Dogs in Fur Coats. The Greek Money Solution.

by Andy Chalkley
“Dogs in Fur Coats. The Greek Money Solution.” is not copyrighted. Feel free to copy and distribute.

Chapter 1 - The Strangling of the Money Supply

Andy Chalkley at Chernobyl 2017-01-21. Creative Commons AttributeI had assumed that the only way to rescue the Greek economy was to raise the level of the Money Supply. I had made a wrong assumption. I should have known better. I had already written a book on the problems caused by the hoarding of money. I did not accept the standard thinking of economists. Economists have demonstrated that they are incapable of controlling an economy. I woke one morning in a hostel in Kiev with the solution chasing around my skull. I wrote it down because I knew I would forget by the time I had eaten breakfast. I will tease you through my thinking until you work it out for yourself. This story is my gift to the good people of Greece who have done so well to survive the menace inflicted upon them.

In a Land called Nod, there lived a king called Pin. King Pin minted the money. He would allow people to give him silver and he would mint the silver into one-ounce silver coins. He retained a sovereignty of half. If the people gave him two ounces of silver, he would keep one-ounce and return to them one highly polished silver one-ounce coin. The kingdom existed but the people were poor. Money was in short supply. There was plenty of work to be done. There was plenty of hungry people. There was insufficient coinage to effect the transactions. Ping’s treasurer came to him in a begging manner: “Please, King Pin. Release more coins. The people are very hungry and miserable. There is a shortage of money. They are leaving the farms because they cannot buy the seeds for next year nor the fodder for their animals. They are so poor they are selling their daughters into slavery. If they can find no buyer for the baby girls, they kill them.” The king accepted and issued more coins by turning some of his accumulated silver into coins. He spent these on roads, bridges, and ports for his kingdom. He also reduced the sovreignage to ten percent. If the people gave him eleven ounces of silver, he returned ten new silver coins. Money became plentiful. People were eating well. The daughters grew to have education and good families. They began to love their king and praised him as a wise man.

It has to be remembered that humans live by trading goods and services. Money is the transport mechanism. Money was invented to facilitate that trade. Money is not a perfect invention. It has been problematic ever since it was invented. Silver is quite useless as a material. Silver was only in use as money if it had the king’s stamp on it. Silver has no value when it is dug up and has minimal commercial use. Most of it is stuck in dark vaults doing nothing. It only has value because someone decided to stamp a king’s head on it and use it as the medium for transactions. If someone had not stamped king’s heads on it, the silver would have been left in the ground. The requirements of a money system is that there is sufficient transport medium so that the transactions can occur. When there is a shortage of tokens, the transactions that allow civilized life are curtailed. The economy is strangled by a shortage of circulating medium. Famine and hardship occur. The assumption is that the number of tokens needs to be increased, but this is simplistic thinking. There is another solution. Your mind will play tricks on you and you will drift back to inappropriate wisdom and believe that the supply of tokens needs to be increased.

There is a world of difference between:
'There is a lack of circulating medium'
and:
'There is a lack of medium that is circulating'.

Money was not invented by nature. Money does not naturally occur. Money does not naturally look after itself. Too much water and we turn into a fish. Too much money and the money system fails. Too little water and we turn into a camel. Too little money and we go hungry. The money system is not self-repairing. If we poison the river, we die. If we kill the bees, we starve. If we poison the money system, something interesting happens. We return to foraging for food with added violence. Money needs to be carefully managed. We are remarkably poor at managing money systems. We are still in the experimental stage of money. We left Africa around two million years ago. We invented money around seven thousand years ago. We have used money for less than one percent of our existence as humans. Money has allowed immense progress but has also caused immense damage, poverty, destruction, and war.

We now look at a country that is making an elementary mistake. You might realize the mistake before I tell it to you. This country has actually paid back much of its debt but has just about destroyed itself in so doing. It has paid back more debt than any nation in Europe. It did not do it intentionally. It was denied further credit. It kept paying back loan repayments in a manner that cleared much of its debt. This graph shows that the moneylenders stopped the supply of credit in Greece.

Bank Lending and Credit for Greece. Graph by Andy Chalkley. Creative Commons Attribute

The moneylenders were lending vigorously up until 2008. The economy was flourishing. Unemployment was steady and decreasing. Tax Revenue was increasing respectably. Then the moneylenders dramatically cut their lending. This caused a massive fall in the Money Supply. Greece did not cause its financial crisis. The crisis was caused by an artificial fall in the volume of money tokens in circulation.

This next graph is remarkably normal. It is the Cash Currency folding notes created by the central bank. It is the total of the paper notes issued by the central bank for use in Greece. The central bank has issued no more notes in Greece than are shown in this graph:

A graph of Cash Currency component of the Money Supply for the Greece. Graph by Andy Chalkley. Creative Commons Attribute

The above graph is a perfectly normal steady state of affairs. There is nothing to criticize about the Cash Currency in Greece. The graph shows a slow and steady rise in the volume of the Euro paper folding notes. This is the paper money that you touch and hold. The Cash Currency has increased at approximately 11% per annum over the last ten years. However, there is more to the Money Supply than just the Cash Currency. The Cash Currency is only a small component of the Money Supply. Cash Currency is only 18% of the Money Supply in Greece. The Money Supply consists of the Cash Currency plus the credit in bank accounts. The credit issued by banks is shown in green in the next graph.

A graph of Money Supply for the Greece. Graph by Andy Chalkley. Creative Commons Attribute

In the above graph, the orange is the Cash Currency which is the Euro paper notes created by the ECB. The ECB only creates the orange part. The banks create the green part when they lend credit. The green is the credit as listed in bank accounts. The green is the money that the bank lends out when people borrow money. The green is credit. The green did not originate from the ECB. Only the orange part came from the ECB which 18% of the Money Supply. [2] The green 82% is credit in bank accounts. [2] When the banks cut the issue of credit, the green disappears and the nation suffers. The green has fallen from €242billion in December 2009 to €128billion in June 2015. This is a fall of 47%. [1] If we were running on Cash Currency, this would not happen. If we rely on bank credit, we suffer when the banks cut the volume of credit. All of the green is the result of bank ‘lending’. You can see that the credit lent by the banks was plentiful until international banks nearly imploded the finance system in 2008 with their dangerous practices. The supply of credit became strangled. This strangled the economy. The effect is like a green hosepipe with a kink. When the hosepipe is kinked, you can't wash the dog. Greece is not responsible for its financial crisis. Destruction of the credit section of the Money Supply caused the recession.

A graph of Money Supply for the Greece. Graph by Andy Chalkley. Creative Commons Attribute

To stop the dangerous practices of the Investment Banks from bringing down the money system, it is necessary for the USA and other nations to urgently implement a replacement set of Glass-Steagall laws. The human race faces a bleak future if people like you do not read up on Glass-Steagall. Do the world a favor and read up on Glass-Steagall.

The major part of the Money Supply is Bank Credit. Only 18% of the money is Euro Cash Currency supplied by the ECB which is the folding Euro notes in the wallet. Almost all money is credit in bank accounts which is simply credit on the books of the banks. It is credit for euro notes that do not exist. Payments are effected by reassigning credit from one customer to another. Banking is essentially book-keeping. When one pays using cash, one hands over the paper euro note. When one pays using credit in a bank account, the bank reassigns the credit to the seller using the magnificent bank payments system. The Commercial Banks operate the payments system with giant computers. The modern world relies heavily on this payments system operated by Commercial Banks. Modern life would not be possible without the payments system operated by Commercial Banks.

The effect of refusing to issue fresh credit is to destroy the volume of credit. The nation is being run on credit and there is a short supply of credit. The Cash Currency has not fallen. On the contrary, Cash Currency has performed beautifully whilst the banks have destroyed 47% of the credit in the Money Supply. [1]

A graph of Money Supply for the Greece. Graph by Andy Chalkley. Creative Commons Attribute

The effect of the steady increase in lending was a steady rise in the volume of credit in Greece. This occurred up until 2008. The majority of money in the modern world is credit in bank accounts which did not originate from the ECB. The banks were lending more than they were collecting in repayments. This caused the Money Supply to rise. The steady rise in the Money Supply gave the nation a healthy expanding economy. After 2008, the banks ceased the issue of credit. The result of the lending cutback was a fall in the volume of credit in the Money Supply. The banks were collecting more in repayments than they were lending. Almost all money in the modern world is credit in bank accounts, so the volume of credit in bank accounts fell.

This next graph shows the level of debt in Greece. Like every nation operating under a debt banking system, the debt is unpayable. It is also uncollectible.

A graph of Money Supply and Debt for the Greece. The debt vastly exceeds the capacity to pay. An impossible contract has occurred. Graph by Andy Chalkley. Creative Commons Attribute

The banks have created more debt than can be paid. There is more debt than the banks can collect. It is the same in every country in Europe. The difference is that Greece actually paid off some of its debt. No other country in Europe has achieved this remarkable level of repayment.

The drastic fall in lending also caused the Greek debt to fall. You might also notice that the debt exceeds the volume of money. It is impossible to pay off the debt because there is ‘more debt than money’. Any attempt to pay off the debt would destroy the vital circulating medium. The creditors have created a situation where they cannot collect their debts without further loans being created. The debt vastly exceeds the capacity to pay. An impossible contract has occurred. The banks are insolvent because their debts cannot be collected. There is no choice for the banks but to extend further loans. The banks need to lend further money to bailout the banks. Banks have clearly lent money that can never be repaid. They will try and put conditions on these loans but these conditions can be ignored because they have to lend more to prevent Greece calling the bluff of the banks. The world needs Greece to pay otherwise it would create a problem where other nations would also refuse to pay. This would collapse the euro system. It would collapse the banks. The banks will collapse before Greece collapses. Greece has to favor the banks and pay. If Greece fails to pay, Greece will survive but the banks will not survive. King Edward the third of England refused to pay the Venetian bankers in 1342. This collapsed the Venetian money system in 1345 which led to the death of around one-third of the population of Europe. You may be shouting for King Edward the third, but the result was a collapse of the banks. “Hurrah”, you might shout, but the collapse of the banks collapsed the money system and one-third of the population was extinguished. Evil influences setting Christian against Christian in the First and Second World Wars did not achieve that level of death. A collapse of the money system is worse than war. It is worse than Chernobyl.

Andy Chalkley at Chernobyl in January 2017. Photo by Andy Chalkley. Creative Commons Attribute

Andy Chalkley at Chernobyl in January 2017

A collapse of the money system is worse than the debt. I will reword this. King Edward the third of England refused to pay the Venetian bankers in 1342. England survived but the Venetian banks did not. However, the collapse of the money system caused one-third of the population of Europe to die. Refusal to pay the banks may kill the banks, but the repercussions may kill you. If Greece refuses to pay the banks, Greece will survive but the money system may collapse. The collapse is infinitely worse than paying the bankers their ‘pound of flesh’.

We can live with debt. We can live with unpayable debt, but we cannot live with collapse.

We cannot live because there are no tokens with which to trade. The Greek government can pay ‘as and when’ it wishes because the banks that created the impossible debt are in fear of a Greek refusal to pay their computer entries. Greece is in the stronger position with regards to payment. The debt is impossible to pay without further loans, so there has to be further loans. These are given descriptions like ‘bailout’ to suggest that it is the fault of the Greek government. The suggestion is that it is a bailout for the nation. It is actually a bailout for the banks. If the banks don’t create and lend further credit, the whole bank money system collapses. Greece will be given loans simply to prevent a collapse of the banks. When the banks reach the limit of asset stripping, they can obtain no more from the nation. It is not possible to pay back more than exists. This is not a new phenomenon. Moses made rules about the topic. Jesus spoke against what the Christians call ‘Usury’. Mohamed was a trader and made very stringent rules on what the Muslims call ‘Riba’. Usury played a prominent role in the collapse of the Greek Empire.