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15 of 15 people found the following review helpful
5.0 out of 5 stars The solution that we are all looking for, 3 Mar 2013
How many times do you hear that the government is massively in debt, and that there are only two options - either (a) increase taxes, or (b) cut government spending?

This story, which is repeated endlessly by policitians, economists and journalists is a fiction. And Andrew Jackson and Ben Dyson's excellent book explains why. The real problem is that governments have handed the power to create the nation's money supply to the commercial banking system. And those banks are responsible for creating 97% of the money in the UK system. They create that money "out of thin air" when they make loans. And then they charge everyone - individuals, businesses and governments - interest on those loans.

My own calculations back up the claims made both in Modernising Money, and in the Positive Money groups's previous book "Where does money come from?" (also highly recommended). Since 1995, the UK goverment has paid over 495 billion in interest charges on government debt. That's a substantial proportion of the 1.1 trillion in public sector debt. And these payments have been going on for decades. Indeed for most of the 1960s and 1970s, the government was paying around 3.5% of GDP to the banks in the form of interest charges, reaching a peak of over 4.5% in 1981-2.

What Jackson and Dyson demonstrate is that those payments were totally unnecessary, because there is absolutely no reason why the nation's money supply needs to be created as interest bearing debt by commercial banks. The Bank of England could, and should, be creating the money supply. And it should be providing that money supply to power the economy free of interest charges.

The usual argument trotted out by the defenders of the Banks right to create the money supply is that if governments were to be given control of the money supply, they would be tempted to increase the money supply too fast, and the result would be hyperinflation - we would end up in Zimbabwe, or the Weimer Republic.

But Jackson and Dyson calmly demolish these arguments. In an appendix, they demonstrate that the Zimbabwe/Weimar Republic arguments are phoney. They also demonstrate that, left to the commercial banks, money creation is done in a way that follows only one objective - maximising bank profits. And that is why a vast amount of the newly created money has gone to fuel house price inflation - with the result that working families are now priced out of the housing market.

But the real killer is that they don't propose to hand over the keys of the money creation mechanism to the government. No, they propose that money creation for the economy should be the responsibility of an independent, yet publicly accountable "Money Creation Committee" whose job would be to regulate the supply of money in the economy. I find this argument absolutely convincing, and it completely avoids all the usual counterarguments to monetary reform.

Putting the money creation process in the hands of people who have nothing to gain from excessive money creation would end the boom and bust cycles that have plagued economies since the dawn of banking. It's a point that was also demonstrated in a recent publication by two IMF economists who used state of the art economic modelling to show that taking the money creation power away from commercial banks and using what is known as Full-Reserve Banking would be extremely beneficial ("The Chicago Plan Revisited").

To make one last point, consider the following. Since 1983, the UK banking system has been increasing the total money supply (measured by M4) by an average of 10% every year. Even if you take into account inflation, you still get a net increase of 7% per year. But since the financial crisis in 2008-2009, the banks have effectively been removing around 7-8% of the money in the economy every year. That's because everyone has been desperately trying to pay back their debts. And when they pay back the money they owe to banks, that money actually disappears. That is why the economy is in crisis.

The commercial banks not only have the power to create money out of thin air when they create loans, they have the power to destroy in when those loans are paid off. Indeed, if we all tightened out belts, eliminated all our debts, and the government slashed all public spending to pay back all the "money" that it has borrowed from the banking system, there would be no "money" left.

That is why the system needs to be fixed. The money supply should be in the hands of a publicly accountable central authority, and it should be injected into the economy debt-free. That is what Jackson and Dyson are proposing. And they are absolutely right.

Everyone, but everyone, should read this book. If you hear a politician, economist or jouralist saying that tax rises and cuts in public spending are the only options, you can tell them that they are completely wrong.
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14 of 14 people found the following review helpful
5.0 out of 5 stars A real opportunity for change, 31 Jan 2013
This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Paperback)
Modernising Money is a thoroughly researched and very timely investigation into the way money is created, managed and circulated by our commercial banks. Unlike many analyses of what is wrong with the current system however, it also offers very well thought through and workable solutions. As the Governor of the Bank of England is quoted as saying in October 2010 (quoted in the introduction) "Of all the many ways of organising banking, the worst is the one we have today."

To know what needs to change in our current system requires us to understand how it is operating today. Since the world of finance is highly complex and seemingly beyond the grasp of ordinary mortals this is no easy task. But, as this book demonstrates every detail of the way money is created and circulated can be easily understood. This book explains in simple language how money is created and who controls it.

In tracing the historical development of money and banking from classical times right up to modern Britain, the authors present a very clear picture of each new step that was taken. They describe how and when the Bank of England was established, what its original remit was in the 17th century and how this gradually evolved during the course of the Industrial Revolution and beyond.

The working of the current banking system is clearly described as are the problems that it causes. The idea that banks simply lend out what other customers deposit is shown as being very far from the truth. In granting a loan the bank simply notes a debit and a credit entry on their balance sheet. The money given out is recorded as a liability, the agreement to pay back the loan as an asset. In other words money (and debt) is created in that moment. Money supply increases when loans are agreed and reduced when they are paid back. This also means that the money I put in the bank becomes the property of the bank. In return I have the bank's promise to pay me an equivalent amount on demand - a subtle but vital distinction.

Another important phenomenon is that of seignorage, the difference between the value of money and the cost to produce and distribute it. The authors describe how up until about forty years ago a good percentage of the money in circulation was produced by the Bank of England and the seignorage went to the Treasury. Today 97% of all the money in circulation is created as debt by the banks and the seignorage profit goes to them. The result is that between 2000 and 2009 the state has foregone more that a trillion pounds in revenue. How many public services could that have funded?

Having carefully analysed and assessed the problems in our banking system in the first half of the book, the authors then offer a series of credible and relatively easy to introduce reforms that would radically alter the way banks operate by addressing the following six objectives:

Create a stable money supply based on the needs of the economy.
Reduce the burden of personal, household and government debt.
Encourage investment in the real (non-financial) economy.
Re-align risk and reward.
Provide a structure of banking that allows banks to fail.

To achieve these aims some simple reforms are proposed that can be implemented without starting completely from scratch. These are described in a step by step and easily understandable way. For example a major problem occurs when those who create the money also determine its use or when those who should be brokers have an interest in the money itself. It is vitally important that these functions are separated. After the reform the Bank of England becomes the organ that creates money(not just cash as at present but electronic money too). The commercial banks then lend out money that has been created elsewhere. This keeps the activity of money creation and loan arranging clearly distinct. In practical terms this means that individuals will have direct access to debt and risk free money via Bank of England accounts. If they can then also open investment accounts with commercial banks and have a share in the risks and benefits.

Each of the clearly defined objectives are addressed in turn down to the smallest detail. Given the political will the whole reform could be easily and immediately implemented.

As well as offering real solutions to current problems this book promises to be an important and easy to read textbook on economics that deserves to become a key resource work for all students of economy.
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13 of 13 people found the following review helpful
5.0 out of 5 stars time for change, 31 Jan 2013
This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Paperback)
A most interesting read ; a book I have been waiting for as a follow up to the previous book "Where Does Money Come From?" which explained how commercial banks control the money supply.

This book goes the whole hog and provides a worked out solution; but not one set in stone.
It reviews the current UK monetary system explaining what is wrong with the current role commercial banks play in UK economic system through to what needs to be done to correct the short comings and how to make the transition .

It is a book which deals in outline and in depth ; so it is easy to grasp the outline and with some worthwhile effort to understand the details; even for non economists like me. It deals with every day operation of a commercial bank as well as how they interact with the Bank of England and other banks; and the services that the Bank of England provides to the commercial banks .

It is a must read for anybody interested in the UK's current economic state and of course anybody involved in commercial banks , the Bank of England and Governments Treasury and MPs of all shades of economic thinking and but not least, the members of "The Independent Commission on Banking" to shake up their thinking and understanding!
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8 of 8 people found the following review helpful
5.0 out of 5 stars Completely engrossing, a little bit scary and massively thought provoking, 8 Feb 2013
By 
Mr. Paul Daly (Glasgow, UK) - See all my reviews
(REAL NAME)   
This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Paperback)
The book is easily accessible for people with different levels of financial knowledge, but what you read you may not always like!! The authors do, however, present a viable alternative to our banking system which would help us move away from the current boom/bust cycle and stop the general public being susceptible to bursting of financial bubbles.

Once you get your head around it, it really makes sense.
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7 of 7 people found the following review helpful
5.0 out of 5 stars Modernising Money, 28 Feb 2013
This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Paperback)
Everyone knows that something is profoundly wrong in our (UK) society: welfare benefits withdrawn, a whole generation unable to buy a home, a fearful outlook for energy, trains being the most expensive in the developed world. Though government debt is bad enough, it is dwarfed by household debt that has reached the equivalent of ten years' worth of income tax revenue. And people blame politicians.
This book shows how the problems lie deeper than this or that policy, being caused by a faulty money system ensuring that any economic growth is accompanied by yet more debt. It is not party-political. It shows how both government and personal debt can be drastically reduced, how welfare and infrastructure can be afforded, how inflation can be avoided and how sterling can become the most stable currency in the world. It is written in thorough detail both for economists and lay people. I am left with a feeling of hope. And it is a MUST read for all decision makers.
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6 of 6 people found the following review helpful
5.0 out of 5 stars A real eye opener., 31 Jan 2013
By 
C. R. Todhunter "Christod" (London) - See all my reviews
(REAL NAME)   
This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Paperback)
It is a terrific read and seems very thorough. Would be a good crash course on banking for a student even if they never went as far as the second half. As a lay person it was just at the limit of my understanding which is just as it should be.
A couple of comments:
How would a big international bank based in say America run it's operation with such a different system in place?
It would have been good to include a survey of similar literature or at least refer to it.I am thinking of 'New money for a new world' by Bernard Lietaer et al, which is another book I have great respect for. Also .[...]. It should be helpful to be pulling in the same direction!
Congratulations for your great achievements in 2012. May 2013 be even better
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15 of 16 people found the following review helpful
5.0 out of 5 stars Why today's economies are disasters waiting to happen continually, 31 Jan 2013
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This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Paperback)
Why is money so important in our lives? Well, it underpins pretty much everything we do and everything we are! However we feel about it, whatever we think about it, money is crucial to our everyday living and being. While it should be a faithful servant that works for us - after all, that's why we invented it - money is being used more and more as a control-weapon to exploit and abuse us. So where does it come from? How is it created? And very important, who benefits the most from it?

Let me start at a beginning: what is a bank? A bank is a business that deals in money and provides other financial services. We use them mostly for their current and savings accounts. But these services are free, so where is their profit? The answer lies in what banks sell - their product: banks sell debt. So business as usual for a bank is finding as many ways as possible of getting as many people as possible into as much debt as possible! The real business of banks as they exist today is to sell debt. Got it?

And where do the banks get their product from; this money that they lend? From nothing, for nothing ... through an exercise in plain sight of sleight-of-hand digital accounting deceits! And here's the kicker: It is this type of money - out of thin air, keyboard-created, kiss-my-pixel, virtual-stuff - that now makes up 97.4 per cent of all money used in the economy (from Where Does Money Come From?: A Guide to the UK Monetary & Banking System ). Having created their own base product - brand spanking `never-existed-before-now' money - they proceed to lend it to us for interest; not just simple interest mind you, but interest-on-interest. What we call compound interest.

We all know what rent is ... payment in exchange for usage. We live in a rent-an-economy; we pay the banks to use the economy that they create ex nihilo i.e. for diddly-squat, own and control. In short, their economy. We hire their economy from them! In effect then, the non-bank sector must `rent' the entire money supply from banks, resulting in a constant transfer of wealth from the rest of the economy to the banking sector (through interest payments). No wonder bonuses are, er, on the high side.

To put this into actual money numbers, in 2011 the Bank of England calculated that banks earned just under 109 billion in interest a year. Before the Bank of England lowered interest rates in 2008, banks earned just over 213 billion in interest payments alone. This is money that is transferred from the honest and productive non-bank to the suck-my-screen banking sector. Bear in mind that this is a charge for something that could be provided at almost no cost by the state, that is to say the government as voted in by you and me.

Let me offer you two further little horrors from Modernising Money: 85% of the British public's money is held by just 5 banks; and, in the 5 years running up to the financial crisis, the banking sector's gross lending to households and individuals alone came to a total of 2.9tr whilst total government spending was less at 2.1tr.

Banks aren't `too-big-to-fail'. As things stand at the moment, they are `too-essential-to-be-allowed-to-fail'. So who rules, who are the masters of the universe ... our political representatives in Westminster or the unaccountable banksters of the City? That's a nobrainer: moneypower rules, okay!

Why do banks do this? Just the usual ol' human-nature stuff; you know: profit, power, prestige.

And how do they get away with this? Because we the voters in our ignorance allow them to!
What, then, is the root of the problem? Very simple: We, you and I, have given away the power to create money to private interests. Through our nescience - our not-knowing - we have supported their power to create money out of thin air for their own exclusive, short-term profit ... which is in direct conflict with our best interests and well-being!

How can we change this? Very, very easily. If - IF - the political will is there, the necessary legal and technical measures will be a toddle. But let's be quite clear: supplying a nation with its money must be completely separate from the activity of banking. So, in effect, under the reforms of Modernising Money, neither the state (government) nor a bank could borrow a single penny. Monstrous - mountainous - UK debt will have peaked.

And you and me? What about us? We would be able to borrow as usual. Because our financial position would be much improved, we'd probably have less of a need to take on debt. When we did, with real competition, the rates would likely be considerably lower.

So, dear reader, do you want to know why we are all plagued with personal money worries and constantly struggling with debt and interest payments and good businesses can't get loans while the powers-that-be are obsessed with economic growth? How can it be that we seem to be able to afford an elite high-speed rail line at 4,000,000,000 (before time and cost overruns) but can't find 40,000 to keep the existing local library open?

What's going on? Do you sense that something is drastically wrong but you don't know quite what or why?

If you lack knowledge, want explanations and need to understand, I strongly urge you to absorb Modernising Money. You won't need to borrow for this one. You, as ever, supply the interest but this time you owe it to yourself."
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4 of 4 people found the following review helpful
5.0 out of 5 stars A Masterpiece, 24 July 2013
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This book explains, in painstaking detail, just how badly the current economic system serves ordinary people (and how well it serves the very rich). It shows very clearly that booms and busts, inflations and deflations, feasts and famines in money and credit availability are all man-made phenomena, and that all these instabilities CAN BE ELIMINATED given the political will to do so.

My only complaint is that the book has no index! It is very frustrating to know that something is said somewhere but to be unable to find it later - especially in discussing or arguing the merits of the proposals with others, so I really hope that future editions will include a comprehensive index.

As the book so clearly explains, at the heart of the problem are commercial banks that mislead politicians and public alike into believing that they 'lend' money (i.e. take existing money from somewhere else in order to lend it), when in truth they 'create' money by simply writing it into the account of a borrower in return for a promise to repay. What they are doing is a modern version of what fraudulent goldsmiths did hundreds of years ago - they issued more (many more) receipts for gold than the gold that they held, lending out the receipts at a lucrative rate of interest - a very nice and thoroughly dishonest not-so-little earner. The public used these receipts for trading purposes as they thought they were backed by gold and were much more convenient than carrying around gold itself. Rather than stamping out this process, successive governments around the world have colluded with the banks, first by setting up central banks and then ever more regulations of increasing complexity to try to contain the inherent instabilities in the system. Their conspicuous lack of success in this regard is very clearly illustrated by the current world recession - which is just the latest in a long line throughout history.

Some of the devastating effects of the current system, which operates throughout the world, include the following:-

1) In developed countries there is continuous transfer of wealth from ordinary working people (people who suffer from debt) to the rich (people who benefit from debt), making wealth inequality ever wider, eventually risking civil unrest.

2) In developing countries there is continuous transfer of wealth to rich countries, causing deep poverty, widespread death (especially of children and infants) and immense human misery.

3) The fact that banks create money by simultaneously creating debt, and additionally charge interest on that debt, means that the amount of money in circulation is always exceeded by the amount of debt, which must be serviced at great cost by the debtors.

4) Massive subsidies are enjoyed by banks in the form of loan interest payments from individuals, businesses and even governments, who allow banks to create money for them and then borrow it at interest, payable from taxation.

5) The need for ordinary businesses to service high levels of debt (and pay their workers enough to service their debts) necessitates their having to compete fiercely in the marketplace, so that societal concerns such as global warming; pollution; biodiversity; conservation of energy, water and other scarce resources and so on are all subordinated to the imperative of staying in business and making money.

During economic booms banks create ever more money (and debt) to fuel both the boom and their own profits, whereas during economic busts like we have now banks destroy money (by absorbing more repayment of debt than creation of new money) thereby deepening the busts. In effect banks provide positive feedback to the economy (i.e. they provide more money when there is already too much, and remove money when there is too little), which is the very reverse of what is really needed, and it is this that causes severe instability in the system. Unfortunately the inflation caused during booms doesn't show up in measures such as CPI or RPI because of banks' preference to lend for the purchase of existing assets like land, property and the stock market, on the security of those assets, rather than to business enterprise, on the security of (less sure) future income streams. Hence such assets inflate considerably, while growth of GDP is not helped at all.
The book explains very clearly that there really is an answer to all these evils, and it's not complicated or even painful. It also explores the various objections to the reform proposals and shows, again very clearly, that they are either completely without foundation or have very minor effects. The reforms will stop the subsidies to the very rich, so they are bound to be fought ferociously if they ever become a real threat. As yet they don't seem to be, but the more that ordinary people and politicians who are fired with a genuine public spirit (are there any?) understand and back them, then the more the momentum for change will build.

Well done Andrew and Ben, you have created a tour de force.
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4 of 4 people found the following review helpful
5.0 out of 5 stars If only they taught this at school, 23 May 2013
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Modernising Money is long overdue and needs to be compulsory reading for economics students around the world. How this important issue has been missed by mainstream economists and has been allowed to get this far is beyond me.

I for one cannot wait to see where this book can go and I look forward to seeing a banking world that follows these reforms.

Well done and a great achievement to have written this book.

Compulsory reading for those interested in solving the mess we call a banking crisis today.

Simon Dixon
Author Bank to the Future: Protect Your Future Before Governments Go Bust
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8 of 9 people found the following review helpful
5.0 out of 5 stars Today's money: A winning system ... but for whom?, 31 Jan 2013
This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Paperback)
So, dear reader, do you want to know why we are all plagued with personal money worries and constantly struggling with debt and interest payments and good businesses can't get loans while the powers-that-be are obsessed with economic growth? How can it be that we seem to be able to afford an elite high-speed rail line at 4,000,000,000 (before time and cost overruns) but can't find 40,000 to keep the existing local library open?

What's going on? Do you sense that something is drastically wrong but you don't know quite what or why? Do you feel that maybe the game is rigged in favour of others, but somehow against you? Do you think you're being screwed?

You are ... BigTime. Nay, HugeTime ...

All will be revealed if you read Modernising Money!
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