John Pilger’s Message To World’s Journalists.

(Cross-posted from – An article written by John Pilger)


War by Media and the Triumph of Propaganda

5 December 2014

mountain55Why has so much journalism succumbed to propaganda? Why are censorship and distortion standard practice? Why is the BBC so often a mouthpiece of rapacious power? Why do the New York Times and the Washington Post deceive their readers?


Why are young journalists not taught to understand media agendas and to challenge the high claims and low purpose of fake objectivity? And why are they not taught that the essence of so much of what’s called the mainstream media is not information, but power?


These are urgent questions. The world is facing the prospect of major war, perhaps nuclear war – with the United States clearly determined to isolate and provoke Russia and eventually China. This truth is being turned upside down and inside out by journalists, including those who promoted the lies that led to the bloodbath in Iraq in 2003.


The times we live in are so dangerous and so distorted in public perception that propaganda is no longer, as Edward Bernays called it, an “invisible government”. It is the government. It rules directly without fear of contradiction and its principal aim is the conquest of us: our sense of the world, our ability to separate truth from lies.


The information age is actually a media age. We have war by media; censorship by media; demonology by media; retribution by media; diversion by media – a surreal assembly line of obedient clichés and false assumptions.


This power to create a new “reality” has building for a long time. Forty-five years ago, a book entitled The Greening of America caused a sensation. On the cover were these words: “There is a revolution coming. It will not be like revolutions of the past. It will originate with the individual.”


I was a correspondent in the United States at the time and recall the overnight elevation to guru status of the author, a young Yale academic, Charles Reich. His message was that truth-telling and political action had failed and only “culture” and introspection could change the world.


Within a few years, driven by the forces of profit, the cult of “me-ism” had all but overwhelmed our sense of acting together, our sense of social justice and internationalism. Class, gender and race were separated. The personal was the political, and the media was the message.


In the wake of the cold war, the fabrication of new “threats” completed the political disorientation of those who, 20 years earlier, would have formed a vehement opposition.


In 2003, I filmed an interview in Washington with Charles Lewis, the distinguished American investigative journalist. We discussed the invasion of Iraq a few months earlier. I asked him, “What if the freest media in the world had seriously challenged George Bush and Donald Rumsfeld and investigated their claims, instead of channeling what turned out to be crude propaganda?”


He replied that if we journalists had done our job “there is a very, very good chance we would have not gone to war in Iraq.”


That’s a shocking statement, and one supported by other famous journalists to whom I put the same question. Dan Rather, formerly of CBS, gave me the same answer.  David Rose of the Observer and senior journalists and producers in the BBC, who wished to remain anonymous, gave me the same answer.


In other words, had journalists done their job, had they questioned and investigated the propaganda instead of amplifying it, hundreds of thousands of men, women and children might be alive today; and millions might not have fled their homes; the sectarian war between Sunni and Shia might not have ignited, and the infamous Islamic State might not now exist.


Even now, despite the millions who took to the streets in protest, most of the public in western countries have little idea of the sheer scale of the crime committed by our governments in Iraq. Even fewer are aware that, in the 12 years before the invasion, the US and British governments set in motion a holocaust by denying the civilian population of Iraq a means to live.


Those are the words of the senior British official responsible for sanctions on Iraq in the 1990s – a medieval siege that caused the deaths of half a million children under the age of five, reported Unicef. The official’s name is Carne Ross. In the Foreign Office in London, he was known as “Mr. Iraq”. Today, he is a truth-teller of how governments deceive and how journalists willingly spread the deception. “We would feed journalists factoids of sanitised intelligence,” he told me, “or we’d freeze them out.”


The main whistleblower during this terrible, silent period was Denis Halliday. Then Assistant Secretary General of the United Nations and the senior UN official in Iraq, Halliday resigned rather than implement policies he described as genocidal.  He estimates that sanctions killed more than a million Iraqis.


What then happened to Halliday was instructive. He was airbrushed. Or he was vilified. On the BBC’s Newsnight programme, the presenter Jeremy Paxman shouted at him: “Aren’t you just an apologist for Saddam Hussein?” The Guardian recently described this as one of Paxman’s “memorable moments”. Last week, Paxman signed a £1 million book deal.


The handmaidens of suppression have done their job well. Consider the effects. In 2013, a ComRes poll found that a majority of the British public believed the casualty toll in Iraq was less than 10,000 – a tiny fraction of the truth. A trail of blood that goes from Iraq to London has been scrubbed almost clean.


Rupert Murdoch is said to be the godfather of the media mob, and no one should doubt the augmented power of his newspapers – all 127 of them, with a combined circulation of 40 million, and his Fox network. But the influence of Murdoch’s empire is no greater than its reflection of the wider media.


The most effective propaganda is found not in the Sun or on Fox News – but beneath a liberal halo. When the New York Times published claims that Saddam Hussein had weapons of mass destruction, its fake evidence was believed, because it wasn’t Fox News; it was the New York Times.


The same is true of the Washington Post and the Guardian, both of which have played a critical role in conditioning their readers to accept a new and dangerous cold war. All three liberal newspapers have misrepresented events in Ukraine as a malign act by Russia – when, in fact, the fascist led coup in Ukraine was the work of the United States, aided by Germany and Nato.


This inversion of reality is so pervasive that Washington’s military encirclement and intimidation of Russia is not contentious. It’s not even news, but suppressed behind a smear and scare campaign of the kind I grew up with during the first cold war.


Once again, the evil empire is coming to get us, led by another Stalin or, perversely, a new Hitler. Name your demon and let rip.


The suppression of the truth about Ukraine is one of the most complete news blackouts I can remember. The biggest Western military build-up in the Caucasus and eastern Europe since world war two is blacked out. Washington’s secret aid to Kiev and its neo-Nazi brigades responsible for war crimes against the population of eastern Ukraine is blacked out. Evidence that contradicts propaganda that Russia was responsible for the shooting down of a Malaysian airliner is blacked out.


And again, supposedly liberal media are the censors. Citing no facts, no evidence, one journalist identified a pro-Russian leader in Ukraine as the man who shot down the airliner. This man, he wrote, was known as The Demon. He was a scary man who frightened the journalist. That was the evidence.


Many in the western media haves worked hard to present the ethnic Russian population of Ukraine as outsiders in their own country, almost never as Ukrainians seeking a federation within Ukraine and as Ukrainian citizens resisting a foreign-orchestrated coup against their elected government.


What the Russian president has to say is of no consequence; he is a pantomime villain who can be abused with impunity. An American general who heads Nato and is straight out of Dr. Strangelove – one General Breedlove – routinely claims Russian invasions without a shred of visual evidence. His impersonation of Stanley Kubrick’s General Jack D. Ripper is pitch perfect.


Forty thousand Ruskies were massing on the border, according to Breedlove. That was good enough for the New York Times, the Washington Post and the Observer – the latter having previously distinguished itself with lies and fabrications that backed Blair’s invasion of Iraq, as its former reporter, David Rose, revealed.


There is almost the joi d’esprit of a class reunion. The drum-beaters of the Washington Post are the very same editorial writers who declared the existence of Saddam’s weapons of mass destruction to be “hard facts”.


“If you wonder,” wrote Robert Parry, “how the world could stumble into world war three – much as it did into world war one a century ago – all you need to do is look at the madness that has enveloped virtually the entire US political/media structure over Ukraine where a false narrative of white hats versus black hats took hold early and has proved impervious to facts or reason.”


Parry, the journalist who revealed Iran-Contra, is one of the few who investigate the central role of the media in this “game of chicken”, as the Russian foreign minister called it. But is it a game? As I write this, the US Congress votes on Resolution 758 which, in a nutshell, says: “Let’s get ready for war with Russia.”

In the 19th century, the writer Alexander Herzen described secular liberalism as “the final religion, though its church is not of the other world but of this”. Today, this divine right is far more violent and dangerous than anything the Muslim world throws up, though perhaps its greatest triumph is the illusion of free and open information.


In the news, whole countries are made to disappear. Saudi Arabia, the source of extremism  and western-backed terror, is not a story, except when it drives down the price of oil. Yemen has endured twelve years of American drone attacks. Who knows? Who cares?


In 2009, the University of the West of England published the results of a ten-year study of the BBC’s coverage of Venezuela. Of 304 broadcast reports, only three mentioned any of the positive policies introduced by the government of Hugo Chavez. The greatest literacy programme in human history received barely a passing reference.


In Europe and the United States, millions of readers and viewers know next to nothing about the remarkable, life-giving changes implemented in Latin America, many of them inspired by Chavez. Like the BBC, the reports of the New York Times, the Washington Post, the Guardian and the rest of the respectable western media were notoriously in bad faith. Chavez was mocked even on his deathbed. How is this explained, I wonder, in schools of journalism?


Why are millions of people in Britain are persuaded that a collective punishment called “austerity” is necessary?


Following the economic crash in 2008, a rotten system was exposed. For a split second the banks were lined up as crooks with obligations to the public they had betrayed.


But within a few months – apart from a few stones lobbed over excessive corporate “bonuses” – the message changed. The mugshots of guilty bankers vanished from the tabloids and something called “austerity” became the burden of millions of ordinary people. Was there ever a sleight of hand as brazen?


Today, many of the premises of civilised life in Britain are being dismantled in order to pay back a fraudulent debt – the debt of crooks. The “austerity” cuts are said to be £83 billion. That’s almost exactly the amount of tax avoided by the same banks and by corporations like Amazon and Murdoch’s News UK. Moreover, the crooked banks are given an annual subsidy of £100bn in free insurance and guarantees – a figure that would fund the entire National Health Service.


The economic crisis is pure propaganda. Extreme policies now rule Britain, the United States, much of Europe, Canada and Australia. Who is standing up for the majority? Who is telling their story? Who’s keeping record straight? Isn’t that what journalists are meant to do?


In 1977, Carl Bernstein, of Watergate fame, revealed that more than 400 journalists and news executives worked for the CIA. They included journalists from the New York Times, Time and the TV networks. In 1991, Richard Norton Taylor of the Guardian revealed something similar in this country.


None of this is necessary today. I doubt that anyone paid the Washington Post and many other media outlets to accuse Edward Snowden of aiding terrorism. I doubt that anyone pays those who  routinely smear Julian Assange – though other rewards can be plentiful.


It’s clear to me that the main reason Assange has attracted such venom, spite and jealously is that WikiLeaks tore down the facade of a corrupt political elite held aloft by journalists. In heralding an extraordinary era of disclosure, Assange made enemies by illuminating and shaming the media’s gatekeepers, not least on the newspaper that published and appropriated his great scoop. He became not only a target, but a golden goose.


Lucrative book and Hollywood movie deals were struck and media careers launched or kick-started on the back of WikiLeaks and its founder. People have made big money, while WikiLeaks has struggled to survive.


None of this was mentioned in Stockholm on 1 December when the editor of the Guardian, Alan Rusbridger, shared with Edward Snowden the Right Livelihood Award, known as the alternative Nobel Peace Prize. What was shocking about this event was that Assange and WikiLeaks were airbrushed. They didn’t exist. They were unpeople. No one spoke up for the man who pioneered digital whistleblowing and handed the Guardian one of the greatest scoops in history. Moreover, it was Assange and his WikiLeaks team who effectively – and brilliantly – rescued Edward Snowden in Hong Kong and sped him to safety. Not a word.


What made this censorship by omission so ironic and poignant and disgraceful was that the ceremony was held in the Swedish parliament – whose craven silence on the Assange case has colluded with a grotesque miscarriage of justice in Stockholm.


“When the truth is replaced by silence,” said the Soviet dissident Yevtushenko, “the silence is a lie.”


It’s this kind of silence we journalists need to break. We need to look in the mirror. We need to call to account an unaccountable media that services power and a psychosis that threatens world war.


In the 18th century, Edmund Burke described the role of the press as a Fourth Estate checking the powerful. Was that ever true? It certainly doesn’t wash any more. What we need is a Fifth Estate: a journalism that monitors, deconstructs and counters propaganda and teaches the young to be agents of people, not power. We need what the Russians called perestroika – an insurrection of subjugated knowledge. I would call it real journalism.


It’s 100 years since the First World War. Reporters then were rewarded and knighted for their silence and collusion. At the height of the slaughter, British prime minister David Lloyd George confided in C.P. Scott, editor of the Manchester Guardian: “If people really knew [the truth] the war would be stopped tomorrow, but of course they don’t know and can’t know.”


It’s time they knew.


Britain’s Monetary Reform Debate Intensifies.

Posted on December 13, 2014

by Jerry Alatalo

Alphabet What follows is a short video from the first debate on money creation in the British parliament in 170 years. After the video, which concludes with British Treasury official Ms. Andrea Leadsom, the people at Positive Money responded to Ms. Leadsom’s comments.

How soon before the same debate occurs in the United States Congress?


(Thank you to Positive Money at YouTube)


(Cross-posted from

Last Thursday, the UK parliament debated the issue of “money creation and society”. This was a backbench debate, which means that no vote is taken at the end and no laws are changed; it is simply an opportunity to discuss important policy issues outside of the government’s agenda.

The government’s view on this debate was provided by Andrea Leadsom MP. Leadsom is the Economic Secretary to the Treasury, a position which is also known by the title “City Minister” (as in the City of London, the UK’s financial centre). She is responsible for the government’s financial reform and regulation agenda.

So we would hardly expect the government’s City Minister to come out as an advocate of Positive Money’s proposals. However, her critique of the proposals was surprisingly mild. Rather than making sweeping assertions (as some critics have done) she simply raised a number of ‘important questions’. I’ve addressed those questions below.

Leadsom comes on to the topic of a sovereign money system (as advocated by Positive Money) by saying:

“But first I just want to briefly set out why we don’t believe that the right solution is the wholesale replacement of the current system by something else such as a Sovereign Money system.

“Under a sovereign monetary system it would be the state not banks creating new money. The central bank via a committee would decide how much money is created and this money would mostly be transferred to the government. Lending would then come from the pool of customer’s investment account deposits held by commercial banks.

Such a system would raise a number of very important questions.”

She then lists 7 questions, which we’ve quoted verbatim below:

1) “How would that committee assess how much money would be created to meet the inflation targets and support the economy?”

Today the Bank of England’s Monetary Policy Committee is responsible for setting interest rates as a very indirect way of influencing how much money banks create. The 9-person committee has a team of researchers and access to a wealth of data about the health of the economy. The members of the committee spend up to two days deliberating before casting their vote to raise or lower interest rates.

In a sovereign money system, the process would be much the same, but instead of raising or lowering interest rates, the Monetary Policy Committee (or a new Money Creation Committee) would directly increase or decrease the rate at which new money is created by the Bank of England. (The banks by this point would no longer be able to create money.)

If, in the current system, the MPC would have voted to lower interest rates (encouraging people to borrow more and therefore getting banks to create money) then in a sovereign money system they would vote to increase the rate at which money is created. The opposite also applies: if they would have voted to raise interest rates (to discourage borrowing and therefore reduce money creation by banks), then in a sovereign money system they would vote to slow the rate at which money is created.

Some critics seem to get confused at this point. They think that the MPC must somehow magically know how much money every single person needs across the economy. This is caricatured in Ann Pettifor’s statement that a sovereign money system would amount to “granting huge powers to a committee of men to decide how much money we should all have…”. But the Committee would not be deciding that, for example, “There should be £X billion in the economy”, and then next month deciding that £X should instead by £Y. The stock of money in the economy would always be growing at some rate, and the Committee’s job is to make that rate faster or slower. They will need to respond to feedback from the economy and adjust their decisions month-to-month.

If critics believe that making such a decision is impossible, then it logically follows that they must also believe it is impossible for the Monetary Policy Committee to choose the right interest rate for the economy.  If you agree with this view point, then having a committee making decisions is a disadvantage of both systems. If you believe that the Monetary Policy Committee is suited to setting interest rates – with the intention of influencing the rate at which banks create money – then it should be clear to you why it’s not a major difference to manage the rate of money creation directly rather than indirectly.

2) “If the central bank had the power to finance government’s policies what would the implications be for the credibility of the fiscal framework and the government’s ability to borrow from the market if it needed to?”

This relates to the fear that if the government is allowed to create money directly, it will get carried away and print money to pay for every white elephant or vote-winning project they can think of. It is thought that even the fear that this might happen is enough to scare investors in financial markets to the extent that they’ll stop buying the government’s bonds. This is normally put forward as the reason for prohibiting governments from creating money, and placing that power in the hands of commercial banks, that we know would never use it recklessly or excessively(!).

It doesn’t take much thought to find an answer to this.

Firstly, we are not proposing that the government itself (which is made up of politicians who are trying to win the next election) would be allowed to make the decision over money creation. Their incentives to abuse that power are too strong, especially in the run up to an election. That is why we argue that the power to create money must rest in the hands of a transparent, democratic and accountable body that is tasked with working in the public interest. The decision over whether to increase or decrease the rate of money creation is made not on the basis of what the government wants or needs, but on the basis of what is appropriate for the economy as a whole. If Parliament continues to set the Committee the task of meeting a specific inflation target, then that inflation target will stop the Committee from creating excessive amounts of money to finance government projects (as that would feed through into inflation). This framework should reassure financial markets and investors that the government is not about to go on a Zimbabwe-esque spending spree.

Ultimately this is a question about state power and checks and balances. The government could always abuse its military power to shoot anyone who is likely to vote for the opposition, but we have confidence in developed countries that there are adequate checks and balances to stop this from happening. In the same way, a corrupt government could abuse the power to create money, but we can put in place safeguards and checks and balances that are designed to prevent that from happening. Providing the safeguards are adequate and transparent enough, and checks and balances on the power of the Money Creation Committee are in place, then there should be no long-term damage to the credibility of the fiscal and monetary framework.

On the flipside, consider how a sovereign money system will boost the credibility of the government’s management of its finances and the economy. Because banks in a sovereign money system do not need to be bailed out (because the payments system is not exposed to their risk-taking), there is no risk that the government’s finances will be shot by the costs of bailouts. With less risk of boom and bust, there is less risk of a recession leading to a fall in government tax revenue (and a rise in how much it needs to borrow). The national currency would likely be more – not less – trusted, because there would be transparency about how much new money would be created each year, whereas in the current system money is created by private banks that are competing with each other to create the most money (i.e. to grow their market share and size), with the result that the stock of money has grown by an average of 11.5% a year over the last 40 years. That’s much, much higher than the average rate of real economic growth over the same period of time.

3) “What would be the impact on the availability of credit for businesses and households?”

This is certainly a topic that requires greater study, and we will be releasing a paper on this in the near future. But a few points are important here:

  • Banks would still be able to lend; they’d just need to get money from savers before they could do so.
  • The amount of credit provided by banks to households to date has been totally excessive. Because most of it went into property (through mortgages) it has resulted in a huge increase in the cost of housing relative to salaries. There is an appropriate amount of credit: enough to allow people to buy houses, but not enough to push the price of those houses up at 20% or more in the space of a year.
  • With regards to credit provides to businesses:

*   Only around a tenth of UK banks’ loans are to businesses. Lending to business is a sideshow compared to their main business (i.e. lending secured on property).

*   Around 66% of SMEs (small and medium enterprises) said they never used bank loans anyway. Instead, they finance their investment through retained profits and other sources of funding.

*   In a survey of UK businesses, the majority said that the primary barrier to their growth was not their access to finance from banks, but whether they could increase their sales. In other words, to boost the economy, we need more money in consumers’ pockets. Sovereign money makes it possible to get money in consumers’ pockets without relying on them to take on ever greater amounts of debt.

4) “Wouldn’t credit become pro-cyclical?”

Leadsom doesn’t elaborate here, meaning that we have to guess what her thinking was on this point.

Clearly, the level of credit is already hugely pro-cyclical. Banks provide too much credit (and therefore create too much money) when the economy is growing, leading to the kind of debt-fuelled boom we had before the financial crisis. Then, in the recession, they restrict their lending (therefore restricting their money creation), which makes the recession worse. You can read more about this process here, but it’s clear that credit is already pro-cyclical, and it’s hard to imagine that it would become even more so.  Show More…

But perhaps Andrea Leadsom (or the researcher who prepared her speech) has a different point in mind. Perhaps she thinks that in good economic times, everyone will put their money into investment accounts (i.e. making their funds available for the banks to lend to borrowers) whilst in the bad times, everyone will withdraw their funds from Investment Accounts and keep them stashed in transaction accounts. This idea is based on a technical misunderstanding of how investment accounts would work. Investment Accounts are records of the amount of money that account holders have handed over to the bank in order for the bank to lend them out. Shortly after an investment account is opened, the bank will have lent the money to a borrower, so the money placed ‘in’ the Investment Account will now be in the borrower’s Transaction Account (or the account of whoever the borrower spent the money with). However, some people get the idea that money can either be in an Investment Account or in a Transaction Account, and that all money could move from the Investment Accounts to the Transaction Accounts if there was a panic about the near-term economic situation. In reality, money would ALWAYS be held either in Transaction Accounts or in the bank’s own accounts, waiting to be lent. No money is ever held in Investment Accounts.

So what might happen in a panic? Savers who had Investment Accounts maturing in the near future might decide they want to hold money in risk-free Transaction Accounts rather than holding a risk-bearing Investment Account. Banks would find themselves repaying Investment Account holders, which would mean the money is unavailable to fund further loans. At the same time, potential investors might choose not to take risks for the meantime until it’s clearer what will happen in the economy and which banks are healthy (or otherwise).

However, is this  really likely to make the provision of credit more pro-cyclical than the current system? In the recent crisis, even when banks were refusing to lend, there were numerous reports of pensioners and savers who were searching for a higher rate of interest on their savings and looking for something to invest it. There will always be people with savings looking for a return. The real pro-cyclicality in the current system comes not from savers’ decisions to invest, but from banks’ willingness to lend (and therefore create money).

So it’s far from clear that a sovereign money system would have credit that is more pro-cyclical than the current system. In addition, only someone who has had their eyes closed for the last decade could suggest that the availability of credit is not pro-cyclical already.

5) “Wouldn’t we incentivize financing households over businesses, because in the case of businesses presumably expect the state to step in?”

It’s hard to make sense of this point, and Leadsom doesn’t elaborate, so we’ll have to guess at what she means.

Leadsom suggests we would incentivize financing households over businesses because “presumably the state would step in” [to lend to businesses?]. But this point makes no sense. Firstly, in a sovereign money system, the Bank of England would be able to create money to lend to banks so that those banks could lend more to businesses. But this money goes through the banks, not around them. The banks would therefore have a role to play in lending to businesses. Why would this incentivize banks to not lend to businesses?

Secondly, if Leadsom believes that the provision of finance from the state directed at businesses will dissuade banks from lending to businesses, then what steps is she taking to shut down the Business Investment Bank that her government has just set up? Surely by her logic such a scheme would disincentivize banks to lend to businesses?

Finally, this point shows zero recognition of the fact that, in the current monetary system, banks already face huge incentives to finance households (read: mortgages) over businesses. There are a few reasons for this:

1) With a mortgage, the bank has a nice house that it can repossess if the borrower is unable to repay the loan. This makes it very low-risk.

2) Because house prices tend to rise in good times (largely as a result of all the money that banks create and pump into mortgages), even mortgages that seem risky at first soon become effectively risk-free. If a bank issues a 90% loan-to-value mortgage, then some time later it has to repossess the house, the house price would have to have dropped by 10% before the bank lost money overall. But if house prices rise by 10% a year, then by the end of year 1 of the mortgage they’d only suffer a loss if house prices had fallen by 18.2%, and by the end of year 2 they’d have lost money only if house prices had fallen by more than 25.6%. Because these falls are highly unlikely, much mortgage lending is effectively risk-free and even more so in the context of rapidly inflated house prices.

3) Businesses have little collateral to repossess. Much of a loan to a business will be spent on staff or other services. For example, if a bank makes a loan to a cafe, the only thing they could repossess is a few display cabinets and kitchen equipment, which will sell for less than the cafe initially paid for them.  Even with  capital-intensive businesses, such as a factory, the machinery is likely to be very job-specific, difficult to resell and would sell at less than the price initially paid for it. So relative to a mortgage, business loans have much less collateral and are therefore riskier.

4) The Basel capital accords require banks to hold twice as much capital against a business loan than against a property loan. Put another way, if the Basel rules are adhered to, then for X amount of capital, banks could lend twice as much for a mortgage as they could for a business loan.

So in the current system there are HUGE systemic biases towards financing households (i.e. mortgages) over businesses. Nothing in the government’s reform agenda tackles that issue, but there is absolutely no reason to think that a sovereign money system would make it any worse. In fact, in a sovereign money system there would be no need for any Basel capital accords.

6) “Wouldn’t we be encouraging the emergence of an unregulated set of new shadow banks?”

The argument here is that by prohibiting banks from creating money, a whole collection of companies that are not banks but act like them will spring up and start creating equivalent substitutes for money, in effect creating the same situation we have today.

Most shadow banks are simply entities that behave like banks but avoid registering as banks in order to escape regulation. So the government approach to shadow banks should really be, “If it looks like a bank and behaves like a bank, then regulate it as a bank.” And who has responsibility for making sure that the regulators do their job properly? Funnily enough, Andrea Leadsom, the City Minister. Show More…

So if unregulated shadow banks spring up and start creating money, it will only be because of the failure of Andrea Leadsom and her government to regulate companies that need to be regulated. This is not a valid criticism of a sovereign money system; it’s a criticism of the current approach to regulating shadow banks.

Secondly, let’s look at what would actually be required for shadow banks to be able to ‘create money’. They would need to be able to issue liabilities that could be withdrawn on demand and used to pay other people. In order for these liabilities to be as useful as bank money or sovereign money, it would have to be possible for them to be transferred through the main payment systems e.g. BACS, Faster Payments, CHAPS and so on. Access to those payment systems is tightly controlled. It’s simple enough to prevent shadow banks from becoming members of those payment systems, making it impossible for them to create money-like liabilities that can be easily used to pay other people.

What shadow banks could potentially provide, depending on the timidity of the regulator, would be instant access liabilities, but these would be risk-bearing investments, whereas money in transaction accounts would be completely risk-free. If the regulator was even half competent, all money-like substitutes provided by shadow banks would need to be covered in health warnings making it very clear that the investor is taking a risk. Then, anyone who is willing to invest with a financial services provider that promises to repay you your funds whenever you want them, whilst knowing full well that those funds aren’t available, does so at their own risk and should not expect to be rescued by the taxpayer.

7) “Wouldn’t the introduction of totally new system untested across modern advanced economies create unnecessary risk at a time when people need stability?”

This final point rests on the assumption that the current system can provide ‘stability’, and that the government’s reforms since the crisis have been adequate. But even her own Prime Minister has recently been warning about danger signs in the global economy, and the former head of the Financial Services Authority, Lord Adair Turner, has been warning about the dangers financial stability from rising household debt.

Right now, what Andrea Leadsom thinks is ‘stability’ may in fact be the calm before the storm. The major benefit of a sovereign money system is that it would provide greater stability.

To the Andrea Leadsom’s expressed concerns about the makeup of the committee that would create money:

Andrea Leadsom makes a rather silly point, parrotting points made earlier by Ann Pettifor. Leadsom says:

“And of course bearing in mind our current set of regulators we would presumably then be looking at a committee of middle aged white men making the decision on what the economy needs and that’s also would be a significant concern to me were that to happen.”

“In addition, of course, bearing in mind our current set of regulators, presumably we would then be looking at a committee of middle-aged, white men deciding what the economy needs, which would also be of significant concern to me.”

Yes, the Monetary Policy Committee, which makes decisions on interest rates, is made up of white, middle class, middle aged men with similar backgrounds. To the best of my knowledge, Andrea Leadsom has never campaigned for the Monetary Policy Committee to be made more representative or diverse, so it’s interesting that she has suddenly taken an interest. Presumably if she objects to the Monetary Policy Committee having the power to directly manage money creation, she would also object to them having the power to set Bank of England’s interest rates for the lending of reserves to the banks (which indirectly influences money creation).

However, the makeup of the committee in a sovereign money system is up for grabs.

The committee could be completely white and middle class in either system, or it could be hugely diverse in either system. We are designing a new system that works in the public interest, so if the key decision makers need to be more diverse, then make them more diverse. If we want that committee to be more diverse and more representative of society, then it shouldn’t be beyond a government minister to figure out how to achieve that.

This point rests on a logical error. When choosing between two systems, something that is a disadvantage of both is not an argument in favour of one. Part of the debate that would have to be had around a sovereign money system is about who we want to have the power to create money. But for anyone who can think about it logically, it should be clear that the fact that we currently give the power to set interest rates to an un-diverse committee of men is an argument for reforming that committee, but it is not an argument against reforming the monetary system more fundamentally.


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