GUEST BLOG: Bryan Gould – Positive Money Petition

Many of today’s generation will have forgotten or be unaware of the brave and successful initiative taken by our Prime Minister in the 1930s – the great Michael Joseph Savage.  He created new money with which he built thousands of state houses, thereby bringing an end to the Great Depression in New Zealand and providing decent houses for young families (my own included) who needed them.
Positive Money NZ, an advocacy group campaigning for monetary reform – I have the honour of being its patron – has just launched a petition to Parliament (which can be found here ).  The petition calls for a review of how and by whom our money is created.
It takes as its starting point the almost incredible fact – one still contested by many supposed experts, although confirmed by detailed studies produced by the Bank of England and other central banks – that around 97% of our money has been created, not by the government, but by the commercial banks, which create the money by simply making a bank entry in the accounts of those to whom they lend money, usually on mortgage.  Even our own Don Brash now agrees (after disputing it for some time) that the banking system creates money.
The banks, of course, charge interest on the money they thereby create ex nihilo (or out of nothing) and it is the interest they charge that produces their huge profits of billions of dollars which they then send back, in most cases, to Australia.
What is really astonishing about this state of affairs is that the money supply – one of the key elements in determining our economic success or otherwise – is almost entirely controlled, not by our government or the Reserve Bank, but by foreign-owned commercial banks which operate entirely for their own profit and are in no way accountable to the New Zealand public.
It is, however, the New Zealand public that pays the price and bears the burden of the inexorable and bank-driven increase in the money supply.  That price is paid in the form of higher interest rates (which are needed to restrain the ever-increasing level of lending), an over-valued exchange rate (a consequence of the higher interest rates that attract “hot money” from overseas), a crippling level of private debt in our economy, a huge burden on our balance of payments, a diversion of capital away from infrastructure and productive purposes, and constantly rising housing costs – all of which we could do without.
The petition proposes that we should change this inherently unstable system of money creation to one in which new money is no longer created by private and largely foreign-owned companies whose only goal is profit, but is issued only by the Reserve Bank under the direction of our elected government which would then be accountable to the people for its monetary policy – as it should be, but currently is not.  New money could then be directed to productive purposes and would no longer simply fuel asset inflation, particularly in the housing market.
This approach to monetary policy is not only endorsed by leading monetary policy experts, such as Lord Adair Turner.  It is also supported by an IMF discussion paper entitled “The Chicago plan revisited” and is applied by governments in other countries, such as Shinzo Abe’s Japan.   It also has a gold-plated pedigree right here in New Zealand, when Michael Joseph Savage’s Labour government in the 1930s authorised the Reserve Bank to issue interest-free credit in order to build thousands of state houses.
Let us hope that the Select Committee that will consider the Positive Money New Zealand petition is aware of this precedent and takes note.


Bryan Gould was a Labour MP in the United Kingdom from 1974-79 and 1983-1994.


  1. There’s a political party for this already – Social Credit.

    No disputes money is created in the banking system but it’s created as Gould describes why does any bank take deposits and charge interest when they can just create the money out of thin air? Answers in the subject line of an email to

    • The article is correct and Positive Money is politically neutral, but, yes there is just one political party (Social Credit) already supporting the gist of this article. So why isn’t Social Credit more successful? Wait until you see the ridicule this perfectly sane petition generates and you will get the message.
      Why can’t the banks simply print money without limit? Because 1) they must hold certain amounts of money in reserve to allow for a possible run 2) Banks must advance or reduce their money creation in lock step, otherwise errant banks will find themselves in debt to other banks ( you will need to read “Positive Money” to find out more; 3) Banks cant use deposits to create more money because deposits are formed in the process of money creation (You’ll need to read about that too.

    • Banks are allowed to lend (create out of thin air) money that is nine times more than deposits or funds they hold. So theoretically they must have a 10% reserve.

      Private banks have books that are a black hole, linked to and intertwined with off shore exchanges and loans every day and night.

      Private banking is not difficult to understand.

      It is a racket that robs NZ and most countries of wealth created by peoples labour. The power money has to corrupt, threaten and control is plain as day. We are run by a group of thieves who control out Govts, freedom to enjoy the fruits of our efforts while the parasites suck up massive dividends they have not earned, BUT WE HAVE GIVEN TO THEM.

      The parasites are controlling a larger part of total global wealth each day.

      John A Lee was a hero but the historical account of J.A.Lee’s farsightedness and leadership is being rewritten more recently.

    • Richard you’re conflating capital ratios with liquidity.

      Banks create money to lend (first) and then look for corresponding deposits. They still only profit on the margin between deposits and loans. However with banks creating the money there is much greater loans required in the economy and so their profits are bigger.

      But they cannot simply have a balance sheet of debt – they would be insolvent. That is why when defaults ripple through the system banks go under. That is why they need some capital reserves. Liquidity just means they have some spare in cash accounts to allow withdrawals.

      • If you think about it Amanda, apart from cash, no money ever leaves the banking system as a whole. If you visualise it as one complex entity (realistic I think), then someone’s loan as they take it up to make a payment to someone else, just gets transferred as a deposit into the recipient’s account. Still in the banking system as a whole. . So the system doesn’t need to think about whether the deposits match the loans. Any loan becomes a deposit somewhere else in the act of it’s creation. All they need to do is co-operate in an interbank constant reconciliation process . Neither loans nor deposits ever get out of the banking system . Balancing total lending with total deposits is absolutely automatic. Except perhaps for the interest and cash withdrawals.
        Makes having a wad of cash under the mattress an attractive idea doesn’t it.
        D J S

    • The banks need deposits for unsecured loans: credit cards, hire purchase, overdrafts etc.

      They create money as a “book entry” on secured loans like house mortgages. They have your house as backing, and as you pay off the principal they cancel the created money.

      At the end of the life of the mortgage the book entry’s gone, but they’ve made a killing off you in interest.

  2. I think a more comprehensive explanation of how banking and money creation should be attempted in order to help interested people who have not had occasion to think about it much in the past understand what is going on. And what would need to be set up to change it.
    The bold assertion that nearly all money is issued by banks as loans without more explanation is too hard to accept . Not that it isn’t true.
    The article referred by the Bank of England says that it does not take regard of volume of deposits when making a loan, but of it’s overall assets. This may or may not apply to the banks that operate here , but wikipedia says that NZ banks operate on the traditional “deposit reserve ratio”. As the US banks do and all banks have been assumed to until that BOE article.
    From Paul Samuelson’s Economics,an introductory Analysis .P331 1961 edition.
    “According to these false explanations , the managers of an ordinary bank are able, by some use of their fountain pens,to lend several dollars for each dollar deposited with them. No wonder practical bankers see red when such power is attributed to them .They only wish they could do so… Bankers ,therefore often go to the opposite extreme. Thy sometimes argue that the banking system connote (and does not) create money… Bankers who argue in this way are quite wrong”…
    “Our answer then to the basic question is in the affirmative . Yes the banking system and the public do between them, create about $5 of bank deposits for every new dollar of reserves that comes to the banks.”
    The fed at this time was requiring a deposit reserve ratio of 20% , meaning that a bank was allowed to lend out 80% of it’s deposits.Resulting in a 5x multiplication of the original cash reserve. A 10% reserve ratio allows a 10x multiplication, a 5% reserve allows a 20x multiplication etc. So to conceptualise what the relationship is between bank created loans and real money you have to recognise what deposits are. They are mostly recycled loans, as money borrowed from my bank to pay you for your old car appears as a deposit in your bank of which they can lend 80 90 or 95%. The loan money has to be extinguished when it is paid back or the multiplication would continue indefinitely , as long as people wanted loans.
    In the mid 90s Allan Greenspan decided to remove the imposition of a reserve ratio on bank lending , assuming that managers were as knowledgable and responsible as anyone to decide what ratio was safe. This led to a ratio of about a 2% reserve ratio developing. When the GFC hit everyone who could stopped taking out loans and tried to pay them back. So the ratio sank back to well below the 5% that the US has since reimposed. Partly because masses of unpayable debt was replaced in the banking system as new deposit money by QE thus increasing the proportion of deposits not made up of other people’s loans. While banks operate well within the deposit reserve ratio in vogue their reference to their deposit levels in deciding on a loan is irrelevant which is the present situation .
    If this explanation is obsolete I would like someone to say when it became so and by what mechanism. As above wikipedia still has us operating a deposit reserve ratio.
    So if the suggested petition is presented , ending the extinguishing of loan money on repayment to the bank. And allowing the banks now to only lend out deposits. But 100% of those deposits presumably, how is the money multiplier going to be interrupted?
    Without this explanation it is not apparent from either this article or the petition preamble why the proposal would not result in infinitely more money being able to be created by the banks, far less eliminate it. In order to stop the loan moneys from re appearing as deposits in the banking system and thence being recognised by the system as new deposits to be lent out again ad infinitum . If the original loan money returns to the bank deposit pool, what happens to the money paid to other people in the community who were paid for some service out of that loan? It can hardly be extinguished in their hands. It can only finish up in their bank’s deposit pool. As a new deposit. How can it be reconciled with the original loan that produced it ? If it is not destroyed on repayment it would have to be destroyed on re entry into the banking system or double the money supply each bank transaction.
    The only way I can see of preventing the money multiplier would be to have a way of identifying every individual piece of money with an electronic number like a banknote. To give money identity. And reconcile every loan with every deposit it gave rise to.
    But I don’t think that is necessary. Certainly it is reasonable for the reserve bank to create money for public works and social purposes instead of going to the banks with cap in hand. But the banks do a legitimate job (or used to) of keeping account of everyone’s stored value, and vetting would be borrowers as legitimate and responsible operators.
    The fact that the money supply is multiplied up by interaction between banks and their customers doesn’t really matter as long as the state has control of how much “seed” money there is , and how much it can be multiplied by imposing a deposit reserve ratio that is meaningful . Then the state can exercise the necessary control of the money supply and the banks need receive no more remuneration than is reasonable for the services they perform. It was OK for 50 years.
    My appreciation to anyone who has struggled through this .
    Cheers D J S

  3. Odd how the memory, efforts & radicalism of John A. Lee seem to have been erased from this chapter in our history. Must be the work of purist Labour historians.

  4. And then? After we’ve spent their money on our backs?
    If they ask, and they will ask, for their money back?
    What can we offer? A Bankster greed crippled agrarian primary industry that everybody hates, despite stuffing what farmers grow down their maws?
    Fluff? A song and dance routine?
    Your sister? Your mother?

    Or our country?
    They, and God only knows who ‘They’ actually are. I have my suspicions, of course.
    They’re trapping us like rabbits.
    SNAP! Goes the financial traps and we, dear readers, are fucked.
    You should all probably read @ Chris Trotters Post here, at this point.
    That’s why… never mind fucking about with petitions. Just run the bastard bankers out. Directly, forcibly.
    And Labour are tits deep in the banks machinations and are just as guilty at selling us out to the Banksters as the Natzo’s.

  5. The article is correct and Positive Money is politically neutral, but, yes there is just one political party (Social Credit) already supporting the gist of this article. So why isn’t Social Credit more successful? Wait until you see the ridicule this perfectly sane petition generates and you will get the message.
    Why can’t the banks simply print money without limit? Because 1) they must hold certain amounts of money in reserve to allow for a possible run 2) Banks must advance or reduce their money creation in lock step, otherwise errant banks will find themselves in debt to other banks ( you will need to read “Positive Money” to find out more; 3) Banks cant use deposits to create more money because deposits are formed in the process of money creation (You’ll need to read about that too.?

  6. All I know is it comes due.

    But I prefer young chap Gould to everything from 84 on. The whole holus bolus of our government since then.

  7. Bryan Gould’s explanation of money creation is correct, though not complete.

    Bill Still’s ‘The Money Masters’ is arguably the best documentary on the matter, since it covers the creation of tally sticks and how they were used in the establishment of the Bank of England, it covers the creation of Colonial Scrip and the efforts of the Crown to stamp it out -leading to the American War of Independence; it covers the creation of greenbacks to finance the Union side of the American Civil War; it covers the numerous attempts of bankers to establish control of money in America, and the efforts of those that fought that control, and the eventual acquisition of control of money-issuing by the Federal Reserve (not a government agency) in 1913.

    Of course, the vast majority of people are not interested in such matters and would not think to become informed about the major factor (servicing the interest payments on money created out of thin air) that keeps them trapped as debt slaves and keeps the nation impoverished.

    The charging of interest on money created out of nothing is the biggest scam on this planet. Unfortunately, this scam is so widely accepted and so well protected it cannot be effectively challenged, which is why collapse of the system is inevitable.

    We should note that, although money is created out of thin air, the entire system is actually supported by the extraction and burning of fossil fuels, and that current international arrangements are centred on maintaining the American dollar as the international reserve currency, based on what is often referred to as the petro-dollar, since it is ‘printing’ of government bonds and their sale to foreign banks that keeps oil flowing.

    It is only a matter of time before the rigged interest rates and lack of yield associated with low returns, compounded by falling net energy return and environmental disasters, cause the international financial system to implode.

    That said, we can confidently predict that politicians will take no action to protect NZ from that coming implosion. Indeed, we can confidently predict that politicians will continue to pretend that the globalised financial system has a long-term future when it obviously does not because it is a system which is entirely based on confidence rather than anything tangible.

    The lack of anything tangible to back money has been made clear on numerous occasions in the past, when banks have closed their doors in the face of bank runs because they simply did not have the money they said they had: it was mostly pieces of paper or entries in legers.

    Indeed, it was America’s inability to make good on its obligation to redeem US dollars with gold that led to the closure of the gold window in 1971, after France requested payment in gold.

    Nowadays money is mostly digits in computer systems, of course. And they can vanish in a microsecond.

  8. I’m going to be extremely arrogant here and say what I think.
    I think Rickoshay’s link is great. And it describes the disaster created by an unregulated banking system. None of the professionals interviewed said that the fundamental problem was that the banks were privately owned, only that they needed to be much more closely regulated , that the amount of money created must be controlled by an independent public body , and that they must no longer be allowed to speculate in they own right on markets with our deposits. This is how it was not long ago.
    There would be nothing wrong with the banks being one publicly owned bank either, but it is essential in our modern society that someone does the job of storing our savings and facilitating our transactions. Though we could do it all with cash I suppose and keep our savings under the mattress. But it’s regulation that matters , not ownership either way.
    @ John W
    An individual bank does not lend out nine times what they have on deposit. On a 10% reserve ratio you depict the individual bank can lend out 90% of what it has on deposit. This goes off to borrowers who spend it on whatever, and the recipient of their spending takes it along to their own bank and “deposits” it. So it becomes another deposit, allowing the second bank to lend 90% of it and so on. So a multitude of loans and deposits of ever diminishing size are derived from the original loan in total increasing the money supply to 9x the original deposit by the time the additional amours of 90%s have become so small as to be negligible. So it’s the interaction of the public taking out loans and recycling them back into the banking system as a whole that multiplies the money supply. And whether the original deposit comes from fiat money fed into the system by the reserve bank bond buying activities as now , or by fiat money recycling from public works as Gould and positive Money suggest ( a fine idea in itself) or by fiat money being placed in everyone’s account as Social Credit used to recommend , an fact a UBI (another fine idea), Would make not the slightest difference to the ability of the banks to multiply the money supply up just as it does now and has done since money ceased to be solid coin.So long as the public still wants to borrow from the banks for whatever purpose.
    The BOE article stating that they take no account of deposit levels when making a loan, and arguing that the common concept of having a deposit reserve ratio is wrong or obsolete does not deny the multiplication either. It just means that there is no constraint on it. As in a zero% ratio.
    The other side of the equation is that it requires borrowers to want to take out loans for the money to expand in this way, so acceptable clients wit collateral and sensible schemes are needed to expand the supply too. And when everyone looses confidence in their projects and tries to take money out of circulation , consolidate their positions and all pay back what loans they can, that multiplication goes into reverse , and there is a contraction in the supply . Then no-one is making new deposits, but everyone wants to withdraw their deposited savings. And since their savings are made out of other peoples loans the banks soon run out of deposited money to pay out. And they can’t magic up money to pay for withdrawals of savings, only to make new loans . So they either go down or get bailed out as in the GFC and QE.
    Positive Money seems to be perturbed by the banks creating a sort of deposit , at least called a deposit to confuse or obfuscate when the agree to make someone a loan. I think this is a red herring. It is surely just a convenient way of accounting for the gradual uptake of the loan as the borrower needs to draw it. And then to account for it’s repayment. The accounting has to be recorded somehow.
    Now this get’s really arrogant and I apologise in advance , but neither Brian Gould’s article nor the comments give me to feel that anyone is properly understanding what is going on or how it works. And this is depressing because the people involved are interested, and there is a problem with the monetary system and it has to be fixed. But it’s never going to be fixed from a position of misunderstanding of what is.
    If the only people in the world who understand banking are a few top bankers then we will always be screwed as we always have been.
    Yours with sacrificed humility
    D J S

    • I am not disagreeing with your post in any way but two assumptions cannot be made.

      That banks make loans regulated by the “money in hand”.

      That the privately owned banks in NZ are independent of each other.

      On top of that their is the interest charges which is a significant addition to further push to system into an unsustainable “economic” cycle.

      The creation of present day economies relies on work applied and non Renewable Natural Resources of which we have consumed over 75% since 1800.

      Provision of capital as a fundamental regulator of economies is a ponzi argument no matter what intricanticities are discussed.

      • I don’t disagree with any of that either.
        There is no provision in fiat money creation or the multiplication of it that provides extra for interest . It has to come out of expansion of loans. But spending it all on derivatives probably doesn’t cause much harm to the planet. Perhaps this should be encouraged for that reason. Divert all money into useless air castles.
        Have a look at Islamist banking, They don’t do interest (usury).
        Cheers D J S

    • Of course if we all refused to borrow any money and would make do with what we earn as it comes in, the banking system would collapse immediately . Then a whole new system of positive money would have to be put in place.
      D J S

      • Your assumption, that it is possible to not borrow any more money, is wrong, David. Our debts far exceed our ability to repay them. We need to pay our existing debts merely to escape bankruptcy. Our debts rise virtually exponentially. There is no escape except by the public ownership of all private banks.

        • Not true – the Positive Money proposal would render banks merely lenders of the product of the central bank – no creation possible by the private sector. Debt itself is not the problem – the problem is money arising as a debt/credit entity, rather than just credit. Loans must still be made, and interest will remain the incentive. As long as we manage the supply and the distribution properly (public creation, private distribution – with regulation, of course) we have a working system.

        • An individual can get out of debt if it is their absolute priority. But it will be at the expense of someone else in the system carrying more , or a reduction in the money supply. If everyone did manage to pay their debts there would be virtually no money . That’s why the system would collapse . And a better system put in place .
          The government can only reduce debt (fiscal responsibility) by transferring it onto the public too. Every dollar of debt they pay off and don’t re borrow ,either the taxpayers have to borrow it to pay their taxes (even if indirectly) or there is a reduction in the overall money supply . It’s mad.
          D J S

          • Presumably, when banks pay staff salaries, other admin expenses, and shareholder dividends, they are feeding money, not backed by debt, into the wider economy. These payments would come from interest and bank fees received. This would suggest that there is some ‘real’ money within the banking system.

        • I think the environment defines any nation particularly at this time and to give what the Chinese call chi a plug, there’s a life force and a spirit of a country. I think Treaty settlements is something to be proud about, not because of any exchange of wealth or what ever but because a wrong had been righted but that’s the expression. And in respects to taxes, the tax revenue streams pick up these eddy currents in our national lives and it actually pushes politicians along, so I see all these things as a sort of a flux but taxes is the sort of thing we need to put air into the structures because it’s got a bit monolithic and difficult to progress and open it up a bit and give itself the capacity to push the government along whether it be building schools or defence capabilities in newer digital areas extending kiwis into the electronic realm. And every side whether it be left or right, green, brown, Asian, what ever. Every team has to put in a good session and hope it turns out a good one.

          These types of reforms take time and you’ve got to be around awhile longer than one term. Jacinda has been Prime Minister for 11 months, everything has to fit with in 9 years. One needs to have been around so you know when each part fits into what cycle in sync, if not in a polical, social and economic synchronicity. Getting all this right is apart of a ministers craft. But the thing about power is actually using it, knowing why but most importantly when to use it because at that level if you’re one syllable or second out your timings off and you get run over. It’s about drawing down what power other people have to influence a common good but in doing that there’s only really been a year or so to do that. But these are issues that have been brewing in the minds of some of us for years. But the fact that an unwed woman can give birth while in office and all her nay Sayers can do is bitch and moan about how great our society would be if we payed less taxes and burn single mothers on welfare to death, glorious. I think we should find them all and put them all in order.

          I think great periods in a countries cycle has great periods of understanding and cooperation. Charities don’t have a great role in New Zealand, I think government has a greater role than might other wise be the case in other societies and at any rate I think the government always try’s to spend wisely and apart of all these working groups that I find interesting is the ploy to get private funding so that as New Zealand grows at 3%+ every year it won’t be only just the government funding these things or, only just private enterprise building all these things. But the government has a role to play and to rejoice in public good. Private companies can rejoice in other ways.

  9. I am the National Spokesperson for Positive Money New Zealand, the organisation that initiated the petition to require our Reserve Bank to issue all of our currency.

    This is not a new idea. It was first floated in the 1930’s by a number of leading U.S. economists that became known as the Chicago Plan.

    In August 2012 an IMF discussion paper titled “The Chicago Plan Revisited” reviewed the claimed advantages of the Chicago Plan namely:
    (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.
    (2) Complete elimination of bank runs.
    (3) Dramatic reduction of the (net) public debt.
    (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.

    The IMF discussion paper studied these claims and found support for all four. The paper also said output gains approaching 10 percent could be achieved and steady state inflation could drop to zero without posing problems for the conduct of monetary policy.

    Copy this link into your browser for the IMF paper.

    • Yeah well, in New Zealand your biggest problem is probably mortgage interest rates where you’ve got floating and fixed rates and when coming off a fixed 10 year rate or what ever usually interest goes up, haven’t looked at the whole thing but it doesn’t matter what’s in the loan contract because the rate is set by and large by The Reserve Bank who’s unelected, nothing to do with the original contract but is the arbiter of so many fortunes. Now we’ve finally got some one in Adrian Orr who knows a thing or two about these dark arts you want to come along and make counter claims to a false question. It’s a bit like asking Don Brash what his view is of maaris and complaining when he replies but in this case it’s about increasing the awareness and trust and professionalism of New Zealand’s finances after the Panama Papers.

Comments are closed.