Funny Money and the Real Economy

As Europeans face daily updates on the fate of their economies and of the Euro, public figures appear to disagree on the detail but agree on the broad framwork of how to respond to the crisis. The assumption from all quarters is that governments must in some way guarantee European currencies - whether through the European Central Bank, the International Monetary Fund, sovereign loans or some other mechanism or combination of strategies.

This approach makes one assumption - rarely challenged - namely that the currency used by the large financial institutions must and should be the same currency used by individual citizens.

An alternative approach is that ordinary citizens use (or create) their own currencies for peer-to-peer trading, and leave the global finacial institutions to sort out their own mess. The global markets, of course, will never make this happen, as such alternative and micro-currencies necessarily undermine the power of large financial institutions.

Which is, of course, one of their appeals, at least in the real economy whch most of us live in.

 



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Elizabeth Warren and Goliath - Jim Wallis - God's Politics Blog

Elizabeth Warren and Goliath - Jim Wallis - God's Politics Blog

A conservative American Christian leader delivers a rebuke to the big banks.

Jim Wallis is in fine form with this piece.

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Smaller Banks

I'm watching with interest as the media is focusing this week on the issue of reducing the ability of banks to drag national economies down when/if they fail.

President Obama's provocative statement that he intends to take action in this area has coincided with British ministers making noises about the issue as well.

In Britain, attention seems almost exclusively focused on taxing banks or requiring them to take out insurance against collapse, so that the tax payer does not have to bail them out again. Most of the discussion on the issue at present seems to be about how to get the banks to spend money protecting themselves.

There is an alternative approach, which I have not heard many explore publicly so far. It is that the actual size of banks be dramatically reduced through legislation. Although this does not, of course, guarantee that a bank will never fail (small banks can overreach themselves), it does at least, by distributing the power of the banks much more widely, reduce the prospect of any one of them being able to hold a national economy to ransom in the way that the large banks did in 2008.

Imagine, for instance, instead of the government owning 84% of RBS, if this bank were broken up into very small units - some as small as single local branches - that were sold off as going concerns. The tax payer would be repaid, the bank(s) would emerge as viable businesses and the national debt would be reduced.

Just a thought.

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Defining Capitalism

"[T]he combination of a Fed that can print money, deposit insurance, and a Congress that can authorize bailouts provides an extensive safety net for big financial firms. In such an environment, pursuing a policy of easy money plus deregulation doesn't amount to free market economics: it's a form of crony capitalism."

John Cassidy

"Perhaps we should try and think of a name for the new economic system, which certainly isn’t capitalism: that, remember, is all about ‘creative destruction’, and the freedom to fail. That’s exactly what we don’t have. The most accurate term would probably be ‘bankocracy’."

John Lanchester

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