Chapter 8 - Have you worked it out yet?

Have another look at the previous graphs. The procedure is:

Can you see the solution for Greece yet? The answer has nearly arrived. I don’t know your logical power. If you went to a government or private school, you probably had your ability to puzzle things out destroyed. You are as useless as the hunter-gatherer who put his spear on the fire to keep warm one night. You are as useless as someone who hoards ten-euro notes. The ten euro note is to civilization as the spear is to the hunter-gatherer.

King Pin suddenly clicked. Money had to exist and be moving. King Pin had put money into circulation but the people were not using it. They were hoarding it. There was adequate money, but it was not moving.

King Pin issued a new order. If anyone holds a silver coin for more than one month, the coin will be subject to a tax of ten percent. Tax also had to be paid on silver jewelry. Suddenly, the coins came out of hibernation. People stopped selling their daughters into a life of prostitution. King Pin realized something that most economists do not understand. Money has to exist and it has to be moving. He instinctively knew that economist’s definition of money had a fault. Money cannot be used as a store of wealth. King Pin was not stupid enough to create more tokens for people to hoard. King Pin made the economy vibrant again by ensuring that tokens were doing what they were designed to do. King Pin made the money move.

Luckily, King Pin didn’t have economists in his kingdom. He instinctively knew that money had to move.

Have you worked it out yet?

Greece is not short of money. Greece has money but it is not moving. All that has to be done is to be wise like King Pin and make the money dance for the real economy. The task is to stop the hoarding of money. Tell the hunter-gatherer not to burn his spear and tell the clowns not to hoard their ten euro notes. Chase the pig and make the money move. There are a few ways to make money move, but the simplest is to implement what is called a Demurrage Tax. A Demurrage Tax is a very small tax on money holdings. A recommended Demurrage Tax would be a small monthly tax on bank account balances.

King Pin’s action ensured that coins changed hands at least once a month. To the economists, this is a velocity of twelve. No nation has managed this velocity in a very long time. West Bank and Gaza managed to reach a dizzy velocity of 6.5 in 2012. Only demurrage money manages to break the economic speed record with reported velocities between 11 and 23. [1] The velocity of Greece is now below one. This means that on average, the money in Greece is changing hands less than once each year. Please don’t blame the ordinary people. They are broke at the end of each week. All their money is spent on living and has evaporated by the end of the week. Ordinary people are on a velocity of fifty-two. Some people have money and are hoarding it.

The assumption is that Greece needs more money. King Pin will tell you otherwise. Just make existing money move a little more often. There is not much point in having money and not allowing it to conduct transactions. You feed yourself when transactions occur. You go hungry when money sits idle. In Greece, there is €162 billion in the Money supply. With a population of 10.9 million, this equates to €14900 per Greek. The problem is that this €14900 is barely moving. Not many Greeks have €14900 in their bank accounts. Most have close to zero. Most Greeks are spending their meagre earnings as soon as it arrives. This money is hoarded in the hands of the very small percentage of persons that don’t struggle to pay their rent at the end of each week. All that is needed for a Greek recovery is for those that have money stashed in banks to spend some of it on a regular basis. The poor people are doing their part by spending what little they have on a weekly basis. The poor represent a velocity of fifty-two.

In Greece, the money is changing hands on average once in a year. In Australia, we make jokes about things being as boring as “watching paint dry” and “watching the grass grow”. But Greek money is slower than paint drying and slower than watching the grass grow. Greek money is slower than waiting for Christmas. On average, Greek money only changes hands once a year. Money has been hoarded by those that are lucky to have some money. The poor are not hoarding money because they don’t have any. Money cannot circulate because it is locked in the bank accounts of people with ‘more money than they can spend’. The medium of exchange has all but evaporated. Only 8% of Greek money changes hands with any regularity. That regularity is one month by which time the paint will have dried in Melbourne and Australians will have mown the lawn four times. Scare yourself with another look at the velocity for Greece!

20011.37
20021.44
20031.45
20041.39
20051.31
20061.25
20071.14
20081.00
20090.92
20100.97
20111.04
20121.02
20130.96
20140.97

Here is a list of the Hoarded Money for the last few years in billions of Euro. This is money that sits idle in bank accounts for a time in excess of one month.

2001€127
2002€124
2003€132
2004€144
2005€157
2006€173
2007€199
2008€231
2009€241
2010€214
2011€182
2012€172
2013€178
2014€177

Here is a list of the Circulating Money. This is the money that actually changes hands within one month.

2001€16.4
2002€16.9
2003€18.1
2004€18.9
2005€19.1
2006€20.2
2007€20.9
2008€20.8
2009€19.9
2010€18.9
2011€17.2
2012€16.1
2013€15.4
2014€15.5
The Banks stop lending which causes a fall in the Money Supply which causes a recession by Andy Chalkley. Creative Commons Attribute