The truth is out: money is just an IOU

and the banks are rolling in it

The Bank of England's dose of honesty throws the theoretical basis for austerity out the window

David Graeber                       Guardian/UK                              18 March 2014

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning".

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window. 

To get a sense of how radical the Bank's new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don't suffice, private banks can seek to borrow more from the central bank.

The central bank can print as much money as it wishes. But it is also careful not to print too much. In fact, we are often told this is why independent central banks exist in the first place. If governments could print money themselves, they would surely put out too much of it, and the resulting inflation would throw the economy into chaos. Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds, but instead fund private economic activity that the government merely taxes.

This understanding allows us to continue to talk about money as if it were a limited resource like  petroleum, to say "there's just not enough money" to fund social programmes, to speak of the immorality of government debt or of public spending "crowding out" the private sector. What the Bank of England admitted this week is that none of this is really true. To quote from its own summary: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits" … "In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money 'multiplied up' into more loans and deposits."

When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit.

Why did the Bank of England suddenly admit all this? Well, one reason is because it's obviously true. The Bank's job is to actually run the system, and of late, the system has not been running especially well. It's possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.

Historically, the Bank of England has tended to be a bellwether, staking out seeming radical positions that ultimately become new orthodoxies. If that's what's happening here, we might soon be in a position to learn if Henry Ford was right.               [Abridged]

http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity

Desmond Tutu: 'I am sorry' – the three hardest words to say

The retired Anglican archbishop on what he's learned about forgiveness

Desmond  Tutu                        Guardian/UK                            22 March 2014

There were so many nights when I, as a young boy, had to watch helplessly as my father verbally and physically abused my mother. I can still recall the smell of alcohol, see the fear in my mother's eyes and feel the hopeless despair that comes when we see people we love hurting each other in incomprehensible ways. I would not wish that experience on anyone, especially not a child.

If I dwell on those memories, I can feel myself wanting to hurt my father back, in the same ways he hurt my mother, and in ways of which I was incapable as a small boy. I see my mother's face and I see this gentle human being whom I loved so very much and who did nothing to deserve the pain inflicted on her.

When I recall this story, I realise how difficult the process of forgiving truly is. Intellectually, I know my father caused pain because he himself was in pain. Spiritually, I know my faith tells me my father deserves to be forgiven as God forgives us all. But it is still difficult. The traumas we have witnessed or experienced live on in our memories. Even years later they can cause us pain

My father has long since died, but if I could speak to him today, I would want to tell him that I had forgiven him.  I would begin by thanking him for all the wonderful things he did for me, but then I would tell him how what he did to my mother affected me, how it pained me.  Perhaps he would hear me out; perhaps not. But still I would forgive him.

Why would I do such a thing? I know it is the only way to heal the pain in my boyhood heart. Forgiveness is not dependent on the actions of others. Yes, it is certainly easier to offer forgiveness when the perpetrator expresses remorse and offers some sort of reparation. Then, you can feel as if you have been paid back in some way. You can say: "I am willing to forgive you for stealing my pen, and after you give me my pen back, I shall forgive you." This is the most familiar pattern of forgiveness. We don't forgive to help the other person. We don't forgive for others. We forgive for ourselves. Forgiveness, in other words, is self-interest.

Forgiveness takes practice, honesty, open-mindedness and a willingness to try. It isn't easy. Perhaps you have already tried to forgive someone and just couldn't do it. Perhaps you have forgiven and the person did not show remorse or own up to his or her offences – and you find yourself unforgiving all over again. It is perfectly normal to want to hurt back when you have been hurt. But the only way to experience healing and peace is to forgive. Until we can forgive, we remain locked in our pain and locked out of the possibility of experiencing healing and freedom.

As a father myself, raising children has sometimes felt like training for a forgiveness marathon. Like other parents, my wife, Leah, and I could create a whole catalogue of the failures and irritations our children have served up. As infants, their loud squalls disturbed our slumber. Even as one or the other of us stumbled out of bed, the irritation at being woken and the thoughts of the fatigue that would lie like a pall over the coming day gave way to the simple acknowledgment that this was a baby. This is what babies do. The loving parent slides easily into the place of acceptance, even gratitude, for the helpless bundle of tears. Toddler tantrums might provoke an answering anger in a mother or father, but it will be quickly replaced by the understanding that a little person does not yet have the language to express the flood of feelings contained in his or her body. Acceptance comes.

As our own children grew, they found new (and remarkably creative) ways of testing our patience, our resolve and our rules and limits. We learned time and again to turn their transgressions into teaching moments. But mostly we learned to forgive them over and over again, and fold them back into our embrace. We know our children are so much more than the sum of everything they have done wrong. Their stories are more than rehearsals of their repeated need for forgiveness. We know that even the things they did wrong were opportunities for us to teach them to be citizens of the world. We have been able to forgive them because we have known their humanity. We have seen the good in them.

http://www.theguardian.com/lifeandstyle/2014/mar/22/archbishop-desmond-tutu-

This is an edited copy of the first part of a long article.

Why Society Is More Unequal Than Ever

Five years after The Spirit Level, its authors argue that research backs up their views on the iniquity of inequality

By Richard Wilkinson and Kate Pickett            Guardian/UK          March 9, 2014

A lot has happened in the five years since we published our book, The Spirit Level. New Labour were still perhaps too relaxed about people becoming "filthy rich". And there was an assumption that inequality mattered only if it increased poverty, and that for most people "real" poverty was a thing of the past.

But so much has changed. In the aftermath of the financial crash and the emergence of Occupy, there has been a resurgence of interest in inequality. Around 80% of Britons now think the income gap is too large, and the message has been taken up by world leaders. According to Barack Obama, income inequality is the "defining challenge of our times", while Pope Francis states that "inequality is the roots of social ills".

In the past five years, we've given over 700 seminars and conference lectures. We've talked to academics, religious groups, thinktanks of both right and left, and to international agencies such as the UN, WHO, OECD, EU and ILO.  The truth is that human beings have the tendency to equate outward wealth with inner.worth.. Iinequality colours our social perceptions. It invokes feelings of superiority and inferiority, dominance and subordination – which affect the way we relate to and treat each other.

As we looked at the data, it became clear that almost all the problems that are more common at the bottom of the social ladder are more common in more unequal societies – including mental illness, drug addiction, obesity, loss of community life, imprisonment, unequal opportunities and poorer wellbeing for children. The effects of inequality are not confined to the poor. The health and social problems we looked at are between twice and 10 times as common in more unequal societies.  Inequality affects a large proportion of the population.  Research confirming both the basic pattern and the social mechanisms has mushroomed. It's not just rich countries where greater equality is beneficial, it is also important in poorer countries. Even the more equal provinces of China do better than the less equal ones.

Almost absent were studies explicitly linking income inequality to psychological states. But new studies have now filled that gap. That inequality damages family life is shown by higher rates of child abuse, and increased status competition is likely to explain the higher rates of bullying confirmed in schools in more unequal countries.

Strengthening community life is hampered by the difficulty of breaking the ice between people, but greater inequality amplifies the impression that some people are worth so much more than others, making us all more anxious about how we are seen and judged. Research has shown that greater inequality leads to shorter spells of economic expansion and more frequent and severe boom-and-bust cycles that make economies more vulnerable to crisis. The International Monetary Fund suggests that reducing inequality and bolstering longer-term economic growth may be "two sides of the same coin". And development experts point out how inequality compromises poverty reduction.  Lastly, inequality is being taken up as an important environmental issue; because it drives status competition, it intensifies consumerism and adds to personal debt.

In Britain, the coalition government has failed to reverse the continuing tendency for the richest 1% to get richer faster than the rest of society. The Equality Trust calculates that the richest 100 people in Britain now have as much wealth as the poorest 30% of households. It is hard to think of a more powerful way of telling people at the bottom that they are almost worthless than to pay them one-third of one percent of what the CEO in the same company gets. Politicians must recognise that reducing inequality is about improving the psychosocial wellbeing of the whole society.      [Abridged]

© 2014 Guardian News and Media

Richard G Wilkinson is a British researcher in social inequalities in health and the social determinants of health. He is emeritus professor of public health at the University of Nottingham and co-author, with Kate Pickett, of The Spirit Level: Why More Equal Societies Almost Always Do Better

http://www.theguardian.com/commentisfree/2014/mar/09/society-unequal-the-spirit-level

Religion in Schools

By Ian Harris          Otago DailyTimes       March 14, 2014

Indoctrination, instruction, education . . . the latest stir over religion in state primary schools seems largely a battle of semantics.  The Secular Education Network has conjured up a spectre of Christian zealots “indoctrinating” children with their own take on Christianity, implicitly misleading them while forcing the children of non-Christian or anti-religious parents to take refuge elsewhere. “Get religion out of secular education,” the network demands.

If religious volunteers are indeed “indoctrinating” children – and no doubt this has happened in some classes and perhaps still is, though rarely – that would be of serious concern. School boards should ensure that doesn’t happen.

But secular education doesn’t mean that teaching has to be secularist. The basic meaning of “secular” is “of this time and place; not under religious management or control”. It implies no core hostility to religion. It is neutral.

And religion is certainly relevant to this time and place, influencing deeply how billions of people in cultures around the world live their lives. Children growing into that world will be better prepared if they are aware of that. To rule religion out of education on the basis of some parents’ aversion to any or all religion would be to sell our children short. It would reflect not a secular but a secularist stance, with minds closed ideologically against religion.

Religious “instruction”, as provided for in New Zealand’s Education Act, is also not the best term. It smacks of instructing children in what they must think and do, making it only a gentler cousin of indoctrination. Some religious schools are masters at that, but instruction of that kind does not belong in a secular school system.  Religious “education” is another matter, and here it should not be hard to find common ground. For schooling should above all equip children to think for themselves about issues that will be important in their futures, including finding meaning in their lives.

This can only be helped by seeing how people in their own communities and around the world do that – which is where religion comes in. As a total mode of the interpreting and living of life, it is hugely influential in shaping people’s cultures, attitudes and behaviour, both positively and negatively. But the study of any and every culture, including our own, would be grossly deficient if it barred any consideration of religion.

A valid criticism of the present framework of religious education is that it applies only in primary schools, whereas wrestling with the great questions of life, which are also those of religion, requires the kind of abstract thinking that develops in the teens. Children who leave primary school with only a child’s perception of religion may therefore end up thinking that’s all there is to it, and reject it accordingly. At the very least, education should leave minds open to growth and further possibilities.

England has a more sensible approach, though there, too, there is pressure for change. Religious Education is compulsory in all state schools – and the British Humanist Association agrees it should be in the national curriculum.

The humanists envisage a subject “which helps young people to form and explore their own beliefs and develop an understanding of the beliefs and values different from their own; enriches pupils’ knowledge of the religious and humanist heritage of humanity and so supports other subjects such as history, English literature, art, music and geography; and allows pupils to engage with serious ethical and philosophical questions in a way that develops important skills of critical thinking, reasoning and inquiry”. One such approach, of Christian provenance, already operates in many English schools. It interweaves five strands:

 Exploring key biblical stories and themes, which help explain why the West is as it is, including so much of its literature, art and music.

 Providing the tools to think through current ethical issues, including sexuality, medical choices, racism, the environment, the “just war”.

 Exploring ideas central to religion and values, such as arguments for and against the existence of God, and problems raised by evil and suffering.

 Introducing young people to world religions other than their own, including atheism (itself “a total mode of the interpreting and living of life”).

 And, importantly, helping children to appreciate the value of stillness, providing a point of repose amid the noise and bustle of daily life.

Done well, such a curriculum would promote understanding, tolerance and compassion as children prepare for the complexities of life in a shrinking world. A pity the Secular Education Network isn’t putting its energies into achieving something like that.

More Questions?

As you read the postings on this blog, do you sometimes exclaim: “Yes, but you are overlooking something else that is important…”  Well, let’s examine that.  Those who talk about peace must be willing to work on the tough questions and meet them head-on. 

There will certainly be a venture of faith required.  It is impossible to guarantee what will follow when we act to meet a new challenge, where age-old questions are met in a new context.  What have we learned to trust in our life’s journey thus far?  This is something that we can share.

 Matt has been following this blog for some time.  He sends us five questions to consider, the first two of these appear below, with my response.  You are welcome to join in the discussion