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RP's Diary

Hello! Back to the grindstone after the holidays.  This Diary entry draws on evidence I submitted last week to the Parliamentary Commission on Banking Standards. It examines the link between the failure of money and continuing economic weakness. 

How long will it take governments to realise that we will never get a lasting recovery without radical international reform both of banking and of money?

 

For five years banks, central banks and governments have tried to get the world out of the crisis, but it keeps slipping back.

This was predictable, and was predicted in my book. Let me explain.

Banks can only function if people trust them – you can never tell what a banker does with your money. Trust has collapsed. Therefore, banks remain crippled. Over 50 years of reporting on UK and international banking, I have never witnessed such a breakdown.

It gets worse. A deep cynicism pervades the entire world of policy-making and finance. Bankers pretend to make credit judgments and extend loans, central bankers pretend to set the benchmark for interest rates, regulators pretend they have something called a financial system to regulate – yet they are all just going through the motions.

Neither in the UK or eurozone nor even in the US are governments and central banks in charge of events. Fear stalks markets.

Further fiscal or monetary expansion merely destabilises markets further. Inflation targeting has become a sick joke.

The way to remedy this should be clear. We need two sorts of reforms:

1. Base banking and money on ownership….

Business cannot plan in the presence of destabilising monetary policies and a defunct banking system. Effective remedies are long-term ones. Only when leading governments cooperate to construct a strong framework with “fixed stars” to guide private sector decisions will businesses resume planning in confidence.

The measures needed are described and justified in “The Money Trap”. As “Yoyoyen” writes,

‘Robert Pringle’s book “The Money Trap” is a jewel in the haystack in that it reveals so lucidly and in big picture fashion what went wrong and what has to be put right. Unlike so many authors, Robert Pringle has no axe to grind, no official institution to defend, and no quack cure to promote. Rather his stark thesis is that global monetary disorder lies behind the financial and economic breakdowns.’

In brief, the “new deal” for banking should be founded on an economic and monetary theory of ownership. Property brings responsibility. Equity claims should be at the centre of the financial system. What goes for banking applies equally to international money, which should be linked to real, tradable assets – not a gold but an Ikon standard.

2. ..and develop a new ethic of risk awareness

Ownership relationships build personal responsibility and risk awareness at all links in the chain of intermediation. With an ownership-based money and financial system, a new moral code will naturally emerge. Only with such an ethic will the next generation resist the temptations of the money trap – gaining short-term advantage at the expense of long-term objectives and the collective good. 

It is late to bring back the protestant ethic but capitalism needs ways to enforce good behaviour. It needs a concept of sin. This goes far beyond ending “too big to fail”.

Allan Meltzer coined the aphorism: “Capitalism without failure is like religion without sin. It doesn’t work”.

It is equally true, however, to say that: “Capitalism without sin is like religion without failure: it doesn’t work either.”