Governments have been conned in the greatest shell game of all time into allowing banks to increase the money supply and lend the increase in the money supply to the governments at interest. This is crazy.

Governments can increase the money supply in other less costly ways.

We can leave the current system in place. We can continue to let the banks increase the money supply and charge interest on the increase. However governments can also give individuals interest free loans that must be invested in productive assets as another way to increase the money supply. If we do this then we will find that it is unprofitable for the banks to increase the money supply with interest bearing loans.

Governments have been conned into thinking that banks are the best people to issue loans that will increase community wealth but banks only issue loans to people who already have assets and they really don't care what is done with the money as long as it paid back.

Governments should increase the money supply by giving interest free credit to people who will invest in creating new wealth. It is pretty easy to do and ensure compliance. You can find some suggestions at http://cscoxk.wordpress.com

"Governments have been conned in the greatest shell game of all time into allowing banks to increase the money supply and lend the increase in the money supply to the governments at interest. This is crazy."

Yes, absolutely crazy. Corrupt would be a better word.

"Governments should increase the money supply..."

Why should governments increase the money supply?

Considering that the entire history of government control of the money supply, going back centuries, is a history of chronic abuse and rank thievery made legal, what reason is there to think that they could ever be trusted with it?

Peter,

You are right. Governments should not increase the money supply. Governments should set the priorities of the areas in the economy to encourage and governments should monitor interest rates, unemployment rates, inflation rates, asset bubbles etc and redirect priorities to appropriate areas. That is, prioritisation is a function of government but details of the how and what to do when we increase the money supply are best left to the community. Have a look at some of the examples of how interest free loans are distributed at cscoxk.wordpress.com and you can see some ways that individual choice decides how and how much the money supply increases.

Yes, the world is a scary place when the "new world order" no longer means that the New World gives the orders. At least it is from the perspective of the USA and its client states. But for the majority of the world's population it would be liberation.

It will be interesting to see what price the Chinese demand of Australia as we seek to switch client state allegiance to it. Must we give up control of all of our assets including our productive farmland so that Chinese can be fed before Australians?

When will people realise that the Chinese only pay lip-service to our free-market ideology as long as it suits them?

Interesting times!

Everyone seems to have forgotten it was the banks that put the world into financial peril in the first place. And the first thing they did when they received government money was pay the managers whose decisions caused this unholy mess, obscene bonuses.

Governments around the world that believe in a free market economy should allow the markets to clear up the mess. If the major lending institutions were left to the market it would have punished those responsible severely through bankruptcy.

It would have been exceptionally painful medicine and could have bought on a worldwide depression. The speculators would have been punished too and would be shy at a tilt at another currency or country.

The free market would have rectified itself more rapidly, taught institutions that there is not one of them that aren’t disposable through a lesson that would be more powerful in its affect than all the control legislation that can be devised.

One has to examine the origins of the problem and rectify each one. No one saving, everyone spending beyond their means, including countries, tax breaks given to the extremely wealthy at the wrong time when the country can least afford it, spending of trillions of dollars on unnecessary wars and outright mismanagement of the free economy.

Debt levels must be reduced substantially and rapidly or the interest on the loans that governments have to repay will put the brakes on growth and will eat up money that the market needs to expand and there is no guarantee that a depression has been avoided.

Good article and comments.
It is interesting that the proponents of free markets seem to conveniently exclude banking from this mechanism. Free markets rely on honest price signals. The price signal for currency is the interest rate. If this price of money were allowed to reflect the market instead of being manipulated for profit then we would have a much more responsible mechanism for matching the money supply to the economy. True, it would not be perfect pricing system but it would have to be better than the current system that funnels wealth away from youthful industries and stagnates it in "safe investments" for millionaires who want money for nothing.
We really do need the US and Europe to collapse somewhat before any changes will come about. Governments cannot implement real change until they know they won't be ambushed by desperate oligarchs. Needless to say the bankers still have too much power to simply undercut.

Yes the markets prey on debt laden nations.

I have found the Parable "the world plus 5%" to give quite simple but profound answers to why the monetary system is structured the way it is.
www.larryhannigan.com/TheEarthplus5.htm . I post it here in case you have never seen this parable, though it was written in 1971.

the second parable that I like is the one of the island naton who had everything to complete a major public work (ie materials, technology,labour etc,) but did not have the cash. So they printed money, and the engineers paid the labourers etc and the labourers paid their bills etc and the economy flowed on very nicely, getting the job done.
when the Public work (ie bridge) was done, they waited a time, and then had a big party and destroyed the notes.. they still had the bridge, which initially they had "no money" to build.

I would like to see flood recovery dollars created at the moment in just the same way as in the second parable... remembering that money is merely an instrument of exchange... to facilitate the rebuilding process. I wonder If there are any serious politicians who would take the idea and run with it?? Don't ask me how it would work.. I'm a global with big picture ideas and dreams and visions.

i wonder what would happen if a country did try this idea? break the monopoly over the money supply? As we all know there is a limited amount of money available(in the current System) and donors all are finite as well. Why don't we try something new for this unprecedented diaster cleanup??

The characteristic of a pyramid scheme and a growth economy is that as long as it grows all is well. Unconsciously, we all believe in perpetual economic growth. Econcomic growth requires an ever increasing quantity of resources as well as new comers at the bottom so that those already on board, the well off, can get even weller off.

The banks simply continue on the myth of the ponzi scheme mentality and that is why they are allowed to get away with breaking the rules.

We will live in interesting times as we reconcile a broken make believe money system to real world food and energy shortages.

Sharan,

Visit http://cscoxk.wordpress.com/2011/01/21/funds-for-queensland-flood-relief/ to see (in less than 300 words:) how we can do exactly what you suggest. See also http://cscoxk.wordpress.com/2011/01/25/early-infrastructure-replacement/ to see an expansion of the idea.

We can do what you suggest today with our current system. Instead of the government putting a tax levy and distributing expensive money the government can issue interest free loans that will be paid back through the tax system.

The approach can be tweaked for other projects such as getting Australia to zero emissions by

1. Giving individuals interest free loans in inverse proportion to the amount of mains electricity they consume.
2. Requiring the individuals to invest the funds in ways to reduce the level of green house gases.

See an illustrated version of why this is a good way to increase the money supply this way at http://www.youtube.com/watch?v=wXqHSZOg3VA

See a longer discussion on why this will work at http://cscoxk.wordpress.com/2010/05/27/unleashing-creative-forces-for-a-sustainable-future/#comments

Thank you for a data driven article Joergen. The US debt is just about 95% of GDP at the end of 2010. This putative number however does not include agency debt said to be just shy of $6 trillion. Adding the 2 together gets a debt to GDP of about 140%. The US continues to cook the books trying to minimize the gravity. It is like looking at the burning Twin Towers and saying, "things are stable so far"
http://www.usgovernmentspending.com/federal_debt_chart.html