97% Owned: Democratizing the Money Supply
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97% Owned is a documentary by a British group called Positive Money. It’s an ideal film for people who have difficulty comprehending that the government doesn’t issue money – that nearly all money is created out of a thin air by private banks when they issue loans. The film mainly focuses on the British banking system, with numerous comparisons with the US, which operates along identical principles. The total lack of transparency on the part of private and central banks is the main reason people have so much difficulty understanding where money comes from. One of the filmmakers laments that the majority of elected officials don’t understand where money comes from.
The film begins by pointing out that paper money and coins constitute only 3% of the money circulating in Britain. The 97% consists of digital currency. In other words, it only exists as numbers on a computer. Digital currency is created when banks generate loans. A lot of people have the mistaken impression that banks use their reserves or other depositors’ money to loan you money to by a house. What actually happens is that the money creates the money out of thin air by entering the amount of the loan into a computer.
Why Saving Money and Debt Reduction Causes Recession
Because this is the only legal way to issue money, keeping enough in circulation to carry out basic economic activities requires large amounts of debt creation. People must continually borrow money and banks must continually lend it. Although conservative politicians love to talk about the need for individuals and governments to save money, saving too much money throws the economy into recession. Likewise if all the world’s private banks suddenly failed, 97% of the global money supply would disappear.
It’s also virtually impossible for governments to reduce debt without taking money out of circulation and causing recession and/or deflation. We currently see this being played out in Europe, where austerity cuts are causing country after country to experience a decline in economic growth (aka recession). Using a recent speech by British prime minister David Cameron as an example, the filmmakers assert that, like Cameron, like most American politicians, doesn’t have a clue where money comes from.
How Government Increases the Money in Circulation
The only way governments can increase the money supply is by borrowing money by selling treasury bonds (a kind of promissory note) to investment banks or through “quantitative easing.” With quantitative easing, the government itself creates digital money, which it uses to purchase treasury bonds (from banks) or private bank assets. The World Economic Forum that met in Davos in January 2012 recommended that a $103 trillion global credit (i.e. debt) expansion was needed to keep the world economy from collapsing – through government borrowing and/or quantitative easing.
How Debt-Based Money Increases Wealth Inequality
One of the most serious draw backs of debt-based money is that it results in a steady redistribution of income from the poor to the rich. It’s mainly the wealthy elite that profits from the interest charges government pays on the money they borrow. It falls on low and middle income taxpayers to pay this interest, as well as the debt, owing to loopholes and offshore tax havens that result in banks and bankers paying very little tax. Low and middle income workers also suffer the most from the austerity cuts enacted to reduce government debt – by losing public sector jobs and/or access to public services, such as health care, tertiary education and disability benefits and services.
The Financialization of the Industrialized World
97% Owned also discusses the epidemic of deregulation and financial speculation that accelerated debt creation and overinflated the world economy in the decades that preceded the global financial crisis. This related in part to the “financialization” of the economies of the global north. Beginning in the mid-seventies, their focus shifted from producing manufactured goods to selling financial products. Many of the latter – derivatives, futures, options, credit default swaps, foreign exchange – were so speculative that buying them was really a posh form of gambling.
Banning the Creation of Money by Private Banks
The filmmakers believe only solution to the current economic crisis is to ban private banks from issuing digital money. They argue that only democratically accountable public bodies should be given the authority to create money. Until we make this happen, private banks will continue to use their control of the monetary system to undermine genuine economic and political reform.