they want the seniorage of compound interest when the government, as monoploly issuer of currency, can perform this function interest free. See positivemoney.org for more.

    So which party will fight for us? Not the tories they are self evidently in the pocket of the City. Didn’t labour fight back and icrease the government role by increasing public spending? It is only after the crash that government debt ballooned. See Ramesh Patel http://www.huffingtonpost.co.uk/ramesh-patel/growth-cameron-austerity_b_2007552.html

    Democratic capture is complete as is regulatory capture. The size of state debt is used to terrify us. The answer to debt is not more debt goes the mantra. More borrowing adds flames to the fire… *Insert your favourite neo liberal cliche here.

    The bare faced cheek of these double standards is amazing and the public swallows it.

    • Golem XIV January 17, 2013 at 2:31 pm #

      I agree with you. The banks are getting their cake and eating ours too.

    • Mike Hall January 17, 2013 at 6:59 pm #

      Quite agree Bill


      The only thing that immediately springs to mind about your piece is where you suggest central banks somehow ‘changed’ to become the creature of commercial bank interests after 2009.

      I think they have always been the creatures of the private banks, but as you say the ‘independence’ thing was to try & remove any future potential for gov control (of both money & banking). Just look at the Euro structure – designed by & for the private banks exclusively.

      Of course the Austrian schooler goldbugs etc. will just say it was governments’ fault for interfering & not letting the banks collapse, capitalism take its course etc.

      But bankers have long known, in being keepers of the payments system, that their business is not like any other.

      Take that notion to the modern world of instant global interconnection & it becomes obvious that whilst a few small bank failures could be dealt with, simultaneous collapse of the worlds’ largest could not.

      This situation was not unknown or an accident. The (big) bankers knew governments (as in the real economy – us) would have to bail them out, just to keep society from collapse or at least looking like Greece (which would be near collapse if we had 30% unemployed).

      Also the ‘free markets hypothesis’ – the ideology used to justify much of the lies of neoliberalism – was fully known to be bullsh1t by many of the elites. They know full well it requires exactly the antithesis of that – a rigged market – to make the big money. (Anyone with knowledge of commodity trading knows this.)

      It takes a supreme ‘useful idiot’ academic like Alan Greenspan to be peddler in chief of the FMH myth. But not even Greenspan could deny it was complete cr@p when he testified before in Senate hearings on the 08 bust.

      It’s a testament to the level of ‘capture’ that FMH & all the other neoliberal nonsense is still universally informing macro policy 5 years after the bust.

      Just one more comment Golem.

      As I think (hope) you have realised, money is endogenous (and needs to be) to allow economic growth to occur. (Even if only for population changes, tho’ I would argue modest growth is pretty much a prerequisite for macro stability.)

      The big question then is, WHO takes responsibility for allocation & risk management at the micro level for the new money?

      This gets to the crucial difference between MMT and the positivemoney.org type extra prescription of something like ‘full reserve’ banking.

      MMT argues that there is a vital role here in managing the introduction of new money thru’ bank debt – but carried out in a highly regulated, ‘traditional’ way, ‘originate & hold’ etc. (Most of the rest of the current finance sector being made illegal.) Many suggest this is the proper function of banks aside from the relatively trivial matter of the payments system.

      Whereas, if a full-reserve system of some kind actually does limit/control the money supply (definitely not a given), then how is the risk management of the endogenous money at the margin done? And by who? How are other credit-like or money-like transactions dealt with in the aggregate? How are changing savings desires in quantity & time duration dealt with?

      Well, anyway, a few thoughts of mine…

      • Golem XIV January 17, 2013 at 7:43 pm #

        Hello Mike,

        I think prior to the era of making central banks ‘independent’ that governemtn’s had a direct and legal ability to influence what the central banks did. If that had not been the case then there would not have been abny talk of the need for independence.

        Yes I do think money is endogenous. Is there anyone who thinks it isn’t? It seems to me even gold bugs would have to allow teh value of money, even gold backed money, to be influenced by the actions of everyone in an economy.

        Or do you mean something more than that when you speak of money as endogneous?

        I think where we might disagree is that I do think it was wrong to bail out all teh banks and I do not accept the argument that had we let the insolvent banks go down that this would have caused a return to the stone age.

        I do think it wrong that those who made bad loans have not had to suffer the consequences. I do not think allocating a great deal of new money to bailing out the banks is a gopod idea.

        I would much rather have allowed them to go bust and their functions and viable loans puchased at fire-sale prices by new banks capitalized, if necessary by the public purse.

        It is one ting to keep the functions of those large banks going and quite another to allow them to continue under the same ownership and mangement. I do not consider this to be an Austrian or gold bug opinion as I am neither.

        • Mike Hall January 18, 2013 at 1:17 am #

          Hi David,

          By endogenous I mean the quantity of money in circulation is determined by economic activity thru the bank lending channel. As in loans create deposits. Loans repaid destroy them. (As you point out, & Steve Keen has said many times, what those loans/new credit money are for, productive vs existing asset speculative, is key. If banks have to hold them & +can+ go bust/have their executives +also+ pay/lose/get gaoled, if they f^ck up, plus some decent auditing & oversight, that might do the job. This is MMT/Bill Black’s position.)

          I think the banks were so interlinked with derivatives etc. that the sheer speed & volume going into enforced administration might well have been overwhelming. I’m inclined to think it would at least have been a massive gamble – I doubt any major bank in Europe would have escaped. If the numbers bandied about in the recent banking union proposals are indicative that’s over 200 banks just in the Eurozone.

          Anyhow, my comment about using issuance relates to bailing out governments to enable austerity to be reversed, not for giving bankers any more. Per capita basis, as Steve Keen (& Prof Richard Werner of positivemoney) & others suggest to begin the recovery of the real economy whilst serious reforms are deliberated.

  2. Hawkeye January 17, 2013 at 12:25 pm #

    Happy New Year David

    Good to see you coming out all guns blazing!

    All our woes do indeed stem from private bank credit creation. In 2009 Reinhart & Rogoff wrote a mighty tome of a book called “This time is different” based on 200 years of data on financial crises (both sovereign and banking crises).

    The book puts forward a causal model showing how regulatory conditions (of private credit creation) relate to the occurrence of banking crises and potential knock-on effects:

    1) Financial liberalisation
    2) Asset speculation
    3) Banking crisis
    4) Currency crash
    5) Rising inflation
    6) Sovereign Default
    7) High inflation / currency collapse

    When the private banks couldn’t sustain the debt bubble, it was down to the Central Bank (enjoying Gvt balance sheet support) to try and contain the de-leveraging. The banks’ firewalls broke down and so passed the problem up the food chain. This has almost doubled Gvt debts over the last 5 years in most G8 countries. This next firewall is clearly beginning to creak, hence the stresses being passed onto currencies themselves, as the last ditch firewall to try and contain it.

    As each layer of firewall is breached, a wider group of people is affected:

    Bank crisis: depositors, shareholders & creditors
    Sovereign crisis: taxpayers, bondholders (well, not if they can help it) & welfare recipients
    Currency crisis: widespread impact on society

    Recent events of gold re-patriation signals central banks are beginning to lose trust in each other. This could be a foreboding of currency strains to come in the very near future.

    – Hawkeye

    • Nell January 17, 2013 at 1:31 pm #

      Interesting critique of Reinhart, C., and K. Rogoff’s ‘This Time it is Different’ from Randolph Wray. He argues that Reinhart & Rogoff, in their analysis, do not make an important distinction between sovereign debt of a nonconvertible currency (aka US dollars, british pounds) and convertible currencies (gold standard, pegged currencies and fixed exchange currencies). He also points out that their analysis is missing key theoretical insights by Minsky and Galbraith’s analysis of the Great Depression.

      • Mike Hall January 17, 2013 at 7:08 pm #

        Yes, and Reinhart & Rogoff make no distinction between money sovereign states like US, UK Japan etc & non-sovereign money states of the Eurozone. (At least in their papers.)

        Not a trivial omission.

        They also otherwise totally buy in to the neoliberal view of gov debt & deficit in much the same way as so-called progressives do, like Krugman.

        On that basis, I suggest using their book for fire kindling – there much more extensive & accurate assessments available free on the internet (in the right places).

  3. Nell January 17, 2013 at 12:54 pm #

    The topic of this blog is what motivated me in 2009 to start reading about economics. It started with Paul Grignon’s Money as Debt documentary. As soon as I saw it I realized that all the political goals I cared about (environment, social equality, health care, education etc) did not stand a chance when private banks controlled the supply of money. After that, I joined Positive Money. From there (via some of the posts on this blog) I have moved on to economic theory, specifically Keen, other post keynesians on the Real World Economic blog and modern monetary theory. The battle is most certainly between public vs private control of money. A worrying trend is that the UK is showing signs of releveraging starting 3 quarters ago. See a graph of ONS data on debt on Neil Wilson’s blog http://www.3spoken.co.uk/
    Our total private sector debt to GDP ratio was approx 456% at its peak in 2010 Q1 , it fell to around 427% of GDP (2011, Q4) and has started to creep up again (434%, 2012 Q3). Our economy cannot support this level of debt. Private sector debt, unlike government debt, has to be paid back by labour productivity or it has to be defaulted on. If our government continues to ignore private sector debt, I think it is inevitable that we face increasing social instability. The kind of social instability which occurred during the late 19th century (ie revolutions, war and mass deaths) until the post WWII consensus on income distribution. We are not talking about a few summer riots.

    • Mike Hall January 17, 2013 at 7:19 pm #

      Apparently, a few days ago, shots were fired from an AK47 rifle at the offices of the ruling political party in Greece. There were also a number of small fire bombings at properties connected to politicians or their relatives.

      It seems there was little intent to actually kill anyone, but it’s another indication/warning that a serious breakdown of society is possible.

      I’ve also just signed a Care2.com petition aimed at stopping Greek police attacks on anyone who might appear to be an immigrant (including tourists). Looks like further evidence of Nazi ‘Golden Dawn’ infiltration of the police.

  4. John Souter January 17, 2013 at 1:15 pm #

    David – First, against all the odds, let me wish you all the best for you and your’s for 2013.

    An impressive argument, cogently presented.

    Without being pedantic I would offer one small observation on the passage quoted below –

    “Down comes taxes, shrivel goes the state and up goes the stock markets as more businesses make more profits. And behind the scenes the market now not only has captured the power to create the ‘money’ it also has a far greater influence of how much gets allocated and spent where.”

    Perhaps – Down goes the tax take while up goes the tax demands to compensate a shrivelling state……..?

    The ultimate question is – who owns the State?
    And, subject to the first, Does the State have the power to abrogate the power and responsibilities vested in it to ‘outside’ interests?

    • Golem XIV January 17, 2013 at 1:37 pm #

      Good point. Not pedantic at all. I agree.

      As for your questions they get to the heart of it. Who does own the state. I would say no longer us despite the fact that we still have all the trappings from the era when we had quite a bit of control.

      Does it have the power to abrogate those powers we granted it? Seems to me they have abrogated them and still are simply because the law has been suborned and too many people are sitting around letting it all happen.

      But you know all those. I think everyone hear klnpows all this. We have just not yet found the galvanizing thought or suffered the insult that moves us.

      But believe both of those things are coming and fairly soon

      • OpenThePodBayDoorHAL January 19, 2013 at 9:32 pm #

        Who “owns” the state is indeed the next question. We are coasting along after an era called “representative democracy” where citizens got the distinct impression that they were “franchised” and had some sway over the course of events. I’d suggest that today we are “post-” that era: no one I speak to feels that there is a political party or entity of any stripe that represents their interests or world view. I’m finding this is even true in parliamentary democracy countries like France with lots of political parties. And of course true in the US, with it’s grotesque choice between two flavors of business-as-usual fascism.
        But when does the tipping point arrive? Limitless money printing can elevate asset prices for a long time to come, at least until we reach “financial singularity”. No one can construe government actions, whether to gut Social Security, slash health care, shower largesse on drug cartel financiers, or invade Mali, as having any remote benefit for anyone except .01% debt holders. Remove the top 300 incomes from the US and the stats are that of a Third World nation.
        I am from an idealistic age, the 60’s, when we could stop a war, completely change a society, and kick a criminal president out of office. How depressing now to be in an age where all I can do is stand by and watch the fascisti loot my heritage and my future. But recall the first thing hippies wanted to do: raise consciousness. Maybe that’s what blogging can do, one pair of eyeballs at a time.

    • Nell January 17, 2013 at 1:39 pm #

      The abrogation of power is a tricky issue. For example, one might argue that a defining characteristic of modern governments is that they have embraced the notion that state economic planning is inefficient and that the best policy is to let markets do their ‘thing’. Essentially, abrogating power to the ‘market’ and specifically to financial markets. Simultaneously, governments have worked hand in hand with big business to create monolithic monopolies that dictate economic activity in a very unhealthy partnership. Unhealthy from both an economic (financial chaos) and political perspective (death of democracy). Pilkington’s peice on the development of neoliberalism makes some important points in this respect.

      • Hawkeye January 17, 2013 at 2:26 pm #

        It is probably incorrect to define the current Modus Operandi of state dismantling as merely “letting the markets do their thing”.

        David Harvey’s “Rise of Neoliberalism” and James Galbraith’s “Predator State” both make it clear that certain functions of state power are maintained under this Neo-liberal hijack. It is a one-sided dismantling that is taking place.

        Crucially, state powers of contract enforcement, civil obedience and military adventurism are retained. The state is co-opted to act as monopoly collector of taxes (as in normal Social Democratic functioning) yet corrupt distributor of the spoils to the private sector. The NHS is a case in point. We will all have to continue paying taxes, except now the proceeds go to private contractors.

        We may have fewer “state employees”, but this doesn’t make it a smaller state! Rather than enforced customers of a democratic and “civil” service system, we are soon becoming the enforced customers of private profit making organisations.

        That is a complete bastardisation of the very Free Market principles they claim to espouse!

        • Nell January 17, 2013 at 2:47 pm #

          I agree, reality (state-corporate power nexus) and the political rhetoric are quite distinct. The virtues of the market are a great excuse for governments to shake off responsibility for the welfare of those they were democratically elected to represent.
          I enjoyed reading the work by Shimshon Bichler and Jonathan Nitzan, which discusses the relationship between inequitable distribution of national income and levels of criminal punishment. Suppression by the state to support the rich getting richer.

        • Ian Cropper January 17, 2013 at 4:38 pm #

          I think that the answer does lie within some of the ‘fine detail’ of privatisation. When state money (taxes) goes out to a private company then we start to lose control. Firstly we are unable to properly check and audit due to ‘commercial confidentiality’. Once we lose sight of the ball then anything can happen as we have seen before. Private companies ‘re-negotiate’ the contracts, demanding more money. At this point we have lost control, and it is the private company that is now in charge. Look at how difficult it can be to transfer a contract to an alternative supplier.

          More worrying for me is the overlap between state and private sector, with so many MPs having a stake in one or more providers.

      • John Souter January 18, 2013 at 4:57 pm #

        Nell – problem is if you abrogate ‘power’ you diminish the power you hold.

        The question then turns on a) the legal right to legislate for its enactment.
        b) the legal rights of those whose powers have suffered diminishment.

  5. Diogenis January 17, 2013 at 3:05 pm #


    Dear David,finally some one who writes about something I never understood.All this talk about 50-100% public debt of the developed countries during the last decade 2000-2010 but no one every talked about the 300-1000% “private debt” which also includes the banking sector.And finally..this world crisis did NOT start in 2008 with a public debt issue BUT with the lehmann-brothers..a bank!

    You are very right with everything you wrote.Nothing of what you said is ridiculous.Everything sounds very logical.And your “Technocratic government of national unity” are/have been already a reality in greece and italy.Soon to come to spain,portugal etc.And these countries are just the beginning.


    I don´t believe that the current central banks ever trusted each other during the last years.They all know very well what is going on for many years.They all know about the overall debt of each others in the USA,europe and japan.It was just logical for them to “move together” till some point.Like mafia gangs of a big city will move together to fight the last non-corrupt parts of local jurisdicition.But as you wrote,the time for seperation has come.Say hello to a more nationalist approach with “currency wars” from now on.At the end the neoliberal crack heads of our “elites” see a common single world currency which promises “peace and prosperity” for the whole globalized world under the rule of a few multi-trillionaires.

    Ofcourse this will not work.But as the years go by I am more and more convinced that we have to deal with psychopaths.Insane criminals who lead our gouvernments and the financial system.There is no other explanation for all this.

  6. StevieFinn January 17, 2013 at 3:05 pm #

    Once again, thank you for your large thoughts.

    At the end of the day the power elites do not need safety nets, pensions, affordable health care, democracy & increasingly do not need us ‘ Useless eaters ‘, cramping their style & insisting that we have a say in how things are done. As they look down on us from a great height from their exclusive bubbles, they probably see us mainly through the media lens as being for the most part increasingly surplus to requirements, & being very spoilt. As a whole judged this way with an added selective prejudice on their part, we would probably not show up to well in their eyes.

    They might also consider the following : The Chinese serf is cheap to run & very productive, with just a nice enough percentage doing well enough to afford luxury goods & at the very top there are those who belong to the even more fortunate few who will be allowed entry into the exclusive global elite. These are all commodities who are worth investing in as they are very profitable, unlike their counterparts in the West who demand all sorts of expensive maintenance & perks which means as producers of wealth their profit margins are just to tight & for very many at the bottom these units actually, incredibly, run at a loss.

    The Chinese government runs a factory not a welfare establishment & is fully capable of controlling any rebellion, & the fact is, with increasing automation in production, in order to compete we have to be rid of this Western socialist nonsense & make full use of those who can become fully productive cogs within a larger high profit returning machine. After all it is only an application of ‘ The survival of the fittest ‘, we cannot afford to carry dead weight, they will only drag us all down which will eventually lead to our collective destruction. We all in essence have to be cost effective & like it or not some of us are superior to others & should be well rewarded to reflect that, those who unfortunately are incapable of producing profit are, cruel as this may sound, can only be left to their own devices for the sake of the common good. It is after all a finite World & it can only support a certain amount of us.

    That’s my view of their view for what it’s worth, hence we are all entered in the race to the bottom while the elites are busy running a race to the top. Austerity & the ripping away of safety nets will combine to produce a World of competing sweatshops in which everything is given a monetary value, which will be the only way used to assess something or someone’s worth.

    Just business, nothing personal.

    • Diogenis January 17, 2013 at 3:31 pm #

      “we are all entered in the race to the bottom while the elites are busy running a race to the top”


      The good thing “this time” is that the masses are much more educated than during the “last time” (1929-1945).Maybe most of us 99% still watch TV and read what they tell us in their fox/murdoch/Belusconi/Bertelsmann-“News” but at some point most of us 99% will “stumble” over a blog like this one.This is my big hope.We,the 99% may run to the bottom but we still have a mighty weapon far besides any ideology or nationalty.And this weapon has one name:Solidarity.

  7. Sam McEwen January 17, 2013 at 3:16 pm #

    Am I being a little dense hear or is not all money private, its issued by the bank of England, Quantative Easing is the BOE creating money to buy guvn. issued bonds. So really it makes no difference the guvn and the banks are joined at the hip. Any entity will exploit an advantage (guvn./banks using FIAT currency),
    Isnt the real culprit FIAT currency its self, if we returned to a proper gold standard no one would control money there would be no real inflation (savings theft) no disproportionate leveraging (if any) people could carry on in their business safe in the knowledge that the money they were chosing to use was limited and non negotible and ultimately SAFE. Every body including governments would have to live within their means the only sustainable future.
    (sorry for all spelling errors)

    • bill40 January 17, 2013 at 3:44 pm #


      The Gold Standard slowly collapsed as it caused unnecessary depression. The first out of it recovered fastest. It is the answer to a question nobody asked. All you need to know is this 97% of money is debt.

      The debt problem is a private sector problem being foisted on us.

      • Arvind Damarla January 18, 2013 at 8:08 pm #

        What caused the depression was the distortion (lowering) of interest rates by the Federal Reserve in the 1920s, that led to massive asset price speculation (sound familiar?). The preceeding credit boom created loans that could never be repaid (without debasing the dollar), and therefore prices collapsed. Don’t blame the Gold Standard for the Federal Reserve’s follies.

    • Golem XIV January 17, 2013 at 4:00 pm #

      Hello Sam,

      Welcome. You make lots of different points. Thereason to make the distinction between gov issued money and private bank debt backed ‘money’ is one of control. Who decides how much to issue.

      You are right that in a fiat money system any entity gov or private can abuse irts ‘printing’ power. Even in a gold backed currency the banks could still ‘print’ debt unless we re-instate limits on leverage.

      As for the gold standard it is a way of stopping fiat printing. The question is if the down-side of goild standard makes it worth chosing to go back to a gold standard.

      It is useful for governments to issue currency when they ‘bneed’ to. The problems comes when we are not sure if we trust them. Do they ‘need’ to because it will help us is it just to help them?

      There are times when making money available to businesses is truely helpful. The question is not how much is printed up but what use is made of it. If you print up money and it is put to work helping realy productiuve businesses to create goods ans services for which there is a demand – then that printed money will NOT cause inflation. Far from it. It will create employmenbt which reduces welfare and created demand.

      But you can, as our governemtns have done, print up money and simply give it to people or sectors of the economy where it does not create any new production but simply enriches a few people who would otherwise have lost money.

      I think Government printing needs to be done wisely and can be.I think governemtn often print unwisely but this doesn’t mean it always has to be unwise. The present printing in order to bail out banks is a case in point of how both free market and gov can conspire to defraud us all.

      But I also think a gold standard limits the ability of governments to make wise investments. It enforces austerity measures when they may not be wise.

      • Arvind Damarla January 18, 2013 at 8:05 pm #

        There is no downside to a free-market Gold Standard – as long as it remains unencumbered by interest-rate-distorting Central Banks and associated Legal Tender laws. The alleged ‘contractionary bias’ of the Gold Standard is what keeps unbridled growth of credit (endogenous money) in check. This is probably the best feature of the Gold Standard, along with stable Long-Term interest rates, the absence of perpetual inflation, and exponential growth of aggregate debt.

    • Mike Hall January 18, 2013 at 2:09 am #


      One of the biggest problems with a gold standard or some other ‘peg’ is that it requires pretty much all the worlds most important & traded currencies to peg together, if just +one+ decides to peg. This was the basis of Bretton Woods post WWII.

      In order to do that you need to start with an almost perfect world – perfectly run national economies & perfectly balanced trading relationships & maintain them in that condition. When any of those factors get even slightly out of kilter positive feedback loops kick in quickly to destabilise the whole. This is the history of every gold standard. It’s not for our planet/species.

      As soon as some shock hit or imbalances arose, the straighjacket of pegged currency limited policy space made the situation many times worse. It’s a major part of the mess made after the ’29 crash until countries dropped their gold peg. It’s why the Bretton Woods agreement fell apart in 1968 – it would have created another 1930s had the US tried to maintain it.

      A large part of the reason the Eurozone is in such a mess, deeply flawed & getting worse, not better, destroying countries like Greece & Spain (& more to come…) is because it has many characteristics of a gold standard & is being operated anyway (in respect of public finances) as if the currency was not ‘fiat’.

      The fact is, in the present global financial mess, fragility & huge trade imbalances, not to mention facing down the likelyhood of peak oil soon, about the most +insane+ thing the world could do would be to try another currency peg regime.

      Fortunately, even the sociopaths running things these last decades are not that insane – it will not happen, cannot happen (cannot have suitable starting conditions – bit like starting a shared currency like EMU) in any time scale that has any relevance to our current problems.

      Full stop. End of story.

      (PS the aformentioned does not mean that all of Bretton Woods was useless – far from it, some of the controls relating to banking should be revisited.)

      Golem’s thesis here about the power struggle between the democratic control of our money supply vs that of narrow private (bank) interests is absolutely spot on. This +is+ the hidden agenda behind neoliberalism. The last 5 years is final proof even if the previous 3 decades were more obscured.

    • GordonDonald January 18, 2013 at 10:48 am #

      Have a look at this article by Eric Townsend:


      He gives a good summary of the establishement of Bretton Woods, why Nixon was forced to abandon the dollar’s link to gold in 1971, and the development of the US’s position of ‘Exorbitant Privilege’ in the world economy. He then goes on to exmine possible repercussions of an energy crisis due to peak oil for global finance and US’s position.

      • Mike Hall January 19, 2013 at 12:12 am #

        I’ve seen this foreign financing of the US thru’ US Tsy bonds meme a few times. The problems with it are many fold & routed in fundamental misunderstandings of what ‘debt’ is and is not at the macro/monetary system level.

        The author is viewing it very much in a household/business way, and it doesn’t hold up.

        Once MMT is understood – basically the correct operational description of what the monetary systems became after Bretton Woods – you will know why Eric Townsend’s understanding is flawed.

        Also, a key misunderstanding in the geo-politics is the assumption that the various elites are representing national interests. They are not. The game is among competing elites for whom their general populations are largely expendable. Yes, US, Europe etc just the same as China or Russia or India.

        So as regards Peak Oil, the consumption of general populations will be ‘let go’ first long before these elites actually consider fighting over some pretended ‘national’ interest.

        The process is already under way. Does anyone really think the top elites don’t know about peak oil? I was sat right behind Zbigniew Brzezinski at the ASPO6 conference.

        Of course, it’s just a more virulent form of neoliberalism anyway. Ultimately Hudson’s neo fuedal slavery in the US, Europe etc. & euthanasia for places like Africa, S America etc.

        Major currency collapses don’t have any part in this – it’s not in any of the dominant elites’ interests.

        • GordonDonald January 19, 2013 at 12:45 pm #


          You say
          “Once MMT is understood – basically the correct operational description of what the monetary systems became after Bretton Woods – you will know why Eric Townsend’s understanding is flawed.”

          Can you give me some links/references so I can get an understanding of the MMT position?

          On the whole I tend to agree with you about the elite’s interest being global rather than national. However I think we need to acknowledge that this is a contested agenda: it involves a struggle between conflicting interests and this is played out in our political institutions and within the political class. As much as the economic elites would be happy to sacrifice the rest of us to their globalised agenda, they are not free to do so simply as they please. The 1% require at least the passive consent of the 99% in order to continue (and this applies to dictatorships as much as democracies). This is why the ‘national interest’ is such a useful fiction for politicians. But also it is such an established part of the dominant ideology (the common sense view or ‘taken for granted’ ideas that most people share) that even some of those that share the interests of the 1% or form part of the political class (in all parties) genuinely believe in it.

          (BTW debates and arguments about the UK’s membership of the EU seem to me to have an underlying basis in the differing interests of factions within capital: e.g. big vs small business, finance vs industry. But they inevitably get played out within the frame of the ‘national interest.’)

          Capitalist states, in the way they are constructed and reproduced, ultimately defend the interests of capital, but they also incorporate liberal ideas of freedom and justice and govern mostly by consent rather than overt coercion, and cannot simply enforce the wishes of a ruling class. The current economic crisis might well represent a crisis for nation states which forces them to adapt and change but surely they will still be an important agent for the foreseeable future?

          • Mike Hall January 20, 2013 at 12:23 pm #

            Hi Gordon,

            Bill Mitchell’s blog is the most thorough & he uses links to previous blogs & further explanation throughout. But it will take some time to get thru’.


            The other main blogs are:


            UMKC home blog of Randall Wray, Stephanie Kelton, William Black, Michael Hudson & others.

            For MMT commentary on daily events I usually go to Mike Norman’s blog first – pretty much all the key proponent’s, thru’ blogs or articles, across academe & the finance sector are linked there.


            Yves Smith’s blog is very good too:


            Not exclusively MMT or even post-Keynesian, but ‘gfc & mmt daily’ picks up a lot of the more interesting stuff, one of the best ‘aggregation’ sites on these topics imo. See here:


            A new macro economics text book written (principally) by Wray & Mitchell is very near completion – ‘Modern Monetary Theory’

            I’ve found it very interesting this last year or so especially that MMT’s key explanations & descriptive principals of what is essentially the present fiat system ‘slips out’ in the words of prominent insiders, central bankers & others.

            A recent one was from Michael Kumhof, chief research economist at the IMF in an interview for Swedish TV…. “….loans create deposits, I’m a banker, I know how banking operates…” – cat out of bag (!) – ‘endogenous money’ from the horses mouth. (Still denied by even well-meaning ‘progressives’ like Paul Krugman.)

            Bernard Lietaer, former central banker (in Belgium) & respected world expert & Prof of International Monetary Systems & Finance – “….academically, MMT has never been challenged. From what I read, they are right..”

            (If I understand it correctly, Lietaer favours an international commodity backed reserve currency & rules similar to Keynes’ Bancor which, regrettably, the US did not agree to in Bretton Woods. Note that individual countries currencys float tho’. Interesting stuff…)

            I’m no where near as optimistic as you about the constraints on elites to rule pretty much any way they want.

            Modern media has been phenomenally successful at ‘engineering consent’. Or at least creating enough ‘divide & rule’ confusion.

            I think the key is probably also ‘incremental’ change, rather than some sudden ‘coup’.

            Spain & Greece are already at Depression levels of unemployment, & the social order in each is in serious danger of breakdown. But addressing this is not really even on the agenda.

    • Arvind Damarla January 18, 2013 at 8:12 pm #

      Correct. The real culprit is the synthetic currency system backed by a central bank. A free market-selected measure of value – such as Gold – that can not be backstopped by a printing press is required to ensure banks do not expand lending. Only the lack of a lender of last resort will keep banks honest, and government wastefulness in check.

  8. Joe Taylor January 17, 2013 at 4:51 pm #

    Here’s Osborne giving some straight answers on the UK debt situation


  9. Arim January 17, 2013 at 4:57 pm #

    Hi David,

    Great article, thanks!

    It might bring even more clarity to the issue of the banks’ “credit creation” if we would start using the taboo term “money creation” though, since that what the banks create can’t be labelled as “credit” anymore…

    I think you might find this video interesting – Please watch the first 1 minute: http://www.youtube.com/watch?v=fmKkwrSr49s

  10. steviefinn January 17, 2013 at 5:22 pm #

    “Slovenia may be a small country, but this decision is a symptom of a global tendency towards the limitation of democracy. The idea is that, in a complex economic situation like today’s, the majority of the people are not qualified to decide – they are unaware of the catastrophic consequences that would ensue if their demands were to be met”


  11. Phil T. January 17, 2013 at 9:26 pm #

    Dear Golem et al —

    I am wondering whether or not the very recent collapse of the TNT Express / UPS merger in the Netherlands is a barometer of how well the right thinking people are doing in the current phase of havoc they wreak?

    UPS abandons €5.2bn TNT Express takeover – FT.com

    Hedge funds nurse heavy losses after UPS-TNT deal collapses …

    Best wishes — P.T.

    • Golem XIV January 17, 2013 at 9:47 pm #

      Hello Phil T,

      Yes an interesting one that. Not often teh big funds get so aparently blind sided by the regulators. Especially as I firmly believe this yer will see a lot more Mergers and aquisitions.

      I think 2013 will be a year or M&A because this is a way for the banks to make money without investing, for funds to bet and ride a ramp in shares and for comapnies who are not doing so well to be able to talk about synergies etc and boost their share price.

      So in light of taht feeling it was certainly an odd one.

      Certainly someone did not get the memo.

  12. Alan D January 17, 2013 at 9:59 pm #

    Good article to start to the new year, and the usual great reply’s
    two thoughts

    (1) If I hear some sensible ideas on banking and finance in the up coming Scottish independence debate I will vote for it. But what I want to hear is along the lines.
    retail banking restricted to domestic customers only , mortgage business restricted to newly reformed building societies, a German style industrial financing bank with equity interest. A debt holiday and a concerted move to reduce housing costs back to 3x income instead of the x7-9 currently and no more interest only mortgages. Finally debt free money creation ala Byron Dale and the North Dakota banking setup.

    (2) Remember the great quote from Prof Micheal Hudson in the Bubble and Beyond

    “To paraphrase Baudelaire’s quip ,”the devil wins at the point where the public
    comes to believe he does not exist”, the financial sector’s lobbying wins at
    the point where people believe that running into debt contributes to economic
    growth rather than burdens it and they will end up richer by acting as bank
    customers. Debt leveraging is depicted as the easiest and even surest way to
    wealth, going into to debt to buy assets who’s prices are being inflated on credit,
    or to spend in the hope of paying out of rising and more easily earned income in the future
    Since 1980 most fortunes have been made by bankers and brokers at the expense
    of their clients and the taxpayer.”

    We have been been sold the biggest pup in history and the tragedy is most people have no idea whats going on other than they and their children are getting poorer and at 62 now I cannot look my families grand children in the face without knowing I have sold them out to vermin.

  13. The Dork of Cork. January 17, 2013 at 10:06 pm #

    In the physical world the great enabler for the final phase of this credit hyperinflation post 1986 (EMU / Big Bang) was the so called dash for Gas.

    This required very capital light investments for a big buck return – at the cost of long term redundancy.
    Banks could farm the cash / energy surplus by creating useless assets (houses & cars)

    Now look at us.

    If Algeria falls both Spain & Italy will fall also.
    According to Reuters Italy gets 35 % of its gas from Algeria !
    Until 2011 Spain was the most LNG (expensive gas shipped mainly from Qatar) dependent country in Europe.
    A larger pipeline reduced it LNG imports

    But Japan (nuclear shutdown) is now eating most of the LNG pies……..western LNG is no longer available in quantity if the worst happens.

    Both Italy and Spain decided to stop building Nuclear post EMU and EEC entry.
    Chernobyl was merely the excuse for the shadow bank system to finally free itself from capital intensive nation state like investments.

    Here you can see the dramatic spike of Nat gas consumption in Spain post 1992 -this was the Barcelona games credit rapture which was much like our 1995 Riverdance thingy


    Europe is on the edge.
    But why has it come to this ?
    Well Nat gas (even LNG) build is less capital intensive then Nuclear or even coal.
    This meant the banking sector could create more useless assets (houses) to capture the fleeting cash surplus from this false economy.
    Without the so called “Dash for Gas” 20 + years ago the final stage of the neo-liberal nightmare could not have happened.

    This is why you get neo -liberals pushing for LNG at all costs ………….its low initial capital cost relative to even a couple of coal plants will free up a surplus that the free banks can burn on more grot but at a huge long term cost – a greater loss of redundancy.

    Of course Ireland is a far more extreme dash for gas adventure but that is no longer a funny story.

  14. The Dork of Cork. January 17, 2013 at 10:16 pm #

    Italy is in a much worse position given it has no Nuclear power now.


    All of these countries are likely to return to mid 1980s energy densities but with a modern grot built envoirnment and higher populations.

    Ireland of course was the most extreme dash for gas “special case” with Moneypoint coal station the last decent big utility investment in Ireland – see coal data from late 80s.


    Is Irish euro denominated oil imports finally starting to crack………..

    November is just one month……… so who knows.

    “Comparing November 2012 with November 2011, imports decreased by €251
    million (or -6%) to €3,908 million. The larger decreases were for imports of
    Mineral fuels, lubricants and related materials (down €116 million), Chemicals
    and related products (down €105 million) and Machinery and transport
    equipment (down €62 million)”

    Looking at Jan to Nov paints a different picture although reexports of refined oil (Whitegate refinery in Cork most likely) is also up big (no local market ?)

    Imports oil
    2011 Jan – Nov : 4,837m
    2012 Jan – Nov : 4,988m

    Imports gas
    2011 Jan – Nov : 1,219m
    2012 Jan – Nov : 1,300m

    The small monetary role of coal is seen despite the fact we don’t produce coal (just turf)
    Imports coal
    2011 Jan – Nov : 211m
    2012 jan – Nov : 182m

    So maybe that cheap surplus coal from gas rich America saved us 29 million euros………….
    However food imports is higher then oil imports again (which is nearly always a good sign) although its been more then half a decade since food imports was higher then total fuel imports.
    However much of the rise was imported animal feed (bad summer)
    from 572 million imports in Jan -Nov 2011
    to 723 million …………


    • Golem XIV January 17, 2013 at 11:22 pm #

      Very , very interesting. Really good analysis Dork! Thank you. Lots to think about.

      • The Dork of Cork. January 18, 2013 at 4:20 pm #

        Well I have been banging on about this for some years now.
        Only last year in the UK has it finally happened- the brand new capital light gas plants have been turned off to a large extent during 2012……

        They are just sitting there – high technology (jet engine) Dodos unable to run because the gas cannot be bought on the market (Nuke crisis Japan is eating all the Qatar LNG pies)

        Stoneleigh of automatic earth recently talked about the first British dash for gas and the deregulation of the market to increase short term profits in the UK post 1990……
        And then goes on the describe a possible second energy planning disaster.

        The banks could not have engaged in their extraction practise without a glut of gas on the market & without the use of false capital consuming metrics which gives one a impression of wealth creation when infact its massive capital destruction.


        • The Dork of Cork. January 18, 2013 at 4:45 pm #

          PS ONS seems to have a bit of a problem with their capital consumption metrics.

          “ONS published annual estimates of capital stocks and consumption of fixed capital up until 2009
          after which the estimates were suspended. The estimates for subsequent years have not been
          published due to quality issues.

          When ONS examined the outputs after these changes, they were not of sufficient quality for
          publication. In particular there was concern over the patterns in the data at industry and asset levels
          due to the change from SIC2003 to SIC2007. This resulted in the initial delay and subsequent
          suspension of the annual bulletin.
          ONS published a statement regarding the delay to capital stocks and consumption of fixed capital
          on its website in March 2012; this is available from the link in the ‘further information’ section.”


  15. Joe R January 17, 2013 at 11:21 pm #

    I’m lost Golem.

    What central banks are you talking about? And what part of their functions?

    3 quick points for you – Eurozone banks have critical functions controlled by the ECB.Debt rules aren’t the same country to country and the employees are public functionaries and don’t move easily between the private world and public world because they are so different.

    • Golem XIV January 17, 2013 at 11:34 pm #

      The central banks I was thinking of are the BoE, the Fed, the ECb and the Bank of Japan. I don’t know enough about the Swiss cebntral bank to comment there.

      I suppose I was also thinking of the Bank of Spain.

      At the risk of being obtuse I am not sure what to make of your three points. Sorry. I know the ECB controls some Central bank functions for Euro zone national banks. I don’t think the ECB or the national banks have their people’s best interest at heart. I’m afraid I see the Euro zone and its financial structures as having become allied to a pernicious crony capitalism in which governments and the financial institutions share an ideology and often personel.

      When you say employees who do you mean?

      If you mean public employees generally not being able to move to the private sector, then I wouldn’t agree. The UK is awash with thousands in many industries who did exactly that. At all levels from the bottom to the people at the top.

      If you mean people in the central banks then there two I can think of all sorts of examples of private and public swapping over. So I can’t imagine you mean them.

      Sorry Joe but I think we’re in danger of talking past each other.

      Not sure what I said that made you feel lost. Give me more of a clue and I’ll try to be clearer.

      • Joe R January 18, 2013 at 1:00 pm #

        (My final comment on this blog)
        Your piece seem very generalized and I think you are trying to identify a central theme / philosophy across various banks but I´m not sure about such comparisons. I can´t hugely comment on the Fed, BoE and Central Bank of Japan. The ECB and The Central Bank of Ireland and other Eurozone banks are a different matter.

        Critical economic and sovereign functions across the Eurozone have been ceded to the ECB, which is essentially run by Germans along Bundesbank lines. Economic history, economic requirements and cultural values are intertwined and what is good for Germany – stability so, low interest rates, suppression of inflation, weaker than it should be currency – or for a similar exporting economy, the Netherlands for example, is quite probably not all good for Spain, Ireland, Greece, etc.

        These formerly sovereign economic powers wese ceded to the ECB by the individual countries and societies and none have sought to restore them. Control over interest rates, control over currency printing and the possibility of devaluation are all now lost to many countries. They don´t have some of the basic levers gears brakes to control .
        So it would be unfair to blame the the Spanish Central Bank for not attempting to curb the property bubble there in the mid-nineties before it got out of control by raising interest rates – it couldn´t.
        So, by implication, Spanish society as a whole tripped up its own Central Bank. Same goes for the rest of them. The solution to leave the euro is a return to a peseta/peso or whatever. Automatic and exchange rate devaluation and return control to the Central Bank and at least let the country choose its own destiny. However the Spanish hated the peseta, and want that rich feeling a stronger currency gives you. It takes self-confidence to go out on your own and they don´t have it. The linked Spanish editorial calls the peseta not so much a currency but just a just rag they don´t want to go back to.
        Regarding public and private intertwining of roles;

        I can only speak of the central bank where I come from. I know for a very definite fact there is no swapping of public and private roles in that bank. Recently for the first time ever they have brought in private temp. contractors to shake the place up a bit. There was one high profile exception, which you have written about who was brought in permanently, that is it. My information goes back a long time.

        This division was important. There was a certain amount of star gazing from the public arena to the private arena, there is a cloying don´t rock the boat mentality internally, and generally a view that the banks were star performers and couldn´t be questioned. Herd mentality with a uncontested inaccurate and dangerous presumption at iis center, know what I mean?.

        From what I know of the ease with which money was given over in the form of overnight loans, secured by titles not equal in value to value of the overnight loans on the basis that the banks were solid chaps. This money was long gone before the government admitted the scale of the losses.

        Here, they failed in a function they had control over. I don´t think that it is widely understood. There has been no inquiry no ramifications or even a decent exposé of all of this. Here is what is reported as happening at the moment.

        Politicians then gave over lots of money to the banks, the people didn´t object strongly the sovereign debt situation changed radically and the Central Bank again had no control over interest rates, currency and devaluation (which promotes export growth while reducing imports and so changes the balance of payments radically) or to introduce controlled inflation, normal key levers in reducing an odious debt situation and encourage growth and used pretty effectively in Iceland recently enough.

        I also know they have no real say, and no veto, in general critical ECB decisions like on interest rates.

        Past recent successful European examples of devaluation and central bank intervention occurred in the 1990s to sort out the Swedish Property bubble, or in Ireland in the early 1990s which helped kick off the Celtic Tiger days.

        It also occurred in Spain in 1985-1992s where they had a property bubble a bad bank and successfully exited the problem in time to have another from 2000. Very basic, very importante and you I believe you completely missed that in your epic piece multi-part article on Spain.

        No more. You people aren´t worth it.

        • Roger January 18, 2013 at 5:14 pm #

          Joe R,

          I’ll be sorry to see you go, I might not agree with or see things in the same way as you do always, but two minds will often have a different interpretation even of the same facts.

          I have stopped trying to persuade people of my viewpoints in favour of trying to understand the viewpoint of others this does not denote agreement but just understanding and sometimes being persuaded to a different view.

          I have spent the last few days actually reading some climate science, rather than my usual Philosophy and getting deeply into the physics and mathmatics, I have found a number of scientists and mathematicians that are pooling their intellectual efforts to refine and improve their understanding of each others positions and to try to understand the perspectives from different fields. Its very refreshing and much more productive than the polemic served up in the more popular main stream outlets.

          I am not sure if I have got this right but I have drawn the conclusion from what David said that you may be Swiss. The Canton system of Government is very successful as a democratic model, I am an anarcho syndacalist politically and one system of Anarchy postulated which I am quite taken with is called Government by contract based on Cantons.
          Other european democracies are not nearly as accountable and that may be a cause of mis understanding why many here do not accord with your view that the wider populations of Europe got themselves into the ECB pickle, I think that is putting it too strongly, I think there were 3 votes in Ireland for instance. In another post you suggested i look at Iceland as a place that saw the people getting their democratic deserts ( in a positive sense) again I have followed Briggita Jonsottir , the poet, artist and Icelandic Member of Parliament ( http://this.is/birgitta/) , it seems the Icelandic experience is less voter centric than one had been led to believe and indeed hoped were the case.

          Regardless of the worth of the community here to you, your absence from the community would be a loss in my own estimation, so thanks for challenging my own perspectives and I hope to see you around cyber space in other Fora.

          Best Wishes,


          • Joe R January 18, 2013 at 9:52 pm #

            Thanks you very much Roger.

            That science community coming together sounds interesting, i would like to know if it bears fruit.

            BTW there is a six hat method of communicating perhaps you have heard of it.http://en.wikipedia.org/wiki/Six_Thinking_Hats

            It is very interesting because is minimses confrontation within a group communication dynamic. Massive time and stress saving. It would be intersting to see an internet forum work that way!

            I was very tired when I wrote that piece earlier, made a lot of mistakes and didn’t get a chance to edit it as my computer went down. It is at death’s door. My apologies.

            And I am Irish actually.

            It has been my intention to communicate here always and my position is more in the midground than many commentators about here. I read from both sides of the fence. The contrast is interesting when the same story is told by very different people with differeent understanding and viewpoints, the gaps are always very telling. However I don’t fit here abouts that I am sure of.

            I feel I now that many people log on here looking to hear bad, black news – nothing hopeful – and to kick the acceptable target of bankers, politicans, etc at every turn regardless of if they are responsible or not for the negative topic being knocked about. I think basic human stupidity and base emotions are more more at fault than they are given credit for here too. I hear too many blanket accusations against groups of people.

            It is like an addiction, and I think Golem himself is the chief feeder here of this almost paranoid worldview. It is his blog afterall.

            I feel there are no solutions on offer here, particularly from him. The polar opposite actually – the negativity here helps the bleak situation persist where people should be finding relief from it.

            The economic scare language of the vulture capitalists is repeated here frequently. I mean that deliberate hysterical language which is specifically aimed at numbing the people into submission for neo-liberal policies to come. Naomi Klein writes about this extensively the Shock Doctrine. It is repeated even more emphatically in this more ‘alternative’ forum – that there is no democracy, no hope, no escape! This is simply not true.

            I think hope is important but I don’t see alot about here. I don’t even see people looking for it.

            Coming back to communication idea you mentioned;

            I think in sharing information here or on a forum like this precise definitions are important, and to try not to engage in personalisations or absolute ( universal ) comments that are not true and paint a situation simply black or white.

            Ok, a final salute to you Roger! and goodbye.

          • Roger January 19, 2013 at 8:52 am #

            Cheers JoeR,

            Here is a link to one of the science blogs I have spent a lot of time reading, no comments from me yet I have been learning a great deal though. ( The title of the blog is tongue in cheek the discussion is pretty objective, startlingly so if one is used to the usual vitriol)


            On of the many comments that has sent me scurrying off to yet more reading came from a Swedish Maths professor Claes Johnson, He has also written on Economics.



            I started reading his book available on line called A brief History of time, I read the Hawking one many years ago.

            What I take from many of the points made by Prof Johnson and Science of Doom contributors is that much over simplification and asuming has gone on and unaware of the starting points of the assumptions necessary to the various analysis the conclusions lose context.

            This is turning into a longer point than I intended, but on Context and your point on precise language all of these things are connected, I have been getting into some of Noam Chomsky’s linguistics work lately as well and in seeking Clarification on anything it seems only more sensible. Not though in the way that Jacques Derrida ‘describes in this video.


          • Roger January 19, 2013 at 9:33 am #

            I like the hats Joe R,

            I did a longer post but it disappeared.

            some links.




            I’m hanging out wityh my 3 year old son so can’t re write what I had, about to brave the cold and go for a walk in the woods.


          • Joe R January 26, 2013 at 10:29 am #

            Cheers for the links Roger!

  16. Zane Zodrow January 18, 2013 at 4:40 am #

    Excellent article, as usual. Appears to be accurate from my perspective in U.S. Former and future Goldman Sachs employees in particular are ridiculously overrepresented in the top positions of the world’s governments / central banks. Seems to me people from backgrounds in other industries or academia would do equally well or better at many of these positions.

  17. Big Bill January 18, 2013 at 8:33 am #

    The important thing about when we borrow money is who do we pay interest to, a bank we own like a local community bank or a bank private interests own. We’re in short supply of the former and facing disinterest from the latter. That’s a situation that needs to change. The important thing about central bank created money (in a fiat currency) is it must be used proportionately to create wealth so there’s no inflation. Create money and give everyone in the country a tenner to go to the pub with, and that’s inflationary. Create money proportionately and use it to build a nationwide chain of pubs and as that money gets spent in to the community sooner or ater everyone will get enough money to go for a drink and the country’s got more money, more wealth and there’s no inflation. No wonder they banned this at Maastricht where it was decreed money created by the CBs could only enter the economy via the portal, the interest-bearing portal I should remind everyone, of the private bank network. We was stitched up proper.

  18. Mark Wadsworth January 18, 2013 at 11:26 am #

    Money does not exist, only debts exist and/or without somebody somewhere prepared to run up a debt, nobody else can have ‘money’. So debts and money are the same thing (or two sides of the same thing, a positive and a negative). Money (i.e. pounds or dollars) is a unit of measurement and not a thing in itself.


    I’m the second best accountant in the whole world so I can say this with some authority.

    • Golem XIV January 18, 2013 at 12:59 pm #

      Morning Mark,

      Good to hear from you. Of course you’re right. Money is debt is money is debt. Just different issuers and different reasons to accept and use.

      Still worth noting the differences betwee the state issued tokens and the market issued ones, don;t you think?

      So who’s the best then?

  19. Sam McEwen January 18, 2013 at 1:57 pm #

    Hi golem

    “There are times when making money available to businesses is truely helpful. The question is not how much is printed up but what use is made of it. If you print up money and it is put to work helping realy productiuve businesses to create goods ans services for which there is a demand ”

    Is this not how bubbles form?
    If the goods and services have real demand why do we need to print money to create them, would available capital not flow to them naturaly We only need to create money where there is a perceived demand (this idea of creating aggregate demand) Ive never understood how you can create aggregate demand when there is already infinate agregate demand (there is no limit to how much we want) the only limit is the finite planet we live on not the infinate money supply.
    We here are all aware that we are living in a world of 2 standards one for those at the top of the money supply (banks/guvn.) and those at the bottom of the supply (us). Is it not possible that if the supply had never been taken by the elites for them to exploit and had been left to the limits of the world unable to be perverted by anyone (no matter how noble their intentions) an awfull lot of the problems discussed on this sight might never have arisen.
    There has never been a greater void between rich and poor than now, a time at the very height of the greatest FIAT money experiment yet.

    Mike Hall
    I fully take what you are saying about the difficult practicalities of forming and maintaining a gold standard or any Non Elastic Money standard in a global arena and far beyond my abilties or understanding however is because its difficult a reason not to do something.

    I might point out countries like iran and china have started trading in gold avoiding the FIAT dollar so it is possible

    However I am struggling with your take on history.
    As I understand it
    What is perceived as the greatest time of expansion and discovery and the beginning of the modern world The Industrial Revolution occured very happily under the gold standard and we only came off it to pay for the First World War, and the damage done to everything including the economy in those four years made it too painfull to stay with the gold peg even though we tried.
    Did the first great depression not happen because the creation of the US fed allowed banks to finaly run wild because they had a perceived insurance policy in place a lender of last resort and they went on a credit binge (sound familiar).
    The failure of Bretton Woods or as I understand it Nixon defauting on guvn. bonds to pay for the Vietnam war was the very start of this whole mess 40 years of unrestrained money creation peaking to date in 08 but far from over.
    (please refer to ONLY the chart on the page of this attachment)


    Notice how inflation exponentialy increases exactly in time (1971) with the end of the last great gold peg against the reserve dollar.
    And as we all know even Keynes recognised inflation as a stealth tax on the poorest.

    Every single previous FIAT currency to date has failed. The romans ran for well over a thousand years and finally failed in about a hundred when they started polluting their coinage to pay for their endless wars and domination.
    (Notice the theme of FIAT and WAR here)
    I see money as just another example where we need to relearn to live within the means provided by the planet and not at the expense of future generations.

    Anyway run out of time.


  20. Sam McEwen January 18, 2013 at 2:11 pm #

    Sorry to have maybe strayed from the point but you were talking about modern central banks Debt and money it seemed worth dicussing Non Elastic Money.

  21. averagejoe January 18, 2013 at 5:03 pm #

    Dont know if this point has been made above, and if so I apologise. The worlds resources are finite. Economic growth sooner or later is going to be curtailed by this fact. We need a monetary system that can cope. The current debt based system collapses as soon as the debt creation starts to contract, a point well covered by Steve Keen. So we need to have a money creation system that can deal with this. I see state money creation being best placed to deal with this new reality. The last 100 years have seen growth that probably couldn’t have been dealt with through state money creation, but a non growing economy or contracting one will need money to be taken out of the system, as and when required, The tax system is the obvious one. Also the debt will always be less than the money supply, rather than the other way round, which makes no sense at all.

  22. Andrea January 18, 2013 at 6:26 pm #

    I was happy to read this post as this morning I was wondering about the Swiss National Bank, and its policy of keeping the franc low, (at 1.20 Euros) for which it has to spend without counting.

    The official story is, the low rate serves to:

    a) protect exporters (which is practically every big biz, widgets, watches, mechanics, chemicals, cosmetics, arms, etc. etc.) This makes no sense. Why them and not others, who are just as numerous? Why not the consumer? Local Gvmts? In any case, the past shows that with a ‘high’ franc – like at 1.66 (the last time I exchanged Euros) exporters do not suffer, they were doing fine. Exporters import a lot, CH has no natural resources at all, and it all comes out in the wash.

    The ppl, institutions, being protected here are those who owe debts in CHF outside the country and I reckon Europe should thank CH. — Instead it is keeping up an all out attack, France specially, though much of it is symbolic. Not that I want to argue for Swiss Banks, multinationals in fact, that is another topic.

    b) prevent social dumping and currency messes. With a high or volatile franc, e.g. employers want to pay ppl in Euros (!) and strictly speaking this is not illegal if the employee agrees…but this is really a minor issue and anyway here under the ‘free contract’ laws one can deal/pay with anything, or offer an ‘own’ exchange rate. Buyer beware is rock solid. Supposedly the semi-official rate smoothes exchanges and prevents ppl taking advantage..> Ridiculous.

    I wonder why nobody (or almost) in the MSM publishes on this topic, and why ppl on the ground just take it as a given.


    However, this is not a direct example of a Central Bank (as I read it, am not an economist) being in cahoots with commercial or private banks, this ex. is first of all, political moves from a small country bowing down to Int’l pressure. (CH.) Maybe it comes down to the same in the long run, or underneath, and around the corners, but I am not knowledgeable enough to say.

  23. Ashley Cutts January 18, 2013 at 7:12 pm #

    we are witnessing the end of democracy. Government has abdicated without telling us. All politicians do is go through the motions. The private sector is creating artificial scarcity in order to keep the monetary system going. this shit has to go. we are living in an age of unprecedented plenty in terms of resources, technology and skills yet these treacherous neo-liberal propaganda merchants advocate shared sacrifice. it is madness. it is like a farmer saying that he cannot ‘afford’ to plough the field and sew the seed and instead consuming the seed and hoping for the ‘economy’ to pick up. the cost of living is inflating with respect to wages in circumstances where it should be the other way around. Something has to give.
    Let the ruling classes tremble at the populist revolution.

    • The Dork of Cork. January 18, 2013 at 8:05 pm #

      You are correct up to a point – given the extreme production of energy there should be no scarcity but the present built envoirnment & global trade system is a product of bank credit money.

      It DEMANDS huge inputs.

      It is very difficult to turn this ship around.
      What is perhaps not that surprising now is that the captain has opened up the Asian throttle for one last shot at growth via massive coal injections

    • Wirplit January 22, 2013 at 12:29 am #

      A little indication of that growing moral fury and from a perhaps surprising quarter…Switzerland…. http://www.reuters.com/article/2013/01/21/us-reutersmagazine-davos-swiss-rich-idUSBRE90K0F420130121

  24. backwardsevolution January 18, 2013 at 7:27 pm #

    averagejoe – ” The worlds resources are finite. Economic growth sooner or later is going to be curtailed by this fact.”

    Yes, the people espousing “more growth” know this too, but they don’t want the curtailment to happen just yet, preferring others down the road tackle the problem, not them.

    Naomi Klein, author of the “Shock Doctrine”, speaks to this point. She says people employ magical thinking, insisting that technology will bail us out, or that Mother Nature can take it, she always bounces back. Here she is in a 20 minute video that is well worth watching: “Addicted to Risk”.


    I heard someone say that endless growth – mindless growth – is the ideology of a cancer cell. If we continue on the same way (open up more land, bring in more immigrants, build, build, build, and consume, consume, consume, how is this different?

    Where are we going? Is this progress? To me, it really doesn’t matter whether the government prints money or the banks issue credit because they’re both going in the same direction – up. We elect sociopathic, short-term thinkers who align with sociopathic, short-term businessmen, and together they’re going to drive us into a wall.

    When has truth ever embodied anything other than depth, serious responsibility?

  25. Elixer January 19, 2013 at 4:02 am #

    So how many ways are there to create the money supply, the choices surely are few?

    Firstly we can use a pure fiat system created by a private cartel or the publicly controlled state. This money supply can be created with interest or without interest.

    Secondly we can use a commodity based system such as purely gold or a basket of commodities. Who then has the gold then controls the game. (What if we existed on a planet without gold or silver what then would we use for money?)

    Thirdly we can use a mixture of the two models.

    It seems to me that money is simply a financial symbol for a realm of goods and services. To say that we have not enough money for our society to operate is as absurd as saying we have not enough air to breathe. (Bankers love you to believe that it is scarce and that you must come to them for its existence.)

    Money to me should be similar to the waters behind a dam wall which provides the potential for power – release enough to create electricity and irrigate the land but not enough to blow the circuits and flood the land.

    I don’t have a problem with monetizing a child’ existence when it is born – say ten million dollars – and throwing it over the dam wall as a potential which empowers us all. The question of course is that it remains like a trust fund which can only be accessed by an honourable system of finance and creativity.

    The mechanics of such a system is what interests me.

    Further, to get to a new system we would have to have a Debt Commission and a Jubilee. It seems to me there is no other way.

    What the public are never told is that money creation is in the hands of a few private individuals. What are there names and addresses – surely in a so called democracy such information is absolutely vital? We could start with the owners of the DTCC which controls the share market and the 14% of the BIS which is in private hands.

    • Mike Hall January 20, 2013 at 12:57 pm #


      I think you ask some very fundamental questions there. I look at it this way (and this also ties in to this (democratic) state vs private bank elite, power to create money, central to Golem’s piece)

      What do we actually want money to do?

      Surely, for the vast majority of citizens, who by definition will need to live by their Labour, it’s create stability & continuity of the ability to sell Labour for a reasonable price +in relation+ to the goods & services needed, day to day, week to week.

      In other words (near) full employment in a (reasonably) stable economy. Some lottery of deprivation, & all the insecurities & social damage that results, from high (in the ‘boom’) to chronic (in the ‘bust’) unemployment – lack of jobs & wages – is +not+ what makes a good society for most people.

      So what most citizens want from money is something that simply facilitates the stable flow of REAL GOODS AND SERVICES that comprise our (material – bottom of Maslow’s hierarchy of needs) standard of living.

      That’s it…..except…..it’s not quite everybody…is it?

      The top few percent want a number of extra things from ‘money’. In fact they could care less about selling Labour. They want large amounts of it to attract more of it simply for the fact of it being a large sum of money. They want it to maintain their power & status. They want it to be able grow or at least be preserved in real terms in big hoards so that their ‘dynasty’ & ‘class’ can continue in the same vein with power & status over the majority of society.

      The story of the last 4 decades of neo liberal domination of ‘money’ has been all about the ‘wants’ of status & power, and F$ck the real economy needs of the majority.

  26. desmond dillon January 20, 2013 at 3:00 pm #

    neither capitalism nor corporatism are related to democracy in anyway shape or form. if we were to say that democratic ideals come from the best of human beings then it may be a tool that we could use. the problem is that we have never manifested any ‘real’ democracy. so is now the time or is it an impossible task.? i tend to see this situation we are in as the last great struggle of humanity. for its own existence and against that which is not human.

    • Elixer January 20, 2013 at 11:33 pm #

      Don’t forget democracy was just an invention of the aristocratic elite designed to transfer debts through generations of people rather than debt dying with the individual who loaned the capital (created from nothing?). Just as wages were designed to end the costs of slavery with the punters having to look after their own food, housing and medicine.

  27. Unseen January 21, 2013 at 12:21 am #

    Great article Golem.

    Positive Money are about to publish a book on this subject – I’ve read an uncorrected proof – it’s excellent and I would hope that anyone who shares an interest gets hold of a copy.

    • Joe Taylor January 22, 2013 at 9:41 pm #

      On the topic of books – if anyone hasn’t read Golem’s book, ‘The Debt Generation’, here are a few selected quotes: http://bit.ly/VV88Cz

  28. Joe Taylor January 21, 2013 at 6:36 pm #

    Hi Golem – Positive Money want to send you the latest edition of their book. Could you let me have an adress where to send it please?

    Cheers, Joe Taylor (NatCAN)


  29. bill40 January 22, 2013 at 12:38 am #

    @mikehall, I got myself banned from several blogs (including CIF) for being a tad abrasive. As you can see I am hardly above profanity and I often fail to understand that irony and humour can be lost in the written word. Keep the faith MMT is winning the argument.

    @ Golem, what we are seeing. and what I believe we are witnessing, is the neo liberal myth that those at the top need stimulus and those at the bottom need starving into submission. It only takes the shortest glance at economics tp prove this.

    What people are in denial about is the cost of mass unemployment. There is simply no scale of cuts possible to to fund this. Not only that such a scale of cuts would just make the problem worse as yet more jobs and demand were taken from the economy. The social dislocation would lead to the complete break down of civilised society.

    Now you can go the Ambrose Evans-Pritchard route and do it slowly, he described the UK cuts as about right, and get the same result slower. The whole concept simply doesn’t work as Greece so tragically proves.

    QE is not inflationary, as predicted by MMT, if the evidence of Japan is anything to go by. Since they are currently firefighting deflation and recession it does not help ordinary people at all. It confounds utterly the more strident cries of the neo liberals.

    The final analysis is simple. They need debt, we need money

  30. Joe Taylor January 22, 2013 at 11:08 pm #

    To bring us back to the topic of this bog – the power-struggle between ‘money’ and debt.

    Am I being too simplistic here?

    Let’s define money as the stuff we use to pay our bills, such as income tax, or the power-bills; or to buy things with, such as a car or the weekly shopping.

    We are talking about cash and the balances of our bank accounts, which we access and use with debit cards, credit cards, cheques and bank transfers.

    Only three % of the ‘money’ in circulation is cash, the rest, 97%, is the digital numbers in our bank accounts.

    Banks do not ‘print money’. We know where cash comes from. Only the Royal Mint can print money legally.

    Commercial banks create the other 97% of money in circulation out of fresh air by granting loans – it is digital, not cash.

    When someone borrows, say £200,000 to buy a house, from a bank, the bank credits £200,000 to the customer’s account as a liability and adds the £200,000 to the bank’s balance as an asset – double entry bookkeeping. The books balance and the money came from nowhere. Think of all the loans made over the last 50 years or so.

    You can call the £200,000 ‘credit’ or even ‘debt’ if you want to confuse the issue, but it’s ‘money’ because it can be used to pay bills or buy things, until it runs out,

    Because the banks create the entire money supply (bar cash) they determine also who gets it and on what terms – and all the problems start from there.

    Just about everything I ever read or hear about regarding ‘the financial crisis’ or ‘the economy concerns something that occurs after-the-fact.

    Because banks create and control the money supply and because just about everyone,including governments, can’t survive without money, the banks control EVERYTHING, including the political process.

    That’s THE FACT that needs to be dealt with – or am I mad?

  31. Jonathan Sugarman January 24, 2013 at 12:16 pm #

    And here is the latest from the ‘wig-wearing’ clowns:
    http://mobile.bloomberg.com/news/2013-01-23/weber-in-davos-joins-dimon-to-spotlight-easy-money-danger.htmlr in Davos Joins Dimon to Spotlight Easy Money Danger

  32. Unseen January 24, 2013 at 1:39 pm #

    @ Joe – I don’t think you’re crazy, I think the banks’ role in expanding the credit/money supply is at the heart of the mess we’re in.

    Positive Money have some really, er, positive ideas on how to reform the system – they’re holding a conference in London on Saturday although, sadly, it appears to have sold out, on the other hand it’s encouraging that there is an increasingly receptive audience for their ideas.


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