Positive Money

The point of Positivie Money - from what I can tell is it is anchored on moving monetary creation away from debt towards funding activity. At this point I think they are still the same thing, just shifting the decision making for merit of investment from the free market to centralised government control… but I could be off the mark here.

I do think these are good debates to have - BUT as with almost all of these debates here, I regard them as effectively meaningless without an ability for us to actually have an impactful voice - which is something much bigger than writing policy.

What about just pumping new money out to the real economy with the UBI?
I mean you talk as if the bankers are such smart investors but they’ve shown themselves to be epically catastrophically short-sighted on multiple occasions. The only surefire investments the banks do is index funds… UBI is an even broader index.

UBI does not create money. It pays for itself out of taxes. A UBI model that is payed for by creating new money I and almost everyone with a high school education would be against.

Market economies outperform centralised government economies. If you think this is debateable your talking in the wrong place. http://www.cpa.org.au/ Is where you want to be, although even there you will get debate and factions not supporting your view, so maybe try http://www.korea-dpr.com/

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As long as taxes are payable in $AU on deemed income, then there is a mechanism for the dollar to remain and be an instrument of policy. See Bitcoin being ruled as an asset recently.

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At some point we need to answer the economic questions for the rest of the platform on funding various initiatives to have credibility. So how do we develop that in-house expertise?

I never said it did, I said it very clearly…

Your original complaint was government deciding what to do with the money so I’ve said give it to the people to decide.

Thats called a market.

Honestly I think you’re being needlessly contrarian.
It doesn’t matter where the new money goes… all government programs are being paid in tax or debt, you’re just adding new-money to the mix of payment methods.
The sensible creation of new-money is what your crazy devolution into memes is about and that’s actually not that hard for a government to do sensibly and even moreso than the banks. We measure inflation obsessively, we know a good inflation target is ~2% so all the government has to do is create new-money to meet that target. And as the government does the service of keeping the inflation rate stable it gets the benefit of being the first to use the new-money.

Banks don’t do anything as sensible as using new-money to keep inflation stable and abuse the benefits of being able to create it.

you seem to be saying im being argumentative for saying free money isnt free and you think that use of memes reduces the credibility of my position.

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There are already a couple of economists floating around PPAU that I know of.
I will leave it to them to announce their own credentials.

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Well you’re arguing your use of memes and strawmanning my position instead of giving an actual argument so yeah your credibility is garbage.

I must be out of touch with how people debate on the internet these days.

A surprising response from you @MarkG.
Firstly, we’re the freakin’ PIRATE PARTY, not conservatives.
If we’re not here to push and debate less-that-conservative ideas, then I must have missed the memo.
Also, note that the Icelandic Pirate Party has just such a monetary reform policy (here is their report: https://www.forsaetisraduneyti.is/media/Skyrslur/monetary-reform.pdf).

Apparently not so abstract theoretical any more.
Here, published in the “International Review of Financial Analysis” in 2014, is a paper examining empirical evidence in the internal ledger movements of a real banks, to compare the top general money creation theories:

Also, if you didn’t notice above, the somewhat non-trendy conservative organisation “The Bank of England”(http://www.bankofengland.co.uk/publications/Pages/news/2014/051.aspx) and the credit agency “Standard and Poors” (https://positivemoney.org/wp-content/uploads/2013/04/standard-poors-rating-services-lending-creating-deposits.pdf) seem to agree quite openly.

Also of interest from International Review of Financial Analysis, Dec 2014, “How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking”, link: http://www.sciencedirect.com/science/article/pii/S1057521914001434, in which they find the root difference between banking institutions and other institutions that might lend money.
The answer is that although there is no legislation directly saying that banks can create money, they are exempt in law from compliance with “Client Money Rules”, meaning that they can mix third party (customer) deposits with their own finances in the same ledger. Non-banks may not do that.

OK, now we’re talking.
I definitely want to get to some specific and easily digested policy proposals, but as per brainstorming practices in general … go wide and deep, focus back into specifics, go wide again, repeat until things consolidate.
Having specific policies would also address the issue you raised about PPAU members explaining this stuff.

I have no intention of falling into the trap you describe. Lets not put a wet blanket on this before we get anywhere.
I think this is the point where I diverge from the Positive Money people.
They advocate taking money creation control away from the banks. I think that’s dumb.

Money does need to get created, and it also needs to get destroyed, in roughly equal measure, only scaling up/down to manage the speed of the economy, where speed is just the rate of economic activity.

  • When banks create money by lending, it gets destroyed by repayment.
  • When governments create money by fiat, and spend it, it gets destroyed by taxation (return to issuer).

What I observe is that wherever money gets created and injected into the economy, there is only limited movement into and around the in-country economy.
e.g. when banks create money mostly as housing loans, it mostly inflates house prices
e.g. when central banks to quantitative easing, by creating/lending billions to banks for investment, it mostly just increases share prices.
e.g. when government delivers helicopter money, it gets spend on wide-screen TV’s, and goes overseas.

I think the trick is to have a small diversity of methods by which money is created, with a focus on ensuring that the diversity of methods achieves good coverage of the economic activities of our citizens, and that there are built-in mechanisms for money destruction to balance the money creation mechanisms, such that we manage overall money supply as well as having a more diverse, and therefore robust and stable economy.
None of this requires authoritarianism, impulsive or otherwise.
Remember how authoritarian/libertarian is an orthogonal axis to left/right?

Can we move on and have that discussion?
If so, I’ll create a new thread. This one is fragmented.

If not, continue here.

The goal in PPAU forums should be to achieve reasoned consensus backed up by evidence.
Some internet forums may have less enlightened objectives.
YMMV.

These are both just blogs making speculative remarks, premised on a policy of actually banning banks from creating money and not having actually accepted to consequences of the actual method by which money is created.

The first one assumes fractional reserve banking, which is incorrect, based on banks actual practices (http://ac.els-cdn.com/S1057521914001070/1-s2.0-S1057521914001070-main.pdf?_tid=be1aba7c-fe63-11e6-bb6d-00000aab0f26&acdnat=1488361682_9b1204d1efcc8658d5c9f0478addeb81) …

and then goes on later to say "The government currently creates debt in the same way any consumer does – borrowing to pay for public services"
Consider that for a moment … Why would a sovereign issuer of currency borrow money in its own currency from a private enterprise and pay interest on that at all? What would be the point? It’s delegating the act of money creation to that bank, then receiving that money, then paying interest to that same bank for the privilege of having it create its own money. How bizaare?

The second one just goes on a rant presuming the most extreme possible policy position derivable from the positive money concept.

I think of this as a demand/supply situation.
Negative gearing certainly creates the demand, but the way that that demand sits right in line with the primary (97%-ish) avenue for all money creation has to be problematic.

Consider which loans banks will choose to make available?
On the one hand, they’ve got some wealthy individual with a good income and equity in one or more existing abodes who wants to borrow to purchase another rental property with renters paying high rents because they can’t afford a house themselves, and a government supplied negative gearing on all maintenance and interest costs.
On the other, they’ve got some small business owner, trying to grow their business, who wants to take a gamble on growing their business, and there’s lots of complexity to understanding whether they have a sound business model.

Guess which one they choose the majority of the time.

APRA applies the Basel II standards for regulation of bank reserves. (See: http://www.investopedia.com/terms/b/baselii.asp)
This doesn’t say anything about only lending out some portion of your deposits or savings in the bank.
What it says is that banks have to keep sufficient reserves to allow for the risks of their assets, those assets being loan contracts, and the risks being the potential for unrecoverable default.
It’s good that Australia has adopted these international standards, thereby avoiding getting into a risk based race to the bottom in competition with other international banks, but it is in no way in conflict with the concept of deposits being created by loans rather than the other way around.

Also, what should be clear, is that the practice of banks selling off packages of dodgy loans as investments to non-bank organisations is a potential dodge around Basel II, but that still creates economic disaster.

Obviously you abolish negative gearing, as per our policy. Asset backed loans are more attractive to lenders, sure, they are regardless of what the loan is for, because the asset is security against the risk. What makes housing attractive for investment is the negative gearing tax breaks. Banks would be equally happy to loan to small businesses if they could seize assets if the business went arse up.

OK, but here’s the problem… I think we’re stuck.

House prices have maxed out even with a period of low interest rates. Apparently not so much for houses, but for apartments, 80% is investor owned and 80% of those are negative geared. Note also that it seems to be saturated. Investors got less interested because house prices are peaking, so no capital gains.

http://www.rba.gov.au/publications/submissions/housing-and-housing-finance/inquiry-into-home-ownership/proportion-investment-housing-relative-owner-occ-housing.html

So what happens if you turn off negative gearing in this situation?

Answer: Property prices crash. Doesn’t sound all bad… But in the process, as investors withdraw, there will be huge drops in money supply because the banks stop lending and therefore stop creating money. Also, regular home owners find they have negative equity, banks reassess their loans as risky and push up interest rates. Many default on their loans…
Subsequently, major recession with massive job losses.

I think we have to get rid of it, but real slow, to deflate the bubble instead of bursting it, and as we do that, start to ramp up other compensating sources of money creation.

Our policy is to phase it out over five years.