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Defusing the debt bomb talk

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Sustento
Sustento

This is the ppt from a talk I gave recently to an audience of elderly folk. I hope it's clear what my message is: to have a stable monetary system, we need appropriate boundaries and regulation, neither which are delivered by a market approach. It's also true that governments do not need to borrow money for investment in productive infrastructure. Feedback always welcomed.

Economy & FinanceBusiness
1 of 31
Defusing the Debt Bomb: Lessons from the GFC By Raf Manji
About Me – Part 1 • Studied Economics and Finance • Entered Investment Banking in 1989 • Started in Risk Analysis in Capital Markets • Moved to Global Trading in 1991 • Spot Currency Trader to 1996 • Proprietary trader until 2000 • Epiphany
About Me – Part 2 • Trucost – Valuing the Ecosystem • Angel investor in Clean Tech, IT and Ethical Investment • Moved to NZ in 2002 • Studied Political Science 2003 – 2005 • Founded the Sustento Institute in 2006 • Social Entrepreneur • Currently studying for a Masters in International Law and Politics
Global Financial Crisis - Overview • Collapse in House Prices • Credit Markets Freeze • Banks collapse in US, UK and Europe • Collapse in Global Stock Prices • Global contagion • Global Recession • European Sovereign Debt Crisis
Mania Takes Hold - Iceland • Population 320,000, GDP $13 billion, Bank losses $100 billion
Ground Zero – The US Housing Bubble
Irrational Exuberance? Prices vs. Rent
Driven by the Debtmobile
Financialisation of the Economy
Causes – The End of History? • Excessive Credit • Speculation • Predatory Lending • Deregulation • Fraud • Risk Modeling • Complexity • Hubris
European Drama and Greek Tragedy • The Great Fudge • The Big Payoff • The Debt Binge • The Euro Straightjacket • The Hangover • In Between a Rock and a Hard Place
Nu Ziland – Too Small to Fail? • “Well managed and regulated financial system” • External debt $147b (71% of GDP) • Net Public debt $41b (20% of GDP) • Gross Public debt $71b (34% of GDP)
Nu Ziland – Too Small to Fail?
Spending more than we earn - since 1973
Nu Ziland – Too Small to Fail? • Living Beyond Means • Cowboy Capitalism • Sub Prime NZ style • SCF Bailout • Addicted to Debt
Lessons for NZ • Excessive Credit • Speculation in Housing • Poor regulation • No capital taxes • Complacent Governance • Debt Addiction
The Debt Based Money System • Nearly all money is created as Interest bearing debt • Created by the private banking system • Exposed by the GFC • Profits privatized, losses socialized • New debt needed to keep the system going • Boom, Bust built in • New approach needed
Why should Government pay interest? • Government can create its own money • “In the colonies we issue our own money. It is called colonial scrip...we control its purchasing power and we have no interest to pay to no one” Benjamin Franklin, 1764
Why should Government pay interest? • Banks don’t like it • “To repeal the act creating bank notes, or to restore to circulation the government issue of money, will be to provide the people with money and will therefore seriously affect our individual profits as bankers and lenders” James Buel, Secretary, American Bankers Association, 1877
Why should Government pay interest? • Creating currency is a sovereign right • “The issue of currency is a function of the government, a sovereign right which ought not to be delegated to corporations” Professor Davis Rich Dewey, 1902
NZ Money Supply – 98% Debt
Monetary Dialysis • Replacing “bad money” (interest bearing debt) with “good money” (notes and coin) • Retiring government debt as it matures • Financing new infrastructure with “good money” • Managing overall growth in money supply • Setting limits on new bank credit • Eliminating public debt by 2020
NZ – Monetary Dialysis Begins
NZ – Reducing Debt as % of Money Supply
NZ – No Public Debt by 2020
Dealing with the Overseas Debt • Foreign Transactions Surcharge (FTS) • Surcharge on all imports • Pay down overseas debt • Lowers exchange rate • Improves Current account • Lowers Interest rates • Lowers foreign ownership
Moving Forward • Debt Withdrawal • Reforming money system • Monetary Dialysis • Rebalancing the Current Account • Living within our limits • Reducing housing costs (supply) • Better regulation (RBNZ)
Final Word “Whoever controls the volume of money in any country is absolute master of all industry and commerce...and when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate” US President James Garfield, 1881

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Defusing the debt bomb talk

  • 1. Defusing the Debt Bomb: Lessons from the GFC By Raf Manji
  • 2. About Me – Part 1 • Studied Economics and Finance • Entered Investment Banking in 1989 • Started in Risk Analysis in Capital Markets • Moved to Global Trading in 1991 • Spot Currency Trader to 1996 • Proprietary trader until 2000 • Epiphany
  • 3. About Me – Part 2 • Trucost – Valuing the Ecosystem • Angel investor in Clean Tech, IT and Ethical Investment • Moved to NZ in 2002 • Studied Political Science 2003 – 2005 • Founded the Sustento Institute in 2006 • Social Entrepreneur • Currently studying for a Masters in International Law and Politics
  • 4. Global Financial Crisis - Overview • Collapse in House Prices • Credit Markets Freeze • Banks collapse in US, UK and Europe • Collapse in Global Stock Prices • Global contagion • Global Recession • European Sovereign Debt Crisis
  • 5. Mania Takes Hold - Iceland • Population 320,000, GDP $13 billion, Bank losses $100 billion
  • 6. Ground Zero – The US Housing Bubble
  • 8. Driven by the Debtmobile
  • 10. Causes – The End of History? • Excessive Credit • Speculation • Predatory Lending • Deregulation • Fraud • Risk Modeling • Complexity • Hubris
  • 11. European Drama and Greek Tragedy • The Great Fudge • The Big Payoff • The Debt Binge • The Euro Straightjacket • The Hangover • In Between a Rock and a Hard Place
  • 12. Nu Ziland – Too Small to Fail? • “Well managed and regulated financial system” • External debt $147b (71% of GDP) • Net Public debt $41b (20% of GDP) • Gross Public debt $71b (34% of GDP)
  • 13. Nu Ziland – Too Small to Fail?
  • 14. Spending more than we earn - since 1973
  • 15.
  • 16.
  • 17.
  • 18. Nu Ziland – Too Small to Fail? • Living Beyond Means • Cowboy Capitalism • Sub Prime NZ style • SCF Bailout • Addicted to Debt
  • 19. Lessons for NZ • Excessive Credit • Speculation in Housing • Poor regulation • No capital taxes • Complacent Governance • Debt Addiction
  • 20. The Debt Based Money System • Nearly all money is created as Interest bearing debt • Created by the private banking system • Exposed by the GFC • Profits privatized, losses socialized • New debt needed to keep the system going • Boom, Bust built in • New approach needed
  • 21. Why should Government pay interest? • Government can create its own money • “In the colonies we issue our own money. It is called colonial scrip...we control its purchasing power and we have no interest to pay to no one” Benjamin Franklin, 1764
  • 22. Why should Government pay interest? • Banks don’t like it • “To repeal the act creating bank notes, or to restore to circulation the government issue of money, will be to provide the people with money and will therefore seriously affect our individual profits as bankers and lenders” James Buel, Secretary, American Bankers Association, 1877
  • 23. Why should Government pay interest? • Creating currency is a sovereign right • “The issue of currency is a function of the government, a sovereign right which ought not to be delegated to corporations” Professor Davis Rich Dewey, 1902
  • 24. NZ Money Supply – 98% Debt
  • 25. Monetary Dialysis • Replacing “bad money” (interest bearing debt) with “good money” (notes and coin) • Retiring government debt as it matures • Financing new infrastructure with “good money” • Managing overall growth in money supply • Setting limits on new bank credit • Eliminating public debt by 2020
  • 26. NZ – Monetary Dialysis Begins
  • 27. NZ – Reducing Debt as % of Money Supply
  • 28. NZ – No Public Debt by 2020
  • 29. Dealing with the Overseas Debt • Foreign Transactions Surcharge (FTS) • Surcharge on all imports • Pay down overseas debt • Lowers exchange rate • Improves Current account • Lowers Interest rates • Lowers foreign ownership
  • 30. Moving Forward • Debt Withdrawal • Reforming money system • Monetary Dialysis • Rebalancing the Current Account • Living within our limits • Reducing housing costs (supply) • Better regulation (RBNZ)
  • 31. Final Word “Whoever controls the volume of money in any country is absolute master of all industry and commerce...and when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate” US President James Garfield, 1881

Editor's Notes

  1. 8% of total GDP and 41% of total corporate profits
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