Iceland Stuns Banks: Plans To Take Back The Power To Create Money

Zero Hedge ^ | 4-1-15 | Raul Ilargi Meijer

[aMorePerfectUnion]

Who knew that the revolution would start with those radical Icelanders? It does, though. One Frosti Sigurjonsson, a lawmaker from the ruling Progress Party, issued a report today that suggests taking the power to create money away from commercial banks, and hand it to the central bank and, ultimately, Parliament.

Can’t see commercial banks in the western world be too happy with this. They must be contemplating wiping the island nation off the map. If accepted in the Iceland parliament , the plan would change the game in a very radical way. It would be successful too, because there is no bigger scourge on our economies than commercial banks creating money and then securitizing and selling off the loans they just created the money (credit) with.

Everyone, with the possible exception of Paul Krugman, understands why this is a very sound idea. Agence France Presse reports:

Iceland Looks At Ending Boom And Bust With Radical Money Plan

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

According to a study by four central bankers, the country has had “over 20 instances of financial crises of different types” since 1875, with “six serious multiple financial crisis episodes occurring every 15 years on average”. Mr Sigurjonsson said the problem each time arose from ballooning credit during a strong economic cycle.

He argued the central bank was unable to contain the credit boom, allowing inflation to rise and sparking exaggerated risk-taking and speculation, the threat of bank collapse and costly state interventions. In Iceland, as in other modern market economies, the central bank controls the creation of banknotes and coins but not the creation of all money, which occurs as soon as a commercial bank offers a line of credit. The central bank can only try to influence the money supply with its monetary policy tools.

Under the so-called Sovereign Money proposal, the country’s central bank would become the only creator of money. “Crucially, the power to create money is kept separate from the power to decide how that new money is used,” Mr Sigurjonsson wrote in the proposal. “As with the state budget, the parliament will debate the government’s proposal for allocation of new money,” he wrote.

Banks would continue to manage accounts and payments, and would serve as intermediaries between savers and lenders. Mr Sigurjonsson, a businessman and economist, was one of the masterminds behind Iceland’s household debt relief programme launched in May 2014 and aimed at helping the many Icelanders whose finances were strangled by inflation-indexed mortgages signed before the 2008 financial crisis.

[Jimmy Valentine]

Think of debtors prison for the John Corzines of the world and you may change your mind

[Sherman Logan]

Let’s put John in jail for fraud and theft rather than debt.

[Toddsterpatriot]

Good explanation. I don’t think it will help some others on the thread.

[editor-surveyor]

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>> “This financial world bank stuff makes my head spin.” <<

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That is what it was designed to do!

Now you’ll probably just ignore it, and they can keep on doing what they’ve done without risk of incarceration.

(check your pocket - is your wallet still there?)
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[editor-surveyor]

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>> “Your ignorance is funny.” <<

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Your attempts at deception aren’t!

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[editor-surveyor]

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>> “ I didn’t know any country allowed their bankers to print their money.” <<

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What do you think the Federal Reserve is?

It is a bank owned by banks.
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[editor-surveyor]

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>> “It takes a long time and a lot of effort to start catching on. After you do, you’ll become very disenchanted, very negative, unless you realize that it’s better to know than not know. At least you’ll know what hit you, and be able to start planning your own personal moves a little better, and hopefully avoid winding up on the losing end of the stick.” <<

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Yes!

Friedman’s “Money Mischief” is a good start at learning what has been done to us.

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[Jimmy Valentine]

Let’s put him in jail for being a di&&head and call it square.

[riri]

Go, Iceland!

[Toddsterpatriot]

What deception?

[PieterCasparzen]

Good explanation. I don’t think it will help some others on the thread.

Feel free to point people to it as an example; you'd be surprised, here and there people get it.

Perhaps encourage them to work through the example themselves, with paper money or monopoly money, and keep track of customer accounts with paper and pencil.

Then, at the end, they see they still have the same dollars they started with, and customer accounts just have higher numbers than they started with.

The actual "evil", or conspiracy, is only seen in the "big picture".

Too often people are afraid or angry about it, but they lack a correct fundamental understanding of it.

That's how they are then tricked into thinking something is a "cure" (like using gold as money) when it is no cure at all.

There is a lot of detail of accounting of transactions between banks, the Fed, etc., that is not necessary to know every detail of, but a correct fundamental understanding of the banking system starts, of course, with being able to follow the dollars in that example.

Of course people are led into their misconception by the establishment by economists' practice of including checkable deposits (an account balance) in what they call the "money supply" (M1).

[Sherman Logan]

Works.

[PieterCasparzen]

Wow, I just downloaded the full PDF from the article and gave it a real fast review and...

it looks like it may be on track.

They’ve got the concept of money creation correct.

Now I need to take some time to go over this more thoroughly.

[Toddsterpatriot]

I’ve tried to explain it using paper money, but most believe that’s not equivalent, because the Fed can create electronic money out of thin air.

[PieterCasparzen]

I’ve downloaded the entire PDF from the article and I’m going through it.

It looks very good so far, as if someone has been reading my posts here on FR, with a few key changes I had not thought of to make things easier.

I’m still reviewing it.

If this gets done AS IT IS PRESENTED, it could make a great deal of sense for foreign nationals (like Americans, for example) to open transaction (sovereign money) accounts at Icelandic banks for a portion of their cash, as long as fees are reasonable and they can be accessed using a debit card, since such accounts would have zero risk related to bank insolvency, no matter the amount in the account.

If the banksters exert their influence when and if this gets passed into law, the idea of course could get messed up.

As written, I think a lot of banking businesses could flow Iceland’s way as their banking system would be the best in the world.

If done properly, the new world order types would be out to mess up the system or pressure Iceland into allowing the banksters to insert themselves into the money creation or regulation process somehow.

I’m still reading.

This is a fascinating article moreperfect !

[Toddsterpatriot]

as long as fees are reasonable and they can be accessed using a debit card, since such accounts would have zero risk related to bank insolvency, no matter the amount in the account.

After foreign depositors got screwed over by Iceland last time, they might be shy about depositing money there again. Especially money that earns no interest and is subject to fees.

[PieterCasparzen]

After foreign depositors got screwed over by Iceland last time, they might be shy about depositing money there again. Especially money that earns no interest and is subject to fees.

Demand deposit accounts, according to the proposal, will be transferred to transaction accounts held at the CBI.

The CBI website tells us the CBI is owned by the Icelandic state, it is not owned by banks or other shareholders.

Therefore there will be zero risk in transaction accounts. Banks will simply use their systems in place to administer the demand deposit accounts of their customers. The banks' liability for the accounts will thus be shifted to the CBI; the banks liability will be to the CBI for the total, which they will pay off over time.

Thus for demand deposits - there is zero risk. No interest is earned, but there's no risk. Transaction accounts are just that: cash to conduct transactions.

As you mention, bank customers will move excess cash they don't need into instruments that provide them a return, savings accounts, cd's, etc. - but for each one the customer is going to have a risk/return proposition: how sound is the bank, what's the interest I'm earning. The difference is they are under no illusion that there is any guarantee of their investment.

The proposal goes on to mention that for demand deposit (checking) accounts therefore there would be no need for any deposit insurance scheme. The demand deposit is not a liability of the administering bank - it's a liability for the CBI - which can print its own money.

[aMorePerfectUnion]

Thanks- I think so too

[Toddsterpatriot]

Therefore there will be zero risk in transaction accounts.

Sure, unless the central bank decides not to pay it back. I know, slim chance.

The demand deposit is not a liability of the administering bank - it's a liability for the CBI - which can print its own money.

Unless they can print dollars, still not sure this is zero risk for US depositors who deposit dollars. Or Euro depositors, for the same reason.

[PieterCasparzen]

If - in the scenario as layed out - the central bank decides not to pay it back...

that would constitute a wilful default based on corruption, not for lack of money due to insolvency.

What we’re faced with today with our checkable deposits (demand deposits) under fractional reserve banking is the prospect of bank failures resulting in depositors’ money not being able to be paid to them.

Thus we have in America the FDIC to “insure” deposits, within limits.

On the other hand, if our checking accounts were accounts at a government-owned central bank which could create its own government-issued money, insolvency is a non-issue.

The only issue then is government confiscation, i.e., ignoring any concept of the rule of law and simply stealing.

There’s no way to write a law that will prevent that, because by the time that is happening, the government is ignoring the rule of law.

The key point is that government borrowing is no longer necessary - and the PDF in this article quite clearly speaks about that.

Thus the lenders to government are no longer able to so easily extract interest income from the general public via government tax revenue.