July 12th, 2012
Speaking at the Just Banking conference in April, Prof Richard Werner called for an end to the suppression and repression of the third sector, including mutually-owned financial institutions and credit unions, while also calling for the introduction of a “regime of credit guidance”. Werner, chair in international banking at University of Southampton School of Management and founding director of the Centre for Banking, Finance and Sustainable Development, said:
“[we need to] return the power to create and allocate money to the people, this privilege belongs to them … by having local banks we can have local money.”
Here is an excerpt of what Richard wrote for Qfinance in 2009
Mainstream economics assumes that the best possible outcome will be achieved if banks are left alone in making their decisions about how much money should be created, to whom it should be handed over, and for what purpose. But the crisis has demonstrated that we can’t expect banks’ credit decisions to be beneficial to the overall economy, social welfare, or even the bankers themselves—as Alan Greenspan has admitted. The incentive structure at banks is such that they tend to create too much credit, when not needed, and for unproductive use. This is followed by banks creating too little money, when more would be needed.
There are some simple rules for sound banking and sound economics that need to be followed. Whenever credit is created and used to increase the amount of goods and services provided, it will result in noninflationary growth; more money comes about, but also more goods and services. Whenever credit is created and used for unproductive purposes, inflation comes about; more money chases limited goods or assets. The unproductive credit creation can take two forms. When credit is extended for consumption, it will result in consumer price inflation. When credit is extended for non-GDP transactions (which means mainly financial and real estate transactions), there will be asset inflation. Both cases are unsustainable and, if sufficiently large, result in banking and economic crises.
To watch all the videos from the Just Banking Conference on 19th and 20th July 2012, visit the Event Video YouTube page