Something is Rotten in the State of Denmark: The Rise of Monetary Cranks and Fixing What Ain’t Broke

By L. Randall Wray

Horatio:  He waxes desperate with imagination.

Marcellus:  Let’s follow. ‘Tis not fit thus to obey him.

Horatio:  Have after. To what issue will this come?

Marcellus:  Something is rotten in the state of Denmark.

Horatio:  Heaven will direct it.

Marcellus:  Nay, let’s follow him.

 Hamlet Act 1, scene 4

Marcellus is right, the Fish of Finance is rotting from the head down. It stinks. As Hamlet remarked earlier in the play, Denmark is “an unweeded garden” of “things rank and gross in nature” (Act 1, scene 2).   The ghost of the dead king appears to Hamlet, beckoning him to follow. In scene 5, the ghost tells Hamlet just how rotten things really are.

Denmark, is of course Wall Street or London. Far more rotten than anyone can imagine.

In the aftermath of the Great Recession, we all wax “desperate with imagination”, looking for explanation. For solution. For retribution!

The financial system is rotten. Our banking regulators and supervisors failed us in the run-up to the crisis, they failed us in the response to the crisis, and they are failing us in the reform that we expected in the aftermath of the crisis.

Heaven will not save us, either. The Invisible Hand is impotent. Just wait for Scene 5!

In times like these, we thrash about, desperate for ideas, for imagination, for leadership. There’s nothing unusual about that. Read the entry, monetary cranks, by David Clark in The New Palgrave: A Dictionary of Economics, First Edition, 1987, Edited by John Eatwell, Murray Milgate and Peter Newman.

You’ll find many of the same proffered reforms bandied about now. Many of them make sense, or at least partial sense. I’ve always used that entry in my money and banking courses as an example of sensible ideas being rejected by the mainstream, labeled “crank” to discredit them.

When I use the term monetary cranks, I use it as a term of endearment. We need some cranky ideas because all the respectable ones failed us. There is nothing, and I mean literally nothing, that will come out of the mainstream that will be of use.

Chicago Plan

The “Great Crash” (as JK Galbraith called it, AKA the “Great Depression”) generated a similar outpouring of “cranky” proposals. Even quite mainstream and respectable economists got involved. A group of them published “the Chicago Plan”—supported by Irving Fisher, Milton Friedman, and Henry Simons.

The idea was to prevent another run-up in speculative fever by restricting banks. They could issue deposits but could not make loans. To ensure safety of the deposits, they’d hold only the safest assets—such as US Treasuries. (For more on the history of the Chicago Plan, see the great book by my good friend and Levy colleague, Ronnie Phillips, (1995) The Chicago Plan & New Deal Banking Reform, Armonk, NY: M.E. Sharpe.)

Hyman Minsky wrote an endorsement for the book, but he also wrote that the Narrow Banking plan was aiming to “fix what is not broke”. Yes, the plan would carve out a section of the financial system that would remain safe—the payments system. However, with a central bank that acts as a lender of last resort and with the treasury providing deposit insurance, our payments system is perfectly safe.

You want proof? We just went through the worst (global) financial crisis since the 1930s with not even a hiccup in our insured deposit system.

True, our uninsured money market mutual fund system faced disaster, and required expansion of the government safety net to save it. And virtually every other part of our financial system also had to be rescued. As my Ford project team has documented, it took $29 TRILLION of subsidized loan originations by the Fed to prop up Wall Street, London, and Brussels.

But the protected deposit-based payments system went through unscathed.

(The UK did have a hiccup, precisely because it did not offer 100% insurance; it had to expand insurance to 100% to stop bank runs that never occurred in the USA.)

So what do our monetary cranks want to do? Well, a lot of them want to go back to the Chicago Plan. They want to solve a problem that does not exist.

Like Minsky, I don’t object. Maybe there is a better way to do the payments system. Personally, I’ve always liked the idea of a nationwide, universally accessible, government-funded, postal savings system. Let’s go for it.

It’s a crazy idea only in the USA. It is easy to find PSSs around the world. Last time I looked, the Japanese PSS was the biggest “bank” in the world (but maybe one of the bankster banks has surpassed it now—propped up, fed, clothed and diaper-changed by Uncle Sam).

We do not have to reinvent the wheel. We don’t need a Chicago Plan. Let’s just restore the US Postal Saving System (which, as I recall, lasted into the 1960s).

Centralized Committee of Experts

However, the crank can be taken too far. Some—even the FT’s Martin Wolf??—are not talking about carving out a tiny part of the financial system, but rather are talking about lock-stock-and-barrel replacing it with narrow banks. (See the great critique by Ann Pettifor, Out of thin air – Why banks must be allowed to create money.)

Now that is cranky.

The idea seems to be that we don’t need no stinking banks—at least the kind we’ve got now.

As I’ve been arguing, our banks “create money” (in the form of demand deposits) “out of thin air” when they make loans. It seems that everyone except Paul Krugman now gets this. And lots of people don’t like it, including Martin Wolf.

So we’ll eliminate that kind of banking, and just let narrow banks take in deposits and then buy safe treasuries. No more money creation out of thin air.

Who will do the lending? There are two options. We could allow specialized intermediaries that would take in savings and lend them out. Or we could have special government banks. I’m only discussing the first of these today.

While the cranks who support private intermediaries have not explicitly stated it, what they seem to be proposing is a riff on Islamic banking. The idea is that savers can lend their saving to investors. Sure it is risky! The savers effectively share in the rewards or the losses incurred by the investors.

In many religions, interest is (or at least was—damn usury!) prohibited, but there is nothing wrong with sharing profit (or loss). Since matching savers and investors is time-consuming, special intermediaries rise up to perform that function (taking some of the profit off the top).

As an enterprise model, this is as old as the hills—going back to Mesopotamia. As Michael Hudson argues, the interest rate charged was 20% or 33% depending on the type of economic activity (lower for commercial, higher for consumer).

In its modern dress, the proposal is to set up a centralized nongovernmental committee of experts to decide who gets the loans.

According to Pettifor, this is pushed by the “UK NGO, Positive Money. They agree that all ‘decisions on money creation would … be taken by a committee independent of government’. Furthermore, Wolf argues, private commercial banks would only be allowed to: ‘…loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are.’”

For me, that’s a crank too far.

First, I do not like centralization and I worry about a committee of experts deciding who is going to get credit. I like the idea of having thousands of decentralized financial institutions making such decisions.

I like a variety of types of financial institutions as well: credit unions, local community banks, mutual savings and loans (those were the old thrifts that offered mutual shares and made mortgage loans; they never failed and they served their communities), and even some mid-sized banks with a few branches.

(I also support government development banks, which lend for public purposes. And there is a need for direct lending by Treasury for student loans and other public purposes. However I would not want to eliminate private lenders or cooperatives and mutuals. I do not believe government will generally do a good job of underwriting—so I would favor government direct lending where the public interest trumps good underwriting, and leave the rest to “private” lenders, including coops etc.)

Second—and maybe more importantly—the proposal is based on a fundamentally flawed view of the saving-investment and deposit-loan relationship.

For those who’ve got Econ 101 under their belt, it is based on the loanable funds notion that “saving finances investment”. As we’ve known since Keynes, that is precisely wrong. I won’t go into it here, but it is best to think of this the other way round: investment creates the income that can be saved.

But if the Keynes view is right (and of course it is right), then what finances investment (and any spending in excess of income)? Credit. Where does it come from? Out of thin air.

I can just hear our cranks: “There you go again, that is what we want to eliminate!”

Yes, I understand. But crankiness can only take you so far. You’ve got to have the correct theoretical framework. As Pettifor rightly says in her piece, if we really did limit our finance to saving, then we’d run our economy right into the ground.

Saving is a two-step decision: a decision to NOT spend, and then a decision to hold your saving in some form. Only a portion of saving will ever make it into our intermediary to finance loans. (Some portion will go into the narrow bank, some portion will go under the mattress in the form of currency.) Each period, the amount saved, lent, and then spent would probably decline (leakages into those mattresses).

We need that thin air money creation to keep the lending, spending, and growing moving forward.

Now, before I’m accused of advocating the full-speed-ahead excesses of late 1920s banking or early-to-mid 2000s banking, let me say that (with rare exceptions, as discussed above) lending requires underwriting (credit assessment). I do want “experts” to do that. I want every community bank, credit union, or mutual thrift to have committees of loan officers to do the underwriting.

What failed us is that the biggest global banks decided underwriting is not needed. They got rid of their loan officers. They off-loaded all their loans to securitization. There is absolutely no hope that a Citi or a BofA will ever do good underwriting again.

I agree with our cranks (I’m as cranky as they are) about shutting down all of the biggest financial institutions. They serve no public purpose, and their business model ensures they cannot serve any private purpose, either, except enriching the top tenth of one percent.

However, we need “thin air” money creation, albeit with decentralized and incentivized underwriting determining which activities ought to get financed. (Good underwriting is incentivized if loans are held to maturity.)

The Limits of Legislation

But here’s a more fundamental question. Is it really possible to legislate away “thin air money creation”?

As Minsky said, “Anyone can create money” (How? Thin air.), “the problem is to get it accepted.”

How can government prevent me from writing “IOU five bucks”? Our economy is based on “I-O-U’s” and “U-O-ME’s”. Since the time of Mesopotamia, we’ve run up bar tabs—cleared at harvest time on the threshing floor. Retailers routinely receive wares on trade credit, payable thirty days hence.

If you think about it, it’s all trade credit of some sort or other. You work for a month and accumulate wage claims on your employer. At the end of the month he gives you a credit redeemable at a bank, which gives you a credit redeemable at another bank.

And we’ve carried this to the “nth” degree–$700 trillion of contingent commitments, promises to pay if exchange rates move, if someone’s credit gets downgraded, if a peasant dies, if the Fed moves rates.

Now, how the heck do you eliminate all of that? And why would you want to?

Yes, some of it stinks, like that rotten fish head in Denmark. But do you really want a centralized committee somewhere trying to tell you whether you can write an IOU for five buckaroos? Or whether you can place a bet that sterling will rise against the dollar?

Or that your peasant will die? (Wait a minute, that one certainly ought to be illegal—a go to jail or to the gallows sort of crime.)

Here’s my proposal: let a thousand flowers bloom, but don’t protect all of them from wilting.

Carve out various sectors of the financial system that are designated “public-private partnerships” that do have safety net protection, but are closely regulated with respect to what they can do. Further carve them up so that they perform designated public purpose activities. Some help to run the payments system (keep them very safe); others make mortgage loans (closely watched to guard against lender fraud); some make commercial loans (with good underwriting); others provide investment services (with more risk but transparently revealed).

Horses for courses. We’ve got a huge and complex economy with varied financial services needs.

Right now, we have far more finance than we need. Exactly how much of it we could eliminate as unnecessary is up for debate. I wouldn’t be surprised if our economy would actually run better if finance was downsized by 90%–that would put it somewhere near where it was in the early postwar period—the so-called golden era of US capitalism.

But we’re not going to eliminate all excesses through legislation. We can, however, refuse to support excess and refuse to rescue the perps of excess. The warning should be explicit and it must be believable. That is hard, no question about it.

Some will say that with Wall Street running our government, you’ll never remove the safety net of the biggest, crookedest, riskiest banks. They might be right. But if they are, I cannot see how they will do the impossible: legislate away Wall Street’s excesses.

Simon Johnson, who wants to break up the biggest banks, made an interesting point when we shared a panel in Washington last year. He really believes it is not only possible to break them up, but that it will happen. Why? Because there is growing support among all the banks that are not “too big to fail”.

For the most part, those smaller banks played no role in the shenanigans that led to the crisis. They increasingly recognize the huge public subsidies given to the “banksters” (I use that term accurately to designate those institutions that are run as control frauds—as Bill Black calls them) in the form of low interest rates plus a government backstop in the event that their bad bets go wrong.

He might be right. It might be easier to break them up and shut them down than to legislate away their excesses. Heck, much of what they did is already illegal!

The Role of Monetary Cranks

Yes, the rotting fish on Wall Street and in London stinks. We need downsizing. We need reform—not only of the financial system that exists, but also of the crisis response that we will need when the system fails next time. You can be sure there will be a next time.

This is the time for monetary cranks.

No good ideas will come out of the mainstream. They never saw the crisis coming, indeed, their advice in the speculative run-up made the crash not only inevitable but much worse than it would have been. They were behind the bail-outs of Wall Street and London. Their rescue of the banksters will hasten and deepen the next crisis. Do not listen to them.

We need to remember two things, however, as we assess the proposals of our cranks.

First, there is no final solution. There is no magic reform that will prevent another crisis. As Minsky said, “stability is destabilizing”. Any successful reform will lead to the recreation of instability that will lead to another crisis.

Second, it is essential that the reform proposal is based on a coherent and valid theoretical framework.

One way to judge the monetary cranks that are proposing reforms is to ask: “Where were you a decade ago?” Did you see “it” (the crisis) coming? Did you have a coherent theory which explained why a financial crisis would occur? Is your proposal consistent with that theoretical framework? What the heck is your monetary framework?

32 responses to “Something is Rotten in the State of Denmark: The Rise of Monetary Cranks and Fixing What Ain’t Broke

  1. Steven Penfield

    I agree with 95% of what you say but intuitively I have the feeling that a monetary system based on creation of private credit with interest is potentially unstable if the growth rate falls below the mean rate of interest (the rate charged to customers, not to banks), since more money is needed to pay back the principal and interest than has been created by the loan. A steady state economy would require deficit spending equal to that rate of interest on the whole economy (in a closed system) to avoid collapse of the money supply. Is this not essentially a symmetrical position to Piketty’s r>g?

    • golfer1john

      “potentially unstable if the growth rate falls below the mean rate of interest”

      NO NO NO.

      Most of the interest collected by banks is recycled into the economy in the form of salaries, rent, dividends, interest on savings, political contributions, and other costs of doing banking. The injection of money required to maintain the system is a small fraction of the interest, and sometimes negative if the banking sector in the aggregate suffers losses.

    • Of course it is unstable. I already made that point. Stability, if achieved, is destabilizing. There’s no once and for all reform–in any of the 57 varieties of capitalism.

    • Scott Fullwiler

      Hi Steven

      I”m short on time, but just want to point out quickly–more later if I can–that this is a common fallacy of the progressive anti-banking crowd.

      The short answer is that this confuses money with income. Basically, you need govt deficits to offset net dissaving for in ANY sector of the economy relative to the others. So, it makes as much sense to say households shouldn’t be allowed to net save–we’ll need deficits for those unfortunate businesses to make a profit–as it does to say we can’t let the financial sector run a net positive balance relative to the others. Note also, that this goes for the case when banks aren’t allowed to endogenously create money as much as when they are–if they are just intermediaries taking in deposits and making loans, they’re still having a net positive balance relative to the other sectors. But when you throw endogenous credit money creation, people get freaked out and think it’s a lot different, when it really isn’t.

      • Steen Penfield

        Thanks to everyone who has replied, I will take some time to think some more. I am not in the anti-banking crowd, or indeed in any crowd. Most of what I read on here I find very compelling, and in fact the only compelling description of an economy I have ever read. Clarity is hard to find in economics but it is here in abundance.The exception is the justification for private money creation (which I am fine with) specifically with interest-bearing loans.

        Golfer1john, I am not persuaded that it is important whether the interest is recycled into the economy or not. Will there not still be a net excess of private (non-financial) sector liabilities over assets, just that the asset distribution is altered?

        Scott, I see your point that net saving by banks is similar to any net private sector saving which should be offset with deficit spending. No need to expand.

        • golfer1john

          What is important is the amount of interest that is not recycled. Deficit spending must exceed that amount in order for the non-bank economy to grow, ignoring the foreign sector. Not the total interest, just the part that is not recycled. You can’t say that because long-term growth is 3%, interest rates in excess of 3% will eventually crash the economy. The math is wrong. The interest rate could be 10%, and if 8/10 of it were spent by the banks on salaries, there is no death spiral.

          • Golfer, can’t the central bank buy privately owned treasures thereby growing the money supply and making up the difference for the interest extracted by the banks?

  2. Randy’s article is riddled with errors, but perhaps the worst is his claim: “In its modern dress, the proposal is to set up a centralized nongovernmental committee of experts to decide who gets the loans.”

    If Randy had actually read the literature produced by advocates of the Chicago plan / full reserve banking he’d have discovered that they SPECIFICALLY advocate leaving decisions on loans to private banks. Moreover, Milton Friedman was an advocate of Chicago plan, and the idea that a relatively right wing / pro free market economist like Friedman would have gone along with having loans decided by some committee of bureaucrats is just hilarious. (See 2nd half of Ch3 of Friedman’s book “A Program for Monetary Stability”).

    • Ralph if you read your own darned literature, you’d see what Positive Money advocates: a centralized committee to make the decision: “. . . it is important that politicians are not directly given control over money creation, because of the risk that political pressures could lead the government to abuse this power to create money. Therefore, the decision over how much new money to create should be taken, as it is now, by the Monetary Policy Committee (MPC) at the central bank in line with their democratically mandated targets.”

      Or read Martin Wolf: ” the central bank would create new money as needed to promote non-inflationary growth. Decisions on money creation would, as now, be taken by a committee independent of government.”

      Sounds like a centralized committee to me. And sounds like you are blowing smoke. Private banks would not be allowed to create money, so they obviously would not be in a position to decide who to create money for.

    • Scott Fullwiler


      You’ve got it wrong, as usual.

      Nobody said PM wouldn’t let there be pvt institutions to lend. But the proposal is clear that there will be a committee determine the qty of “debt-free money” while pvt financial institutions are not creating credit money endogenously. That’s what he was critiquing.

      • Ralph, have you read the PM proposal in full?

        7. With banks no longer able to create deposits through lending, the Bank of England would be the only institution able to alter the money supply.

        8. The decision on whether to increase or decrease the money supply would be taken by a completely democratically accountable, independent and transparent body, the Monetary Crea tion Committee, in line with a democratically mandated target set by government.

        9. The Bank of England would increase the money supply by either:
        • Granting money to the government to be spent into circulation, as above, or
        • Lending money to the banks to on-lend to businesses (to ensure an adequate supply of
        money for businesses to borrow).

        . . .

        After the reform, the Monetary Creation Committee would also be tasked with ensuring that businesses in the real (non-financial) economy have an adequate access to credit. The Bank of England would monitor the UK economy both through quantitative and qualitative methods (such as the Credit Conditions Survey). If, based on this analysis, the Bank of England concluded that banks were unable to meet demand for loans from creditworthy borrowers and businesses and this is negatively affecting the economy (perhaps because difficulties in securing funding is placing large numbers of otherwise healthy companies in financial distress), then the Bank of England may make up the short-fall by lending a pre-determined amount to commercial banks expressly for this purpose.

    • Doesn’t the word ‘nongovernmental’ appear in the sentence that offends you? Or is your use of ‘bureaucrats’ not meant to indicate the government?

    • golfer1john

      Offsetting fouls, replay the down.

      “decide who gets the loans” is not the same as “decision over how much new money to create”

      “Centralized nongovernment committee” is an oxymoron. Whence does such a committee get its authority, if not from government? Can one claim the Fed to be part of government, and not this committee?

      I think both side need to increase the good faith in their discourse. There are real issues being obscured by the quarreling.

  3. Steven Penfield

    Or to put it another way, if the job of banks is to create the money and demand interest, whose job is it to create the interest?

    • That formulation is a basic confusion of stocks (money) and flows (interest paid). There is no ‘musical chairs’ moment where the music stops and everyone has to pay back all the principle & interest on all loans simultaneously. Imagine taking out a loan and then mowing the bank’s lawn once a month to earn a paycheck that cancels out any accrued interest. Well the same concept goes for the economy at large (money circulates around a productive economy, creating growth and income flows which become other peoples’ spending flows).

  4. golfer1john

    “First, I do not like centralization and I worry about a committee of experts deciding who is going to get credit. I like the idea of having thousands of decentralized financial institutions making such decisions.

    I like a variety of types of financial institutions as well: credit unions, local community banks, mutual savings and loans … and even some mid-sized banks with a few branches.

    I would not want to eliminate private lenders or cooperatives and mutuals. I do not believe government will generally do a good job of underwriting … ”

    Who are you and what have you done with the real Randy Wray?

    With thousands of decentralized institutions, and millions of customers, won’t that constitute a free, nay, not only free but even a nearly perfectly competitive marketplace, guided by an invisible hand? That would be impossible, because no such free market exists, or can ever exist, and there is no invisible hand. The real Randy knows that. And if even government can’t do a good job of underwriting, how could anyone else possibly do it !!?? The real Randy knows that a free market (if one ever existed) never does anything better than government could do it.

    • golfer: As always, you’d get more out of posts if you read more carefully. There’s nothing in my post that could be interpreted as a call for “free markets” or the operation of “invisible hand waves” or of “nearly perfectly competitive” markets.

      • golfer1john

        So what do you call a marketplace with thousands of suppliers and millions of customers and an Internet providing instant information to all? Sounds to me a lot like the classical definition of competition. Not monopoly or monopsony, for sure. Is “thousands” so few that it qualifies as oligopoly? Or do you have some other set of descriptions and classifications of types of markets?

        I didn’t mean to sound critical, I think it is wonderful that you like these kind of systems, whatever you want to call them. It will turn some of your opponents into allies, if they find out.

  5. Dr. Wray, can you comment specifically on Ellen Brown’s proposal for public banks? I read your comments above on public banks but would like to hear more specific comments on her proposals. To me, with an avocational interest in the subject, her proposals sound like an excellent parallel and non-intrusive approach to mitigating some of the system problems.

  6. “If the American people ever allow private banks to control the issue of their currency, … the banks…will deprive the people of all property until their children wake up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)

    • Scott Fullwiler

      You’ve misread Randy’s piece if you think that’s what he’s advocating. Straw man. Not to mention being ignorant of the hundreds of pieces on the financial system MMT has written. Weird to post something like this as a critique on a blog that Bill Black contributes to regularly.

  7. “Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over–a house or factory or company–that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits.” – James Galbraith

    • Scott Fullwiler

      Again, straw man. And taken out of context. You DID see the quote from Jamie on the front page of this blog, didn’t you?

  8. Bob Lavergne

    “I also support government development banks, which lend for public purposes. And there is a need for direct lending by Treasury for student loans and other public purposes. ” Why should students be forced by the state to go into debt? Students are like apprentices in any industry. An apprentice is protected by his/her union to receive a living wage while they gain skills/learn. It is society, and specifically capitalists, who benefit from an educated workforce. It should be the society that invests in education, specifically higher education, and not forcing working class students into debt peonage. If you promote a government job guarantee (people who are perfectly employable have a right to be employed), then certainly one should have to also promote a higher education guarantee, free, to any who qualifies? Learning is hard-work and individuals who are qualified should be encouraged to continue their education by not only having the community/nation finance it, but allow them a living stipend while they are hard at work learning. All this would seem to be quite natural if one lived in Denmark or Sweden and views education as a right and not a privilege, eh?

    • golfer1john

      Many states have already adopted policies that are partially what you want. They heavily subsidize college tuition for state residents. Not free, but 60-75% less than the price for out-of-state students, or what their residents would pay at other comparable colleges. It’s probably the best a non-monetary sovereign can reasonably do. Federal assistance to the states as advocated by Mosler could help them do more. It’s obviously an area of priority for them already.

  9. Private banks issue dollars. If they didn’t have the power to issue dollars, they would be less motivated to oppose public deficits.

    Wasn’t the global financial crisis caused by predatory lending by private banks? Trying to prevent bankers from engaging in predatory lending is like trying to prevent Mitt Romney from running for president. Sure, you might succeed, but there’s a damn good chance you won’t.

  10. golfer1john

    “Wasn’t the global financial crisis caused by predatory lending by private banks?”

    And how did that work out for them? There’s an important distinction to be made. The banksters got away with big bonuses, but the banks and their shareholders suffered large losses.

    A less important distinction is that the essence of the problem was not the “predatory” part, it was the lack of underwriting. Banksters made loans they knew were inadequately secured, without proper regard for the ability of the borrower to repay them. And corrupted government officials let them do it.

    The solution is not to get rid of private banking, but to effectively prosecute the frauds, so that the next generation of bank executives will not anticipate getting away with it.

  11. The root of the problem is that banks sell and profit from that which does not exist -the amount of interest is not the issue, its the structure of the ‘contract.’ Loan–>Deposit (Principal) but the interest was never created. As I said the issue is the structure of the contract, I have no issue with banks creating deposits when they make loans, my issue is that they ‘sell’ something created out of thin air and then expect YOU to pay the principal (which they conjured up) plus a bit more that THEY can only conjure up…How exactly does that increase justice in the world?

    • golfer1john

      You’re free to go to another lender that has to have the money before they can lend it. There are plenty of them around.

  12. Pingback: DEBT-FREE MONEY: A NON-SEQUITUR IN SEARCH OF A POLICY | New Economic PerspectivesNew Economic Perspectives

  13. golfer1john,

    Yes, even go to loan sharks if you wish. There are plenty of them and they do already have the money you wish to borrow. They are legal in the UK, though some of them are coming under investigation, like Wonga. In our currency system, there is no need for this restriction on lending. And hence it isn’t part of the system. As Randy has noted, this is not the sector of the system that failed. It was the so-called investment, or casino, sector.