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  1. 17 Patrizio Laina

    Mr Laina presents what he calls successful examples of full-reserve banking from the past, the main one being the UK Bank Charter Act of 1844. I looked up online references to the Act. It didn’t stop money creation by commercial banks, which Mr Laina actually mentioned briefly. The Act just prevented commercial banks from printing their own notes. This forced the commercial banks to extend credit as a promise of central bank notes, of which they actually needed just a fraction in the bank’s possession, because business was conducted by accounting in commercial bank credit. That is just the system we have today. I fail to see how it fits under any of the descriptions of full-reserve banking he gives in his 5th slide.

    “Debt-free” fallacy
    As is the case with sovereign money reformers in general, there is a lot of talk about how the new sovereign money can be spent by government, so-called “debt-free”, quickly glossing over the necessity to tax it back to maintain its value. Such money is only debt-free and non-inflationary if it is all absorbed by real economic growth.

    In a no-growth situation – the test case for true stability, and also our long-term survival – sovereign money is simply a tax credit. It is another form of money as debt on a schedule of repayment, just like commercial bank credit.

    Unpayable Interest fallacy
    Mr Laina then alludes to the idea that interest can’t be paid because it wasn’t created – necessitating an ever expanding money supply and the “growth imperative”. This is a very common fallacy based on P < P+I, the inequality of Principal being less than Principal plus Interest. A shortage seems obvious because only the principal was created.

    It is surprising that so many professional economists still don’t see through this illusion. The way that credit is paid back as mixed monthly payments in which only the principal is extinguished means that there can never be a mathematical shortage of money to pay the interest. It is absolutely impossible. Loans repaid in mixed instalments are always payable from the created principal alone. A full explanation is here:

    Overlooked and ignored
    The actual and provable cause of the growth imperative is multiple concurrent principal debts of the same money, as described at length in my comments on Steve Keen’s presentation.

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