quarta-feira, 10 de fevereiro de 2010

Solving the Debt Problem & Financial Crisis: On Monetary Reform with Ben Dyson



The crisis in banking, housing, debt and unemployment is a single massive and recurring problem that deserves the examination of systemic solutions including monetary reform.

After providing an extremely clear and compelling presentation on monetary reform at the 2009 American Monetary Institute Conference, Ben Dyson is interviewed by Local Future founder Aaron Wissner to discuss the causes of the crisis, how banks create money, and how to prevent a recurrence of this crisis in the future, and perhaps to also bring a quicker recovery now.

The current monetary system is structured such that most money is created when loans are created.

Under the current "fractional reserve" banking system, when a loan is made, 90% or more of the money of bank depositors can be loaned to the borrowers, but at the same time, the depositors consider 100% of that money available, and everyone treats deposit money as if were the same as cash.

The money that is loaned out then is paid to someone, and that money is typically again deposited back into the bank, and again around 90% of this deposit money is lent out by the bank. This process continues until the total amount of checking account "money" increases by 3, 5, 10 or even more times.

Banks have very little cash even though they have very large amounts of deposits. The deposits are backed almost entirely by the loans that the banks have made, and most of these are mortgages. In the event that the loans go bad, the deposits do not have adequate backing, and the bank becomes insolvent, leading to a monetary crisis.

A monetary crisis leads to a housing crisis or mortgage crisis, a credit crisis or financial crisis, an unemployment crisis and revenue crisis for government entities, a banking crisis and insolvency crisis for banks, and an overall debt crisis and money crisis for everyone.

Monetary reform attempts to add resilience to the monetary system by making improvements to the accounting rules that banks must follow, improvements to the monetary policy mechanism, and improved ways to issue money into circulation.