As grounds for his petition the petitioner argued, in particular, that banks need only demonstrate eight percent capital cover to be able to allocate 100 percent credit. Because banks demand interest on this credit, i.e., ask for more money back than they originally lend into the system, the total debt owed grows faster than the available credit. This leads (according to the petitioner) to ever growing debts, including on the public account, and will lead to yet worse financial crises than the current.
It’s very good, in my opinion, that this debate can take place at all, and I think highly of the German state for having mechanisms in place that enable this. Nevertheless, the request was denied, and the grounds for the denial are both entertaining and revealing. I would say far more revealing than the government intended. Here are the core arguments:
Money is a central component of economic life. […] Alongside its functions as medium of exchange and unit of account, money is also a store of value. The more stable money is, the better these functions can be fulfilled, and, therefore, the smoother the economy will run.
Standard fare. And yet money-as-commodity, from which ever-growing money-profit can directly be made (per M-->Mn-->Mn2, rather than C-->M-->C’ of typical exchange (Commodity sold for Money to buy another Commodity)) via currency exchanges and interest-based means, is implicit in the government’s position. How healthy this mechanism might be is of course not up for discussion, cannot even be mentioned as a possible topic even in a response to a petition discussing the money system. Indeed, the government’s entire response is a textbook rendition of the prevailing economic orthodoxy, which rests on assumptions debunked countless times in recent decades (and even centuries).
The business operations of the money and credit institutions fulfil a central role in an economy.
Money is important, thus banks are too. Then follows some blah blah about how important it is that banks operate sensibly, with an almost tangential reference to fractional reserves (“in Höhe eines bestimmten Prozentsatzes” = “at the level of a specific percentage”). It just emerges in the paragraph, a passing reference to the main problem denoted by the petition, popping up briefly in the refusal-text as a strength.
Next the mechanism of central banking is briefly laid out:
Because the central bank in the Euro system makes high powered money (“Zentralbankgeld”) available to the banks, it can influence the business operations of those banks. Private banks create money when they grant their customers credit by booking the amount due on their accounts. They expand the money supply via credit creation without any involvement of the central bank. The banks are, however, bound to new high powered money, because they must also make cash available to their customers, and maintain a part of their account deposits as assets at the central bank in the form of minimum reserves. The high powered money requirements of private banks is thus the central bank’s leverage (?? “Ansatzpunkt”) for influencing the credit money creation of the private banks.
Again, standard fare. One look at the fact-based evidence of Steve Keen’s “The Roving Cavaliers of Credit” should be enough to destroy this oft asserted claim, and yet “the entire body strides vigorously forward” still. When you have power, you can ignore facts and repeat lies in archaic terminology slick enough to be a ‘get out of jail free’ card (until the show stops).
There follows the conventional view about central bank control of base rates (low interest rates = high economic growth, high interest rates = slow growth), even though the last few years are demonstrating—for all to see—how ineffective this ‘control’ is. Then comes the jewel:
As a rule, interest on borrowing is earned through additional production and income. Financing with new debts, on the other hand, would indeed lead to over-indebtedness and—practiced across the board—to a collapse of the financial system.
Without growth, the system would collapse. You can’t just keep on piling debt on top of debt unless there is sufficient economic growth paying for it. That’s a ponzi scheme. I hope this justifies my tabloid-style, eye-catching headline.
There follows more blah blah about how damaging inflation is, especially for people on low incomes, best prevented by “independent central banks” charged with ensuring price stability. Best not mention the frequency of economic shocks that have peppered modern history with astonishing frequency, though there is mention of the hyperinflation caused by over-reliance on the famous printing press. I love the argument that borrowing money is not printing money. As if, because we owe more than we print, we are not printing. As if systemic addiction to perpetual growth has a stabilizing influence. Gold has risen from the mid $200s to almost $2,000 per ounce today in about ten years! In 1971 an ounce of gold cost about $40! Price stability!? Wages, on the other hand, have been quite flat for thirty or forty years. Commodities generally tell a very inflationary or volatile tale. And look at housing. Energy. Food. Even on their own arguments the system has failed. The only stable dynamic it generates is robbing the poor to pay the rich.
The last quote I want to draw your attention to is the last two sentences of the penultimate paragraph:
The petitioner’s recommendation to install a 100% reserve system for credit institutions would yield a steep reduction in credit extension and thus call the existence of private banks into question. The consequences of this would be that the banking and finance system, as well as the money circulation of the private sector, would be jeopardized.
It is precisely this the petitioner was hoping for. The response is a tacit admission that the petitioner is correct, but that The System has to be protected because it works the way it does. No claim is backed by any evidence, and everything we see around us today in economies across the planet flatly contradicts the government’s position.
To conclude: there’s a clear admission that economic growth backs usury, and a clear admission that should growth not occur for long enough, the system collapses. That is an implicit admission that the money system is a ponzi scheme. The insistence that ‘that’s how it works,’ while inevitable, is in itself an admission that they have a serious systemic problem; infinite growth on a finite planet is simply impossible. Whether or not they recognize this is anyone’s guess.
In toto the response is an admission that the government borrows—via bonds etc.—from private banks and other financial bodies the very money with which it equips those same private banks. Private banks then use the money they ‘loaned’ the government as ‘reserves’ to extend loans (credit money) to citizens at some reserve ratio. Or put another way, private banks use the (non-existent) money loaned by them to The Government and backed by The People as backing for credit-loans lent to The People for the express purpose of growing the economy and the economy’s money supply. Or in even simpler terms, people borrow from themselves to back money they then use to borrow more money from themselves. And the interest flows to the owners of money. We are puppets, and our strings are made of the money we pay the cost of borrowing into existence.
Quite the circle jerk. If you can get your head around it.