Monday, 23 October 2017

Money issued by private banks is counterfeit money.

I’ve just published an article on the Medium site which shows that money issued by private / commercial banks is counterfeit money, as suggested by the economics Nobel laureate, Maurice Allais. Here is the abstract.

The word counterfeit according to dictionaries refers to producing an imitation of something valuable with an intention to defraud. Dollars issued by private banks are certainly imitations of Fed issued dollars. Plus where privately created money is introduced to an economy which has just base money, base money has to be confiscated from households so as to counterbalance the inflationary effect of the new privately created money. I.e. households are defrauded to make room for privately issued money. Ergo the money created by private banks is counterfeit money.

Another flaw in privately created money is that creating it costs almost nothing just as it costs the Fed almost nothing to create dollars. In contrast, under a “base money only” system, private banks have to borrow or earn every dollar they lend out, thus those banks compete on equal terms with other businesses. Thus allowing private money results in the profits of seigniorage subsidizing bank loans, which results in artificially low rate of interest and artificially high levels of debt. That does not maximise GDP.

A third flaw in a private money is thus. Those who deposit money at private banks with a view to earning interest are in effect money lenders: they have entered commerce. But they are guaranteed against loss by taxpayers and it is not normally the job of taxpayers to stand behind commercial ventures. On the other hand everyone is entitled to a totally safe bank account. That conflict is resolved by full reserve banking (a system which bans privately issued money) because under full reserve, zero interest yielding bank accounts are totally safe, while interest earning ones are not.

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