Proposed solutions to the question raised by
« Wolfson Economics Prize »




In a situation of economic self-defence, each member state of the Eurozone must as a priority retake control of its central bank. The survival of our economies is at stake.

Due to the Maastricht Treaty, the National Central Banks (NCBs) are not permitted anymore to issue money for their Public Treasuries as they used to in the past. Since they are thus forced to go through the markets, interest is now charged on the wealth (GDP) produced by the toiling masses for the sole benefit of invasive capitalism. We are talking about approximately 200 billion euros for 2011.

It is becoming increasingly clear that central banks are being controlled by financial power. Placing the Federal Reserve under the protection of the Treasury at the beginning of 2011, albeit with the greatest discretion, is the first illustration of this. This means that the lender of last resort is replaced by the State, which thus became the payer of last resort.

Regarding the question of whether the members of the Eurozone can or cannot abandon the euro, I propose a solution that would allow each member to make the decision freely, according to a plan that seems feasible to me, while avoiding the dreaded damages. 

The return to growth is a much tougher problem to solve due to the complexity and the entanglement of economic and monetary factors that are the source of trade, in an environment agitated by financial and political trends.

My proposals are based on my research works in macro-economy, especially relating to the discovery of a law that commands the pace of progress of each national activity. It accurately demonstrates that the sphere of the production activity expands or decreases according to whether it is supplied with more or less with money, as in the dynamics of the economy savings performs the function of a brake while credit acts as an accelerator. The precision of this law depends on the measure of these two factors that, I believe, are measurable. 

National activity works more or less like the engine of a mechanical machine. It runs faster or slower depending on the quantity of fuel (money) it gets.

The widespread application of this law would upset the overall balance and open a new era of sustainable economic development and human prosperity.

Thus, we assume that growth can “be decreed”, simply because national activity is financed just like any other business activity. The opposite would be surprising as the national economy is made up of the sum of all the production activities. And as each activity is financed, the sum of the financing of all activities simply represents the financing of the national economy. It is messy at the moment because it is not organised.

The economic situation nowadays is a liberal economy left to the unregulated and thus disorderly influence of opposite endogenous factors which are: savings and credit. Savings play the role of the brakes and credit plays the role of the accelerator. In addition, an exterior balance showing a deficit amplifies the brake effect whereas a beneficiary balance amplifies the accelerator effect.

The confirmation of the savings ‘brake effect’ was given by the monetary ‘parking places’.

Solid arguments allow me to claim that money saved in bank does not circulate. I will let you be the judge of this.

There is a lack of money in the real economy and too much of it in the financial sphere. There is an overabundance of savings.

The governance of a country should no longer be an issue of taxation but of finance and money.

Finally, I would like to draw your attention to an important and ignored issue.

In order to guarantee their refinancing operations or to obtain loans on the interbank market, banks acquire eligible securities. Thus, they used to have so-called “subprime” securities before they became toxic, and bonds of sovereign debt before their default risks became apparent. This is the reason why the interbank market is not working anymore, as central banks must then accept securities refused by banks with the risk of monetary chaos. Central banks are now used to absorb depreciation, which commercial banks have managed to get rid of quite easily.

This central money which is distributed in abundance but is more or less blocked in accounts cannot serve the real economy. It feeds the liquidity trap.

This is a special feature of deposit money: central money can only be exchanged between holders of open accounts at the central banks, that is to say, commercial banks and the Treasury. Letting people believe the contrary is false. Similarly, secondary money can only be exchanged between holders of open accounts in a deposit bank, that is to say, non-banking agents.

I think you will find in the following pages the viewpoint of a financial practitioner and analyst on economics, whose bearings are not the ones of an economist.



“If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?”


To my mind, the question posed raises two different issues:

                a) An application issue: leaving the Union or not with all the resulting consequences,

                b) A deeper issue: building a solid foundation in order to renew growth and engaging the members of the Economic and Monetary Union towards prosperity without forgetting its international environment, which cannot be avoided.
My proposals are presented in two parts. I would like to stipulate that if they call into question the former agreements, nothing prevents us from repealing them and signing new ones.


Part One


How to Save the Euro from Collapsing

Rather than answering the question of whether the members should leave the Economic and Monetary Union or not, I think it is preferable to respond by organising a healthier monetary situation, followed by a soft transition whereby each member is offered the option of deciding whether to stay or leave.

In the Eurozone, one could proceed immediately with appropriate measures to a return to the national currencies, without abandoning the euro. The aim would be to re-establish the harmonisation of trade between state members of the Eurozone that have had such great structural differences that they are being divided. This operation could be carried out as soon as the appropriate political decisions are taken.  The members that would like to leave the euro definitively would then be able to.

If one wants to save the euro from the said collapse, here is a series of measures which I would recommend:

1 – Each country should as a priority retake control of its central bank.

Before returning to the national currencies as explained hereunder, the National Central Bank / NCB of each country would issue an amount in euros corresponding to its total National Debt. This amount would be allowed to the State, partly with no interest rate or repayment date, and would then be blocked on the Public Treasury account at the NCB of the country to be used exclusively for refunding the debt. The account would be balanced by progressive payments. One could also make provision for the advance and immediate reimbursement of all or part of the debt.

This measure would have the advantage of balancing a monetary and economic situation that has become impossible to manage and would give fresh impetus to the real economy through appropriate means (cf. second part). The money issued would only go back to the lenders who would then use it as required.

2 – One must immediately denounce the Maastricht Treaty (Art. 104) and the Lisbon Treaty (Art.123) which were signed by our governments under the intolerable pressure of monetary authorities. As the National Central Banks (NCBs) are not permitted anymore to issue money for their Public Treasuries like they used to do in the past, and since they are forced to go through the markets, interest is now charged on the wealth (GDP) produced by the toiling masses – by the very sweat of their brows – for the sole benefit of invasive capitalism. In order to reduce the national debt, one tries by fair or foul means to save money on every count. In doing so, one shuts one’s eyes and sacrifices essential public expenses in order to protect the interests of the markets!

The annual interest of the National Debts of the Eurozone members is estimated to be between 2 and 300 billion euros in 2011, a figure that will only get worse year by year due to compound interest.

This being so, here is the process which could save the euro from collapsing.

3 – The national currencies are put back into service in the Eurozone according to the following specific rules:

- The member states bind themselves to use one single and unique currency (the euro) for intra-community trade and in their relations to the rest of the world; their national currency is not in current use on the exchange markets, 

- The European Central Bank sets the exchange rates of each currency against a unique currency on the basis of a Purchasing Power Parity (PPP), calculated by an independent institute of statistics (OECD for instance), to be revised every year according to the combined evolution of inflation rates and of the purchasing power in each country,

- Domestic monetary markets are strictly reserved for the national currencies. 

For example, let us imagine that the Purchasing Power Parity (PPP) of the Drachma is 80 for a PPP of 100, with the German Deutschmark serving as a basis (1 euro = 1 DM). Under these conditions, Greece, for its imports, should procure euros at the rate of 100/80, i.e. 125 drachmas for 100 euros, and inversely would receive 125 drachmas for 100 exported euros. This would lead to a de facto devaluation of the Drachma, which would lead to a restoration of Greece’s trade balance: more expensive imports would result in a reduced number of imports, and exports would become easier and therefore stronger. Tourism would also be boosted.

By this means, one restores the natural harmony of trade between the countries of the Eurozone, whose economics are being made more homogeneous simply by reducing disparities in purchasing power. If one believes the OECD, in 2010 France would have had a purchasing power 7% higher than that of Germany, i.e. 100/107 = 93 francs for 100 euros.

Finally, on the day when the purchasing power parities of certain countries are very close to 1, their national currency could be abandoned in order to return to the euro. Ultimately, it is desirable that all the countries in Europe would be aligned through their PPP.

This harmonisation of financial relations between the countries of the Eurozone would allow those who would like to, to finally leave the zone.

On the D-day of the return to its national currency, the governments of each of these countries could then decide to intervene in order to fix a fair payment of the debt and the claims of its economic agents previously contracted in foreign currencies and in euros.

4 – The anticipated repayment in full of the National Debt of the Eurozone obviously raises many questions, to which one can try to give some answers. 

Who are the holders of these debts?

a) the Eurozone banks,
b) non-banking agents, i.e. funds managers, insurance companies, and households in small quantities,
c) non-residents.

As the two last do not have accounts in the National Central Banks (NCB), they would be obliged to go through the banks of the Eurozone to sell the bonds issued by the Public Treasury of the concerned country.

Just for information, at the end of 2009 the holding of national debt in the Eurozone was divided among Residents (the domestic financial sector and others) at 47% and Non-Residents at 53%. For France, it was 30% and 70% respectively (cf. Qui détient la dette publique - Fondation pour l'innovation politique - April 2011).

    4.1 – Where will the funds recently issued by the NCB for the repayment of national debts go?

a) The banks of the Eurozone will receive in central currency the whole reimbursement, partly in exchange of the shares sold and partly on behalf of non-banking agents (NBA) and non-residents,

b) The banks of the Eurozone will issue secondary currency in order to credit themselves, as well as the NBA and the non-residents, with the shares sold.

Assuming that the allocation between both a) and b) is 25/75, the banks – within this assumption – would receive 100% of central currency and issue 75% of secondary currency.

    4.2 – What arrangements could be made to limit the effects of a sudden issuing of central currency?

a) The central currency received by the Eurozone banks as a reimbursement of the bonds that they had to their credit would be (partly or wholly, according to a study to be realised) blocked as Unavailable Obligatory Reserves (UOR) in the accounts of the concerned banks at their NCB, pending bank reforms proposed elsewhere (Part Two), 

b) The central currency received on behalf of the NBA and non-residents (75% in the hypothesis mentioned)  would be blocked as UOR in the accounts of the concerned banks at their NCB, pending the bank reforms referred to above.

5 – What arrangements could be made to limit the effects of a sudden issuing of secondary currency?

One can estimate that those who sell the national debt bonds they own had originally decided to make a profitable savings investment. One can also assume that they are going to search for new investments which will be more difficult to find, as the range of investments will be seriously narrowed. It is also conceivable that this capital is not going to be invested in the field of production unless it is incited to. As consumption seems to be excluded, one should develop some outlets towards production investment (preferably small businesses and small and medium-size industries) with the creation of funds for that purpose, supplemented by appropriate fiscal aids.

Provided one controls the use of these resources by appropriate regulation, the price inflation of the real economy would be protected (see Part Two).

6 - Conclusions

The solution proposed here has the advantage of putting an end to the indebtedness of the State and its ‘cavalry’ via its loans. This is a short-term decision taken to settle a long-term problem which will only resurface sooner or later if it is not solved. 

Especially since there is a fundamental problem that has gone unnoticed: there is a lack of money in the real economy and too much of it in the financial sphere. There is an overabundance of savings. And as someone has said (I forget who), there is no other source for savings than production. And savings look for investment solutions, that is to say, everything but consumption. 

On the verge of collapse, is this not the solution, unless one wishes to overthrow the entire system? But who would then be in a position to plan the scope and consequences of it? Tensions are so sharp that we are close to the implosion of the monetary system. 

The national debts would be repaid by money issued by the National Central Banks. One part (to be defined) of this money issued would be permanent money with no interest or repayment date. There would therefore no longer be a risk of defaulting on payments, and rating agencies would have no reason to exert their harmful influence on the markets of public debt, as there would be no more public debt on the markets!

Trade within the Eurozone would be restored by a rate of exchange fixed by the PPP for the duration of one year, which would be reviewable. The latter would be calculated by an independent organisation and certified by a consulting company such as Price Waterhouse, whose integrity was verified when they refused to carry on with the auditing of the (tarnished) accounts of the Federal Reserve in 2007. 

The foreign trade of the Eurozone would be regulated by the PPP put into place with the zone, and in accordance with the financial means of each participating country.

Returning to the euro as a unique currency, for some countries or for all of them, would depend on the alignment of their PPPs and on their decisions, free from any external pressure.


Part Two


How to Renew With Growth

If part one was easy to explain, part two is difficult due to the complexity and the entanglement of economic and monetary factors that are at the root of trade, in an environment agitated by financial and political trends.

In order to treat a patient, it is necessary to make an accurate diagnosis of the disease before prescribing the remedies that could cure him. It is the same for our economies, which are seriously ill as you know.

I propose:

1 – To draw up an inventory as accurately as possible of the functioning of our economies, whether or not they belong to the Economic and Monetary Union, according to the following:         

1.1 – economic governance
1.2 – banking system and currency
1.3 – monetary policy of the Central Bank and its power on the issuing of secondary money
1.4 – monetary savings and its impact on the national production activity
1.5 – a macroeconomic law controlling the pace of progress of each national activity and therefore of growth
1.6 – globalisation of trade
1.7 – general conclusions on the functioning of our economies,

2 – To draw to your attention an essential and disruptive element of our economies – agitated like a ghost by the monetary power – inflation,

3 – To try to identify the causes of the crisis we are going through,

4 – And finally, to propose some solutions.

Chapter 1 – An Inventory : Before the Crisis


1.1 – Economic governance

What is hidden under this sonorous term is absolute void, except for the increase of taxes.

To control is to foresee.

Our leaders do not run anything but their political careers. To foresee means to anticipate the dirty tricks that will have to be fended off from enemies, without forgetting friends.  

With regards to economic governance, have you ever seen a general manager entrusting the management of his finances to an independent organism, whose methods would be incompatible with the interests of his company? Of course not. This is, however, how our countries are governed, as the keys of monetary issuing were given to the Central Bank, who literally abandoned them to the private banks. 

It is said that power belongs to the one who manufactures currency. 

It is then no surprise to see that financial powers impose their domination on economic governance, particularly in our democratic countries.

Stabilising our economies compulsorily implies dismantling the bonds of subordination of political power in monetary and financial power.

It is known that the State still keeps its accounts like the ones of a grocer, with expenses and receipts, even though since the end of the last century balance sheets have emerged.

The State’s budget is a finance budget mixed indiscriminately:

- with the receipts, those items relating to taxes, the incomes of its shares in public companies, the transfer of goods and loans, etc.

- with the expenses, those items relating to operating expenses, various and diverse aids, investments, the interests on loans and the repayment of the loans themselves.

As a first and absurd consequence, this forces the State to borrow in order to increase its assets and to resell them in order to repay the loan! Not to mention the interest which is borne by the working population in Europe so that the accounts are balanced – because the Maastricht Treaty has decided as such! The second consequence, equally absurd and implacable, is the circulation of the State’s loans.

Thus, Greece has to sell its assets to repay its debts. And the other members of the Eurozone are widening their deficit by borrowing in order to lend to Greece, which continues to ruin itself. The others will soon follow, which will only worsen the process of community self-destruction.

The absurdity of such a system, built on the monetary indebtedness of the State, becomes more and more obvious.

The financial needs of a country should be divided roughly into three groups:

- operational public expenditure

- capital expenditure

- the monetary needs of national economic regulation, economic requirement.

The first should be covered by taxes; the two others should be covered by so-calledpermanent money, i.e. by money issued by the Central Bank to be made available to the government – by a Parliament decision – with no interest or repayment date. The supply of permanent money could be reduced if the circumstances require it.

Monetary management is, therefore, the indispensable instrument of economic governance. This is not the only one, as we will see later on.


1.2 – Banking System and Currency

1.2.1 – The organisation of the banking system

The banking system is composed by Monetary Financial Institutions (MFI), i.e. the Central Bank and the credit establishments and UCITS it manages. Credit establishments are commercial banks, mutual banks, financial companies and institutions.

Credit establishments therefore include deposit banks that create money as well as financial companies and institutions that only make money circulate. This deliberate amalgamation is used to maintain confusion in the minds about money, which is a taboo subject.

Under pressure from monetary authorities (and how could it be different?) the French legislation confirms it.

The French law of 24thJanuary 1984 states that 

« les établissements de crédit sont des personnes qui effectuent à titre de profession habituelle des opérations de banque. Celles-ci comprennent la réception de fonds du public, les opérations de crédit, ainsi que la mise à disposition de la clientèle ou la gestion de moyens de paiement. Sont considérés comme fonds reçus du public les fonds qu’une personne recueille d’un tiers, notamment sous forme de dépôts, avec le droit d’en disposer pour son propre compte, mais à charge pour elle de les restituer. Constitue une opération de crédit pour l’application de la présente loi tout acte par lequel une personne agissant à titre onéreux met ou promet de mettre des fonds à la disposition d’une autre personne… »

It is astonishing to note that in this definition credit establishments are indistinctly mixed up, authorities totally evade the principle of money creation – which is the basis of the profession of money lender banks – and there are no distinctions made between the banks that create money and other institutions that only circulate it.

Thus, in reality, the system is composed of a Central Bank or a group of central banks in Europe, deposit banks which create money and financial establishments.

1.2.2 – Monetary creation

In each country of the world, the Central Bank or issuing bank – which can also be called Super Bank – has the privilege of not only issuing banknotes but also deposit money called “central money”. 

As far as commercial banks are concerned, they create money that can only be deposit money. This money is known as “secondary” in order to mark the hierarchy between them.

Deposit money is by definition derived from accounting entries. 

There are three sources for the creation of deposit money, which are practiced – in principle – by the Central Bank as well as commercial banks:

● extension of credit,

● purchase of foreigner currency,

● the specific bank’s activities (Central or commercial), if the sum of its own assets is higher than the sum of its own liabilities.

Inversely, monetary destruction takes place when the loans are repaid, when currencies are sold out and finally when the assets owned are lower than the liabilities owned.

If the first two cases are well known amongst specialists, it is not the same for the third scenario over which a complete silence is drawn!

The main characteristic of this third source of monetary creation and monetary destruction is that the bank monetises its expenses (losses) and demonetises its receipts (profits). This is something that nobody has yet understood or dared to say. As such, for example, it creates money when it pays the salaries of its employees by crediting their accounts, and it destroys money when it debits the accounts of its customers’ interest, premiums and other fees owed. In short, the bank monetises each time it buys and pays, and demonetises each time it sells and collects.

Let us take the example of the insurance business of BNP. It destroys money when it collects premiums from its clients (debiting their account) and it creates money when it pays for claims and other damages (crediting the account of the third party). Apart from these remunerations, the difference represents a demonetisation equal to the technical reserves that are part of its liabilities. At the end of 2010, these reserves amounted to 114.9 billion euros, corresponding to a cumulative demonetisation of BNP as such. It is no small matter.

The creation and the destruction of deposit moneyby banks (Central or commercial) follows a general rule that can be described as such:

Any increase in assets, as well as every expense and decrease in liabilities of these banks will necessarily result in a situation of monetary creation, whereas any increase in liabilities, as well as every income and decrease of their assets will symmetrically result in monetary destruction. For these operations are done or undone by the inscription, in one way or the other, directly or indirectly, into the Demand Deposit Accounts (DDA) of the banks by the Super Bank and into the Demand Deposit Accounts (DDA) of the non-banking agents by the banks. 

The Central Bank and commercial banks are doing the same for issuing currency. The difference is that the Super Bank is creating central money, aimed at the banks and the Treasury, whereas the commercial banks are creating secondary money, exclusively aimed at non-banking agents (NBA), which include financial institutions.

1.2.3 – The relationship between central money and secondary money

Here is what the Banque de France says about central money in report No. 70, October 1999:

« Celle-ci, appelée aussi monnaie à haute puissance ou base monétaire, est émise par la banque centrale sous deux formes :
              – des billets de banque, que la banque centrale remet aux banques qui, à leur tour, les délivrent à leurs clients ;
              – des avoirs en compte auprès des banques centrales déposés par les banques commerciales et par le Trésor. Ces avoirs constituent une monnaie particulière qui n’est détenue que par les intermédiaires financiers et ne sert pas aux transactions. »

The notion that this money is not used for transactions is not completely true as it allows the banks to carry out financial transactions in which they continually engage themselves. So if there are no commercial transactions, there are indeed financial transactions.

This disposition implicitly confirms the fact that bank creates money each time it buys or pays and destroys money each time it sells or collects, as it is known that the bank’s account at the Super Bank is not used for its current transactions.

Therefore central deposit money is used exclusively between the banks themselves and the Treasury, which necessarily means between those who own assets in accounts at the Central Bank.

As this money can be exchanged only between holders of assets in accounts, it never leaves the Central Bank because it cannot do so. One can easily verify this.

Even if bank X would like to lend a sum of 100,000 monetary units (MU) to company A, by using its availabilities at the Central Bank, it could not do so because A has no open account at the Issuing Bank, through which the amount could have been put up for disposal by cheque or a transfer, for instance. It seems impossible to assume that bank X would draw up a cheque at the Central Bank upon the order of its customer, who would then immediately cash the cheque at the same bank! Bank X has no other practical alternative than to create secondary money (as opposed to central money) via the credit it grants: this is the first source of monetary creation.

However, as the Treasury also has an account at the Super Bank, it is used as a lock between the two currencies that are placed in two impenetrable compartments. For if the central money does not leave the Issuing Bank, neither does the secondary money leave the banking system that created it.  This reinforces the idea of two partitioned systems.

The central money is being exchanged only between holders of open accounts at the Central Bank: banks and the Treasury. 

The Treasury serves then as a passage or a lock between both central and secondary moneys, through the exchanges it has with other non-banking agents, as it is the only non-banking agent that has an open account at the Central Bank.

Currently, it is being proclaimed around the world that the hundreds of billions poured into banks by the issuing institutes can revitalise the real economy. It is a sham to suggest that! Especially so in Europe, as the Maastricht Treaty forbids the central banks to grant advances or loans to their countries. As a consequence, the issuing of central deposit money in Europe cannot aid the private sector as it cannot be issued in favour of banks.

Here is how exchanges take place between both moneys, with the Public Treasury serving as a gateway.

                a) – The Treasury rules over its expenses. Its account is debited at the Central Bank whereas the account of Bank X of the supplier is credited at the same Central Bank. At the same time,Bank X creates secondary money by crediting the Demand Deposing Account (DDA) of its customer (the State supplier). There is no destruction of central money, whereas there is creation of secondary money.

                b) – The Treasury cashes in its tax revenues. Its account is credited at the Central Bank, whereas Bank Y is debited at the same Central Bank. At the same time, Bank Y destroys secondary money by debiting the Demand Depositing Account (DDA) of its customer (the taxpayer).  There is destruction of secondary money, whereas there can or cannot be the creation of central money, depending on whether Bank Y has this money or not at its disposal.

To sum up, the two moneys are being exchanged against each other – as if they were foreign currencies – but they don’t substitute each other, as the creation or destruction of secondary money is not inversely followed by the destruction or creation of central money. Hence, there are two impenetrable compartments for two distinct moneys.

In so much as the Central Bank does not provide the State with money (which is the case in the Eurozone),  the creation/destruction of secondary money tends to cancel each other out. Whereas if the Central Bank supplies the State directly by subscribing Treasury bonds or bills (which is the case in the USA, for instance), the latter will have at its disposal central money that will go back to the deposit banks as soon as the State pays its expenses (asgiven in example (a) above). This would result in the creation of secondary money inequal quantities.

In order to be comprehensive, it is necessary to add that in Europe the issuing of Treasury bonds and bills are subscribed on one hand by European commercial banks that create money, and on the other hand in the financial markets by non-banking agents and non-residents and foreigners. The subscription of Treasury bondsor bills by the latter immediately leads to the destruction of secondary money (in the example (b) above) and eventually to its creation, when the State undertakes expenditure (in the example (a) above).

1.2.4 – The theory of the multiplier

This theory serves monetary power by pretending that the latter completely controls monetary creation, whereas this is not the case (see the following chapter). That is the reason why we will devote a few words to this.

Following is the definition of this theory by the bank Natixis (in February 2007):

« Le multiplicateur monétaire (de crédit) est la théorie qui explique quel montant de crédit (de masse monétaire) peut être distribué par les banques à partir de la base monétaire créée par la Banque Centrale. »

Before adding further:

« De ce fait (internationalisation des bases monétaires), le multiplicateur monétaire n'a plus de sens au niveau national ou régional, ce que montrent d'ailleurs bien les évolutions observées, mais seulement au niveau mondial. »

It is clearly mentioned here that the money distributed by the banks depends on the monetary base created by the Central bank. Why does the author use the term ‘distributed’ – which casts lingering doubts about the origin of the term – rather than the term ‘created’? This is the first point. The internationalisation of trade allows him to dodge the question and to ignore the opposing arguments. This is the second point.

We have seen that monetary base or high-powered money is constituted by banknotes on one hand, and by assets in accounts at the Central Bank deposited by commercial banks and the Treasury, on the other hand.

It is generally accepted that the theory of the multiplier is based on paper money in circulation (banknotes) and on the obligatory reserves, i.e. both ‘refinancing’ needs that the banks cannot avoid. If this is so, then why are Public Treasury bonds and the liquidity absorption (which constitute part of the monetary base) simply excluded from the calculation of this theory? Are we dealing with a multi-variable base? Furthermore, this theory does not take into account the abundance of central money due to the activities of the Central Bank, as we have noted above and which is re-explained in the following chapter.

Could the rising of the supply of bank moneynevertheless be explained by a prior increase in the monetary base?

This is in total contradiction with what has been said by the Banque de France (already given in report No. 70, October 1999) about the financial establishments – given as banks – which are structurally indebted to the Central Bank: «La creation monétaire de ces établissements, qui intervient lorsqu'ils prêtent à leurs clients, exige une creation monétaire postérieure par la banque central lors de leur refinancement. »

This is very clear for those that are ‘in the bank’. For the others that are ‘outside of the bank’, their availability of central money allows them to fulfil their obligations towards the required reserves when the time comes.

From our point of view, the theory of the multiplier results from an upside-down reasoning. This will not be the last we hear of this, as it seems this type of economic reasoning is in voguenowadays. What actually occurs is the exact opposite, as will be shown in the following example of monetary creation by banks.

Before granting a loan, each commercial bank will, as a priority, ascertain the creditworthiness of the borrower and of the borrower’s ability to honour its commitments. This is the most important procedure in the eyes of the banker; everything else is a mere matter of administration. There aren’t any banks that don’t own some Treasury bonds in their portfolio. This is the precautionary approach. In this way, the bank knows it will be able to get without any difficulty either a loan from its competitors or the necessary central money from the Super Bank. Indeed, it holds the first financial security recognised by the Super Bank, even if it has no qualifying debt at the Super Bank, such as a debt security on a primary category enterprise (see the following example). This is the administrative approach.

Let us take the case of company A, from the primary category, which means that itsdebts are registered at the Central Bank. This company borrows 10 million monetary units (MU) from bank X

Let us observe the order in which operations are conducted.

Bank X creates money ex nihilo, as they say. It credits company A’s Demand Deposit Account (DDA) in exchange of a debt (that is, a commitment to repay it on maturity) which is recorded as an asset in its balance sheet.

As the sum of its deposits has increased due to this issuance,each day bank X must deposit at the Central Bank an amount of obligatory reserves equal to, for example, 2% (the rate in the Eurozone).  It’s almost as if bank X was starting its activity without any obligatory reserves, but had previously taken the precaution of subscribing to or buying Treasury bonds or bills.

The increase of the monetary base thus depends upon the raising of bank credit or money supply, and not vice versa, that is to say, when banks continuously create money ex nihilo. Each new issuance of bank money will then have as a first effect the accumulation of obligatory reserves, and then the transformation of a fraction of this deposit money into paper money for the needs of economic agents in a constant mathematical relationship due to the habits of banking agents and to banking law. The graphic trends observed by Natexis follow from this mathematical relationship.

Nevertheless, by disseminating false information toward an enlightened public (in principle) – which includes specialists who disregard the proclamations of Banque de France – Natexis adds to the confusion of a field that is not only complicated but also made obscure by all kinds of traps, shams and other devices that are designed to keep it so.


1.3 – The monetary policy of the Central bank and its authority to issue secondary money

Price stability and the struggle against inflation are at the heart of our Central Bank statutes. They therefore constitute the main thrust of Central Bank policy. Incidentally, we must note that the issue of growth is absent.

Chapter 2 – which I take the liberty to refer to here – is called ‘Theory and practice of inflation’. It raises serious questions about what one understands by inflation and its real consequences on the economy.

The Central Bank has total control over issuing central money. That is nearly the only power it still has though, as it seems it cannot even exercise this power freely because of its policies and of its dependence on the private banking sector (see later in this chapter).

For several decades, the management tools which the Central Bank required in order to conduct monetary policy have been reduced – thanks to the forces of liberalisation – to the bare minimum: the interest rate and required reserves.

Clearly the interest rate failed to control anything as soon as it reached record levels of decrease (close to zero). We could take the example of Japan for this, whose economy has not managed to take off for over twenty years.

As for the rate of required reserves, it doesn’t have the function anymore – if it ever did – that monetary policy once conferred upon it. As the Banque of France reminds us in economic jargon: « un système de réserves obligatoires, en imposant des encaisses liquides supérieures à ce que les banques doivent détenir en moyenne, permet d’absorber plus facilement les besoins temporaires de liquidité, ce qui tend à réduire le besoin d’intervention de la banque centrale. »

How is one to believe whether it really comes down to reducing the rate of required reserves to 1%? According to me, the banks have no more healthy bonds to refinance themselves

In addition, as the power of creating money (secondary money) was given – if not abandoned – to the deposit banks without any compensation, the Central Bank thereby deprived itself of the power to control and limit the issuance of money.

A supposedly detailed study is attached as Appendice I: ‘The power of the Central Bank towards issuing secondary money’, which concludes the following:

Commercial banks benefit from free Central Bank money (the repurchase of foreign currencies, an activity of the Central Bank, should the occasion arise). « Les opérations de rachat de devises constituent des facteurs autonomes de la liquidité bancaire qui échappent à l'autorité monétaire », says the Banque de France.

The study of the balance sheet of this bank at the end of 2006 (before the financial crisis) shows that French commercial banks as a whole benefited from € 69.5 billion of free Central Bank money for a refinancing of € 13.7 billion!

What gives commercial banks the right to receive free money - for their private purposes – issued by the Central Bank? Nothing, apparently. What have they done to benefit this exorbitant privilege? Nothing, but for merely being there and taking advantage of an organisation tailor-made for them.

Practically speaking, commercial banks are in total control of issuing secondary money because:

- they make their case, independently and without any money, about their positions resulting from the compensation of their customers’ transactions, therefore without having to provide central money; whereas after the compensation, the debit position of some are equal to the credit positions of others, which leads them naturally to make loan agreements, not without guarantee but without needing money,

- their needs for refinancing – in order to deal with their customers’ requests for banknotes and coins – and their reserve requirements are in practice deeply reduced by the Issuing Institute’s policies and monetary management (purchase of foreign currencies, advances to the State and activities of the Super Bank), as the influence of the monetary power is reduced accordingly,

- the secondary money never leaves the banks that create it, just as the central money never leaves the Central Bank,

This allows us to suggest that in their activity of issuing banknotes and coins, the first limit that banks face is demand, i.e. effective demand. 

Let’s not forget that they are clearly limited in their commitments by the solvency ratio. However, we must note that they have found a way to circumvent this constraint by assigning debts for securitisation.

In conclusion, the Central Bank has no power over how banks issue money and as a consequence has no power over price stability – the ultimate responsibility which the Central Bank invested itself with!

It has abandoned to the private banks the right and the power to issue money without any real control.

It is abusing public opinion by pretending to struggle against a monetary inflation that has not existed for a long time. The origin of rising prices is to be found in the behaviour of those who make a profit on it (see chapter 2).  


1.4 – Monetary savings and its impact on the national activity of production

Let me draw your attention to this chapter, which is dedicated to savings. This, to me, represents the most important factor in the slowdown of the activity of production. Most economists are aware that savings slows down growth, without being able to measure the effects of it – or so it seems. The following chapter seeks to demonstrate this.

The real economy is desperately short of money whereas the financial and monetary spheres are abound with it. This constitutes the main problem of the economic governance of a country. 

Secondary money – which is necessarily deposit money as we should remember – is always in a bank account and leaves it only by order of its holder or depositor to go into another account or to be destroyed (i.e. the repayment of the debt by the borrower).

The bank itself does not dispose of secondary money for two fundamental reasons. Firstly, it cannot be both money (in DDA) and compensation (debt) at the same time, unlike financial institutions that have to dispose of funds in order to lend funds. Secondly, secondary money does not belong to the bank; the bank has no need for secondary money because it creates it.

The bank “draws” on its coffers. The financial establishment “draws” on its bank.

This fundamental difference, masked by the law of January 1984, is at the centre of the confusion that prevails about money.

We know that banks create money when they grant loans to non-banking agents (NBA) by making a simple accounting entry on their balance sheet, such as:

Assets: Loans NBA                                      Liabilities: Demand Deposit Accounts (DDA) NBA

If there was only one bank, the transactions between NBA would take place from a DDA to another DDA within this bank.

All things being equal, we then have the following equation:   

Loans = DDA

If there are several banks, we have an additional equation without affecting the first one, as it will be registered as extra addition on the balance sheet of the banks and will disappear at their consolidation:

Interbank loans = Interbank debts

The DDA represents deposit money and it fulfils the three purposes of money: being a unit of account, having exchange value and being a (potential) store of value.

Some are talking about simple promises to pay but they seem to forget that this is the very definition of deposit money. I do not see any other definition.

If we add banknotes to the DDA we get the mass M1.

We now come to the crux of the problem of monetary ‘parking places’.

Most of us regularly give orders to our bank so that our money is transferred from our DDA to our savings accounts or to our term deposit accounts (TDA). This money that goes from a DDA to a TDA still belongs to the depositor. It becomes a store of value and is still money but it will not circulate again until the depositor gives the order to put it back in the system (DDA). 

As these operations are made by transfers from DDA to TDA, the monetary equation thus becomes:

Loans = DDA + TDA

If we add banknotes to DDA and TDA we get the mass M2.

A continuous increase of M1 and M2 has been observed, I believe, because of GDP growth. I would add that statistical data (for France) shows that M2 is always equal to more than the double of M1, which means that TDA are much higher than DDA. The proportion saved is therefore significant.

TDA is money, as it is part of the base of required reserves. I do not think that the monetary authorities can be wrong about this point, although it has not been disclosed.

As the TDA remains on the liability side of the bank balance sheet, I concur that it is dead money that occupies monetary ‘parking places’. It is useless and even harmful for the economy by the reducing effects it has on the production system.

The term ‘parking place’ is not fully adequate as currently there is still more money flowing in than out. It is, thus, more dead money. On the contrary, the transfers from TDA to DDA have the effect of reactivating bank deposit money.

To digress, it’s surprising howthe measure of money in deposit form – easily measurable throughaccounting – is not adopted by the authorities to calculate the total money supply.  But let’s return to the matter at hand.

Most of the bankers themselves are convinced that bank savings are used to finance new loans, an incorrect assumption if we follow the arguments presented here.

If you want to put your banker on the spot, you should ask him what accounting entry he uses for the funds deposited in savings accounts. There is no entry for that, unless the depositor specifically orders the bank to use the funds (in a purchase of shares in an open-end investment fund, for instance).  

Credits make demand deposits and term depositsin the banks. Demand depositsmake credits in financial institutions.

Certain specialists, bank directors in particular, agree on the fact that the bank does not or cannot use the demand deposits (DDA) of their customers. On the contrary, nobody, I believe, explains how savings are used by the banks, where the savings are still on their balance sheets of the banks under the names of their depositors.

If I may make a bold criticism about the words that are being ascribed to Maurice Allais:

«Par l’utilisation des dépôts à vue et à court terme de ses déposants, l’activité d’une banque aboutit à financer des investissements à moyen ou long terme correspondant aux emprunts qu’elle a consentis à ses clients. Cette activité repose ainsi sur l’échange de promesses de payer à un terme donné de la banque contre des promesses de payer à des termes plus éloignés des clients moyennant le paiement d’intérêts. »

This, in my humble opinion, is an error and inversion of reasoning. The error is to say that the bank uses the demand deposits and term deposits of its depositors. And Allais forgets or loses sight of the fact that the loans (in the French text emprunts instead of prêts - is this a Freudian slip?) granted by the banks to its customers are the claims at the origin of issuing money and not the contrary. 

At the moment of issuing money, the credits make the demand deposit (DDA) and after circulation (the transfer from DDA to TDA) they make Demand DDA + Term TDA deposits.


1.5 – A macroeconomic law controlling the pace of progress of each national activity and therefore of growth

National activity works more or less like the engine of a mechanical device. It runs faster or slower depending on the quantity of fuel it is fed, i.e. money.

There is a macroeconomic law that commands the pace of progress of each national activity. This is the result of my research works. The law accurately demonstrates that the cycle of production activity expands or decreases according to whether it is supplied with more or less  liquidity, as in economic dynamics, saving performs the function of a brake while credit performs the function of an accelerator. The accuracy of the law depends on the extent of these two factors, which are measurable. 

The widespread application of this law would upset the overall balance and open up a new era of sustainable economic development and human prosperity.

Thus, we assume that growth can ‘be decreed’ simply because national activity is financed just like any other business activity. The opposite would be surprising as the national economy is made up of the sum of all production activities. And as each activity is financed, the sum of the financing of all activities simply represents the financing of the national economy. It is messy at the moment because it is not organised.

The economic situation nowadays is a liberal economy left to the unregulated and thus disorderly influences of opposite endogenous factors, which are:  savings and credit. Savings play the role of the brakes and credit plays the role of the accelerator. In addition, an exterior balance showing a deficit amplifies the brake effect whereas a beneficiary balance amplifies the accelerator effect.

The confirmation of the savings ‘brake effect’ was given by the monetary ‘parking places’.

This macroeconomic aspect totally defies the current theories.

Additionally, we must not think that savings finances investment, as suggested by the theory of the equality of these two terms. This mathematic expression is both too simple and insufficient to deduce that savings finances investment, as it combines two different magnitudes: savings (monetary magnitude) and investment (economic magnitude). This has the effect of masking any other sources of financing, in particular, the monetary issuing that undeniably finances a part of investment. We must also take note of the fact that international trade does not enter the equation, which is surprising to say the least, given its place in the activity of production.

Finally, it confuses further by offsetting the savings and expenditure from personal income, while it totally ignores forced savings, i.e. the part of income used to repay debts.

It appears that growth depends primarily on the abundance of money within the real economy, and subsequently on controlling its effects on prices. Therefore, the first and most important of the tasks which each government is responsible for is the monetary management by regulation accompanied by a new policy, aimed at controlling price inflation by influencing the behaviour of economic agents which are responsible for changes in prices. 

1.5.1 – Brief definition of the growth of Gross Domestic Product (GDP)

Growth is nothing but a mathematical difference between the productions of two periods that follow each other: one month, one quarter or one year, with money as the unit of account. As national accounts are prepared every year, growth is ultimately measured in comparison to the previous year.

The measure in value (of transactions) allows us to analyse the national activity in its current monetary environment, while the measure in volume allows us to calculate the real growth (positive or negative) that took place, as this measure in volume is also given in constant money.

The comparison of both periods comprises two differences (see Appendice II):

- a differenceof volume, the growth of which is also a difference of purchasing power, and

- a difference of price and of inflation.

By forcing the growth difference, we reduce the inflation difference, which helps out statistical manipulations.

Due to the equality that exists between GDP and national income, growth is to production what purchasing power is to income. This leads directly to intense conflicts about the divisions, especially during a period of economic slowdown.

For a given quantity of money, the strongest earns what the weakest loses. Here lies the main cause of income inequality between economic agents, asit is money that animates the real economy of national activity, as we shall see.

We are reminded that trade operates between economic agents: on the one hand, companies (production), and on the other hand, households (consumption).

Separating the functions of production and consumption, broadly speaking, is a fundamental principle which must be respected if one wants to understand economic phenomena.

Thus, producers/companies and consumers/households should be opposed in all parts of economic life, especially in the accounting sense, as they have their own interests.

As this separation doesn’t have any exceptions, the State can no longer play an independent role here (in the margins of producers and consumers) even if it plays a major role in the activities of the country. It behaves like a business, hires employees, and produces goods and services, albeit at a fixed price. Like any other business, it adds value to the national production, and its consumption can only be intermediate and not final, as is currently the case. This results in a major error in the calculation of GDP (11% in France in 2008), which I cannot develop because of space constraints.

Contrary to the rule that it is grouped with business investments, we chose to incorporate ‘new housing’ in household consumption. In this way, one gains more clarity: when we speak of investment, we should not confuse two masses that do not fulfil the same economic requirements. The first one is a durable consumer good for households and the other is a means of production for businesses.

1.5.2 – The dynamics of the economy

The very idea of the economy is closely linked to the idea of movement. Hence, the term ‘real economy’ goes particularly well with the double activity of production and consumption, when everything is about trade and movement. As we are in a trading system based on money, it won’t work without following a monetary cycle.

Indeed, every month, hundreds of millions of employees from all around the world receive their salaries, and every month they save, they borrow and they consume. In this respect, bank movements demonstrate this perpetual rhythm of the economy: bank accounts of householders are regularly replenished at the end of each month, and are as regularly emptied the following month, while business accounts simultaneously record the opposite transactions.

To start or to develop the activity of production, companies need to advance the necessary funds that will be used to pay the different wages to households for exercising their function of production (in consumption products or in production tools). We need to supply the pump: that is the point of all working capital and funds intended for investing in production. 

The process thus cannot be initiated or developed without being supplied with money, in part from money creation (loans granted to businesses by commercial banks).

We are dealing firstly with a business cash flow from companies to households, or an outflow from the real economy, which generally occurs during the last days of the month.

We are next facing a monetary flow from opposite side, from households to companies, or an inflow into the real economy, which occurs the following month. 

This raises a fundamental question about the functioning of the economy: at the end of the month when households receive from the production activity a given amount of money, how can they put a reduced amount of money (reduced by savings) into the process of production during the following period, without causing its economic slowdown? 

The answer to this question partially opens the path of knowledge and of control over economic phenomena.

Let us suppose that the activity of production is exclusively made of consumer products and that the incomes generated from it go exclusively to households. In this hypothesis, as monetary flows rising from households to companies become lower than monetary flows sent to households by companies (due to savings), the activity of production is bound slow down.

It is clear that under these conditions the production of consumer goods is not able by itself to supply incomes needed for both savings and consumption. We can deduce that savings is the most powerful brake of the economic process, as well as credit, in its capacity to ‘accelerate’ and therefore reduce savings.

It is thus the unused part of household income (their savings), reduced from the net obtained credits (their new loans subject to deduction of the repayment of their former loans) and known as the net savings by households, that produces a brake effect on the pace of progress of the national activity, but only if it is positive (which is usually the case).

Net savings by households is the first of three groups of mechanisms that govern the whole economic process. Let us now go to the second group.

We must remember that the activity of production (excluding foreign trade) is made by investments (by means of production) for the exclusive use of companies, and is therefore fully financed by them. We then see a cash flow from households to companies, for the procurement of consumer goods and services, coupled with a second cash flow in the same direction, but funded by companies themselves for the purchase and manufacture of investment goods. The source of financing is of little importance here.

Let us once again assume that all revenues generated by production – which now includes the consumer and investment products – goes exclusively to households.In this new hypothesis, the variations observed at each rotation between the rising and falling flow ofbusinesses to households due to net savings by households, and vice-versa, will either be covered or not covered by corporate investment. 

Under these conditions, the pace of progress ofproduction activity will be controlled by the ratio between the two macro-monetary-economic masses, which are net savings by households and corporate investment. So, we can argue that economic activity will tend to rise if corporate investment is, for a certain amount of time, higher than net savings by households (in the same period), and will tend to lower in the opposite scenario. We can see here that corporate investment more or less occupies the space vacated by the net savings of households in the rotation process of trade.

Let us complete our device by finding out now the real conditions of the functioning of the national activity (still excluding foreign trade). It requires us to relax the last hypothesis which had reserved for households the entirety of incomes generated by production, as we know that national income is shared with businesses.

We have seen that households finance their consumer products thanks to their incomes and thanks to the credit that they can obtain, while reserving a substantial place for savings. Companies are doing the same to finance their investments, with this difference being that they need to use loans substantially as their incomes are generally insufficient.

Under these conditions, it’s not the investment that is diametrically opposed to net savings held by households but its financing by companies. What effectively accelerates the pace of progress of economic activity is then the net loans (variations) reduced from the non-invested part of their income (if it is positive, which it generally is), which we can call ‘net corporate debt’. 

This is thus controlled by the relation between the two macro-monetary masses that are net savings by households and net corporate debt, combining their effects of brake and acceleration. As a result, the national activity tends to increase if the net corporate debt is higher than net savings by households and tends to decline in the opposite case.

Net corporate debt is the second of the three groups of mechanisms that control the whole economic process. We now turn to the third and last group. 

To be complete in this analysis, we can see that what is missing in our economic system is foreign trade (trade balance) which is equal to exports minus imports. We will not enter into the complexity of the financing of this balance that comes from national and foreign aid; this is unnecessary as the foreign (also known as “the rest of the world” by national accountants) does not participate in national income, even if this trade is affecting it.

This balance or this difference has an increasing or lowering effect on the pace of progress of national activity, reflecting a surplus (inflow) or a trade deficit (outflow). It should also be noted that a trade surplus corresponds to a net loan granted by the country to the rest of the world, whereas a deficit corresponds to a net loan obtained by the country from the rest of the world.

Therefore, if foreign or ‘the rest of the world’ is in a position of being a net borrower, it means that the country has a surplus balance. The latter is then added to the net corporate debt. If conversely, foreign is in a position of being a net lender, it means that the country has a deficit balance. The latter is then deducted from the net corporate debt. In the first case, it opposes the savings of households and plays the role of accelerator, while in the second case it acts as a brake.

The monetary balance of foreign trade is the last of the three groups of mechanisms controlling the whole economic process. Its role and its influence are totally absent from our contemporary theories.

We have seen how quickly monetary factors (which are magnitudes) have an impact on the activity of production. The real economy thus turns according to the monetary flows that drive it.

We can summarise what has been stated as follows:

Starting from a given national production or from national income corresponding to a given period, if we add the net corporate debt and monetary balance of foreign trade on the one hand, and if we subtract the net savings by households on the other hand, we will obtain the exact national production or national income of the following period (in current money).

As monetary variables define the national product and national income in current money, we can say that monetary variables (in constant values) will define national product in volume and national income, in terms of constant purchasing power.

What is now interesting in our approach is that we can demonstrate under what conditions an economy is in the process of expansion or recession.

Remember that the word ‘deflation’ means eliminating the effects of inflation from an element, which is generally a price. We will use the technical term used in statistical institutes for quite an uncommon application: money. Thus we will talk about ‘deflated’ money as if it were money in constant value, that is to say its erosion due to price variations. 

We can say now that the net deflated savings of households leads to a decrease of the growth of the activity of production (negative growth) through its brake effects, whereas the net deflated corporate debt has an increasing effect (positive growth) through its acceleration. At the same time, the deflated monetary balance of foreign trade produces a positive or negative effect on growth according to whether it shows a surplus or a deficit. 

We will then have growth expansion if the net deflated corporation debt (increased or reduced from the deflated monetary balance of foreign trade, depending on the result) is higher than the deflated net savings by households, and we will be in recession if the situation is reversed.

Under these conditions, the negative growth resulting from a surplus of savings by households over corporate debt will lead to a general loss of national purchasing power, while conversely the positive growth resulting from a surplus of corporate debt over savings by households will lead to a general gain of national purchasing power. In part, the monetary balance of foreign trade produces a general loss of national purchasing power if it shows a deficit and a general gain of national purchasing power if it shows a surplus. It therefore has effects on the economy that are much more important than those generally ascribed to it.

This is how the three groups of monetary mechanisms now control the deflated economic expansion or recession of a country.

1.5.3 - Conclusions

Growth can thus be controlled by any government that has at its disposal a dashboard providing real-time levels of savings and of net debt, on the condition, however, of having control over prices and the foreign trade balance. We will return to this later.


1.6 - Globalisation of trade

We know that Gross Domestic Product (GDP) includes: consumption, investment and balance of foreign trade. In most OECD countries, one could verify that the balance of foreign trade represents only a very small fraction of the whole, generally within the range of ± 3% (maximum).

The growth of a country essentially depends on its domestic activity: consumption and investment. The rule is the same for all countries.

It is therefore futile to believe that anyone can export without limit – which doesn’t prevent governments of every country to encourage their companies to export. These companies rush to gain market shares abroad, and not without success it must be said. But it is becoming increasingly clear that multinationals make their profits at the expense of national populations.

This is a chimera of a national exportations race, played furiously by multinationals and helped and encouraged by leaders of all countries. Are they blind or simply cynical? 

Markets both foreign and domestic, due to intense competition, need to be competitive in order to sell, and they need to reduce their production costs in order to be competitive. But in order to reduce the manufacturing costs, we must mechanise excessively, reduce wages (or at least to constrain them), and inevitably, generate unemployment.

The wounds of this evil are so apparent that one needs to use false arguments (to say the least) to mislead public opinion.

This argument is widely used to make us believe in the benefits of free-trade and of globalisation, which is its culmination, claims that the primary beneficiaries of lower prices are the consumers. But what we aren’t privy to is that:as prices create income (national product being equal to national income) price decreases resulting from competition mechanically lead to income decreases.

This is a sham as they are not lowered for everyone!

In truth, politicians and company owners – and as a general rule all those who have the power to control the prices – are obviously not concerned by the decrease in revenues as they are first in line for their fees. We can see this for example in our deputies, ministers and other members of government – whatever their political beliefs – who vote for their salaries and their pensions. Only those people who are earning have it both ways! Their purchasing power is improved both by the increase of their incomes and by the decrease of their expenses.

We import in rich countries the misery of the poor for the sole benefit of the powerful of the world. This is how are created new paupers!

The statistics are there to prove it: the rich are becoming increasingly richer and the poor increasingly poorer, without speaking of the middle classes that see their purchasing power dwindling year after year.

But as citizens, how far can our blindness go?

This does not mean that we should close our borders. It only requires theordering of things in a system where anarchy reins free-trade, that is to say where free mercantile aggressiveness rushes into the channels of disloyalty.

Nobody seems to be aware of the pollution resulting from this international activity, neither that the competition of poor countries is accelerating. No-one has engaged in a calculation of the consumption of fuel and the emission of greenhouse gases exclusively due to the globalisation of trade. Trains and trucks travel, ships navigate and airplanes fly to bring us products from halfway around the world – products that insidiously destroy our farms, our factories, our industrial fabric and our agriculture.

It is vital and even crucial that public opinion stands up against this scourge whose wound extends to the whole planet. It is urgent to put an end to the madness and the cynicism of the men who are leading us.


1.7  - General conclusions on the functioning of our economies

1.7.1 – The links of subordination between political power and monetary and financial power and their consequences.

Thanks to JB Say, we have the theory of how the market economy regulates itself spontaneously. The policy of free-trade originates here in all its strength,much to our misfortune.

The influence of this theory, more than two centuries old, is still predominant. I believe there are several reasons for this:

- it exempts our leaders (all the better for it) from their responsibilities and from being accountable to the people; the markets decide, the markets dictate the law, they bear sole responsibility for the anarchic situation that we are living; inevitable in some sense!

- it has allowed our leaders from the European Union to strengthen the market economy by all appropriate means, including enacting legislation aimed at opposing any moves that would distort free competition,

- it serves our central bankers who swear only by the financial markets,

- speculation finds the land that profits off it,

- it abandons international trade to anarchy for the benefit of multinationals and their established intermediaries,

- it serves the moneyed interests that find here a more favourable terrain to exercise their domination.

We have seen that:

- economic governance is a hollow term, as our leaders do not govern anything except their political careers; escaping their duties, and masking their responsibilities towards the people,

We have also seen that the central banks:

- obtained from the governments in power their independence at the expense of the States, which means the dependence of the people to the powers of money,

- have given (if not abandoned) to commercial banks the privilege of issuing money for non-banking agents; the latter deciding to whom and in which conditions they grant credits, and therefore,

- theyhave lost control of issuing secondary money and thus are powerless to control inflation, which they nevertheless declare to be their supreme responsibility,

- they first supported the American banks that are at the origin of the crisis and next the European banks caught in the upheaval, with the sacrifices imposed on the people; putting the Federal Reserve under the protection of the Treasury is the first illustration of this, which amounted to the lender of the last resort being replaced by the State, which thus became the payer of last resort.

This is what led to the twisted links of subordination between political power and monetary and financial power.

Another theory we have thanks to Say is one where supply commands the activity of production. I would now like to make a contribution:

Nothing is manufactured without a tool (investment), previously manufactured. By making this tool the workers get a salary(purchasing power) which will allow them to buy the product made using the tool. However, companies invest (at their own risk) only if there is a potential consumer demand.

Thus, is it not demand commanding supply, instead of the contrary?

I think that it is high time to get rid of these archaic and unclear theories, whose influence becomes unbearable. It seems to me they have proven their insufficiency.

By its excesses, the tyranny of the market severely damages the market economy.

Finally, a recent report mentions a decision of the European Central Bank: banks would be supported by unlimited credits. Despite the ban created by the Maastricht and Lisbon treaties, the ECB has decided to provide banks with money via non-conventional measures, as it says. Why did it not decide to directly finance the States, using the same non-conventional measures?

They refuse to help the State and instead focus on assisting banks because the interest of national debts would not return to the markets, and because the central banks are under the command of the markets! I see no other explanation. 

1.7.2 – Bank savings, credit and commercial balance

We have seen that bank savings are dead savings that slow down the pace of production activity, while bank credit accelerates it.

We have also seen that a commercial balance produces the same brake effects if it shows a deficit and the same accelerator effect if it shows a benefit. Foreign trade has an influence at the margin (± 3% maximum) but it is important to the functioning of national activity as it is a question of gaining or losing 2 or 3 points of the GDP.

The drive of the economy depends therefore on these two control levers, savings and credit (once the effects of monetary erosion have been eliminated), in order to obtain the chosen growth rate.

It’s nothing but regulation, which only the State is able to exercise.

Chapter 2 – The Theory and Practice of Inflation


2.1 - Definition

In order to understand the economic mechanisms that give rise to inflation, we must first know what we are talking about. It is therefore important to distinguish between monetary inflation – too much money – and rising prices, that is to say, the cause and its supposed effects. For, if monetary inflation can result in rising prices, it is reasonable to assume that it is not exclusively based on monetary inflation. The term of inflation has become part of everyday language and this naturally perpetuates confusion.

We are not talking here about the effects of monetary inflation (very real) on asset prices since they are excluded from the calculation of the Consumer Price Index. It is sufficient to study the consequences of monetary inflation on production activity, which by some sleight of hand has exclusivity. 

Whether caused by natural or artificial causes, each macroeconomic imbalance existing between supply and demand is the only cause of price inflation by monetary inflation.

An imbalance between supply and demand means an imbalance between the means of production of supply and the financial means of demand.

In fact, monetary mass has no effect on prices as long as supply provides demand, which is the case in industrialised countries where the structure and the production facilities are generally well adapted to the current demand, and where adjustment between the requested quantities and the provided quantities is rapid if not nearly instantaneous (except for agricultural products and raw materials). This is due to the existence of powerful means of production and well-known and controlled consumption patterns.

It is the scarcity of a product that makes its price. This theory seems to be forgotten.

In our modern societies, the real cause of rising prices is simply the behaviour of entrepreneurs who do not hesitate to modify the prices, the rates, the signs and the labels in order to make profits and improve their purchasing power.

In industrialised countries, there has been no big monetary inflation for a long time, especially as the sphere of production activity lacks money because of bank savings (which are dead savings). This is therefore a summary of what the monetarist theory of inflation is unable to translate because it does not take reality into account.

There were some critical situations in the past (and there still are) in which the inconsiderate issuing of monetary signs augments rising prices.  This isn’t a good enough reason to be an absolute rule.

An excessive war effort is often the cause of a widespread shortage situation and the excessive issuing of money (which is a mean for the State to pay for its expenses) inevitably results in an excessive rise in prices. Military effort is such that workforce and basic goods are lacking in order to ensure minimum levels of subsistence for the population. This is the reign of the black market and rationing.

In this situation of general shortage, the production structure is not adapted to demand: supply is unable to fulfil demand. The adjustment between the quantities requested and provided is done by the escalation of prices, which is the only way to eliminate the excess demand of a population having at its disposal a quantity of money that has been inappropriately issued by the State.

However, there is a specific situation in which the production system is unable to meet demand, and behaves in almost the same way as a shortage situation. It is what one calls overheating, characterised by a runaway production apparatus which faces too excessive demand. In this case, the adjustment between the quantities requested and provided can only come from rising prices, here too the only means for eliminating the excess demand. We cannot talk about monetary inflation, since it is the disruption of the means of production in a specific sector which has led to this situation.

If this situation of overheating appears to have some effects on the prices comparable to those of monetary inflation in a period of shortage, it is different in its scope, as here the rising prices would concern only those products that require a demand adjustment by supply. In the event that we observe widespreadrising prices on other sectors or products, it would certainly be via a contagious effect on the behaviour of entrepreneurs. 

Since it suits them, the monetary authorities have delineated a single cause for rising prices: monetary inflation based on the quantity theory of money.

2.2 – Application

The monetary theory, universal in its application, demonstrates that the average price level (P) is determined according to transactions (T), monetary supply (M) and its velocity (V). It is written as such:

MV = PT or P = MV/T

● What is supply (M) about? We know that:

- M1 adjusts itself to the transactions (T) as there is no transaction (T) out of M1; one can deduct that M1 is a variable of the monetary value issued,

- M2 is the aggregate closest to the value issued, the only one that could have an impact on prices, but it includes dead savings, frozen by the system,

- M3 has no meaning as it doesn’t represent the value issued and in circulation; the Federal Reserve has not published this aggregate for several years, which says a lot about the current pillar of monetary policy in Europe and about the ability of the Central Bank to make us swallow bitter pills! 

● What about transactions (T)?

Why are so many financial and monetary transactions excluded from the calculation of price index? That is the case of stock market transactions and transactions relating to second-hand movable and immovable property, the ones that feed the “bubbles”.

● What about prices (P)?

Why do the prices (P) of the formula apply only to a large and incomplete fraction of the transactions (T) of the real economy? The amounts not taken into account include: direct taxes, social contributions, that amount equivalent to rent for people owning their homes, and interest rates. All these restrictions are imposed with the hidden intention of minimising the inflation rate for the benefit of growth!

● Velocity (V):

The velocity of issued deposit money can only be measured via analysing accounts that contain them: demand deposits (DDA) in M1 and savings or term deposit accounts (TDA) for M2-M1, as if they were stocks (turnover rate). It is still difficult to consider that velocity changes when the observed outcome changes: V = P.T / M

Under these conditions, how can we claim that an unknown quantity of money (M) is too large, when the price level (P) of only a part of transactions (T) is raised, if a large fraction of (M) is not circulating because of dead savings, and where velocity (V) is more or less corrected by the transactions (T) of a monetary and financial sphere that are removed from the equation of calculating prices?

How can we so easily accept this calculation of the inflation rate if everything is distorted, biased and manipulated? If we have never tried to verify this theory, we run the risk of undermining the foundations of monetary policy.

Therefore, the main axis of monetary policy of central banks is completely distorted, and inflation is nothing more than a false pretext meant to mislead public opinion, in order to hide the banks’ inability to control a defective monetary system, which they claim as their chief responsibility!

The economies of the world are so completely paralysed with the fear of inflation that they have completely lost their economic minds. 

By raising the ghost of inflation, the monetary authorities have achieved the feat of contaminating the economic body of the whole planet with a disease that one could call inflation syndrome.

Inflation is one of the main reasons invoked by central banks as a reason to limit wage increases. Capital profitability must be protected!

Here is Banque de France’s report on the first quarter of 2010: « Les évolutions salariales et la façon dont elles interagissent avec les variations de prix constituent un thème central pour la conduite des politiques économiques et notamment monétaire. ». In other words, this means that wage increases are permissible if they are compensated by productivity gains (anti-inflationist measures). As for the adverse effects of this policy on unemployment, the Central Bank does not care. It exists only to fight inflation. This is engraved on the marble of its statute!

By ‘struggling’ against inflation in this way, we are fighting the wrong target. The price for this is the sacrifice of tens of millions of human beings: the unemployed, the excluded and the poor. Many voices (full of common sense) have tried to say that it would be good to give inflation a looser rein in order to jumpstart the machine when it is slowing down. The blindness and obstinacy to fight inflation are such that these voices are not even being heard. We flatten activity as a principle. It seems that this is the perverse effect of a triumphant capitalism.

Are we going to allow ourselves to be fooled and exploited by a monetary authority that puts the interests of corporate banking and of capital before the interests of the people? 

Chapter 3 – Origins of the Crisis


Everything was going well in the brave world of finance until the subprime case came along in 2007. This is at the origin of the current crisis, and it was caused by the greed of unscrupulous financiers. 

Let us briefly go over facts at the source of this event.

The word “subprime” refers to gradual-rate and variable-rate home loans, secured by a mortgage on the property acquired. These loans were granted on a massive basis by banks and their intermediaries to low-income households using an “open policy”, even though they knew in advance that they would not be able to repay the loans.   

In order to boost growth in 2001, the Federal Reserve lowered significantly its policy rate. From 6% it fell to 1% in 2003/2004, a period in which more and more contracts were signed based on the promise of significant added-value, as prices were increasing in the booming American real estate market.

The trap was ready. 

Then, from June 2004, the rates progressively increased to 4% during the time of the change of government in January 2006, and then went up to 5.25% in June 2006. This significant increase was reflected in the repayment schedule, making the buyers de facto insolvent.

The trap was closing on the unfortunate buyers.

More than three million households were dispossessed of their properties. It resulted in significant human tragedies: homelessness, poverty and unemployment.

What the bankers had not anticipated was the extent and the speed of the disaster. What they had not planned was that they would be the cause of the collapse of the housing bubble due to the massive sell-offs of goods aimed to come into their funds (under the mortgage clause) – which lead to the depression of the market.

It is important to know that the banks were reselling these loans to their subsidiaries and their mutual funds, which were being mixed up with other securities before selling millions of them in the financial world (to banks, investors, mutual fund investments, insurances, etc.). This is the reason why there were some of them everywhere in the world, including in the world of finance – and there are still some of them everywhere – more or less hidden in the ‘bad banks’, which we can’t get rid of.

We should also remember that the banks buy and keepso-called ‘eligible’ securities in their portfolios – highly rated by rating agencies – for they serve as guarantees for refinancing by the banks or on the interbank market.

The subprimes has obtained the highest ratings from these agencies, on the day before what one calls ‘the gigantic fraud’.

These securities became toxic when the American real-estate market collapsed, because of the depreciation risks that they had to bear. A few months later, it was the turn of sovereign bonds, which had the same risks but for totally different reasons.

We should recall that at the end of the compensation on the interbank market the banks are lending to each other, while the debit positions of some banks are equal to the credit positions of others.

Unlike what has always been claimed by the Banque de France, no central money is exchanged on the interbank market. No money is exchanged at all. The banks are making loan agreements between each other.

Therefore, it is not a market in the true sense of the world, as supply is equal to demand! Lenders require collateral from borrowers, and these guarantees are specifically subprimes and sovereign bonds – precious securities as described above – before they are subjected to a de facto increased depreciation by the rising risk of defaults.

We understand now why the borrowing banks had to turn to their central banks (the Federal Reserve in the USA and the ECB in Europe) to obtain some capital, which they had to give back immediately to the lending banks as a repayment of their debts – the collaterals now being refused. To avoid a chain collapse of the banking system (a systemic risk) the central banks had no other choice than to lend against depreciated collaterals.

Therefore, the interbank market was no longer fulfilling its function.

Hundreds of billions of dollars in the United States and tens of hundreds of billions of euros in Europe find their origin here. This feeds the liquidity trap as this central deposit money cannot be lent by banks to non-banking agents (NBA).

As was already mentioned, this central money can be exchanged only between holders of accounts at the Central Bank: banks and Public Treasury. In addition, secondary money (issued by banks) can only be exchanged between holders of bank accounts: NBA.

But – and the event went almost unnoticed – the central banks were now bearing the depreciation risk in place of their banker friends. As a result of these loss transfers – let’s call it for what it is – with the greatest discretion the Federal Reserve was placed under the protection of the Public Treasury on 6 January 2011, as the auditors had refused to certify the accounts for the year 2010. The situation was incredible but true. Here is a Central Bank accepting its own ruin in order to save private banks, and no-one protests against what is essentially a misuse of public funds.

This is how private debt has skyrocketed. Private debt means the debts of the banks leveraged towards their central banks, without a doubt. This is not to be confused with private debt meaning loans granted by banks to business (investments and working capital) and households (home loans and consumer credit), since the latter is fundamentally healthy as it “runs the shop”. And the credit crunch resulting from the monetary restrictions imposed by the banking system is the surest way to suffocate the economy.

Is this not inconsistency and irresponsible behaviour of white-collared people (a boundless greed) who are ultimately not accountable to anyone, especially since the central banks support their interests?

As for public debt, it has a different origin on both sides of the Atlantic.

In the United States, $8,000 billion of public debt comes from an accumulated deficit (from 1960 to 2010) of its commercial balance (source: Economic Report of the President), excluding the accumulated balances of foreign investments (external/domestic) and of budgetary deficit, which are all financed by printing money.

In Europe, it probably came from the budgetary imbalance about which one talks so much, worsened by the debt interest that unscrupulous people (Maastricht/Lisbon) decided to charge to the working masses.

ECB, Greece and Italy are now controlled by the former bankers of Goldman Sachs. Good people, what do you believe this will result in? Tears, falling purchasing power and unemployment – in any case it’s a drama which they could not care less about. They are here to ruin us: first dispossessing us of our public goods, then our private goods obtained at the cost of great sacrifices, which we will have to sell in order to live. This has already begun.

The method is already in place. It is a question of:

- modifying the Lisbon Treaty, not in order to give back to the State the privilege of issuing money and saving yearly around 200 or 300 billion of euros but in order to strengthen austerity measures and to impose penalties on those who would got out of Maastricht criteria (which were arbitrarily fixed without any scientific basis),

- and thus to insert a golden rule in the Constitution under the false pretext that the State cannot live anymore under its means; the equivalent of announcing the recession of our economies, which is becoming more and more obvious.

Chapter 4 – Proposed Solutions for a Durable and Healthy Growth


The Nations of the Eurozone are in a situation of economic self-defence. While infringing on agreements already made, they must as a priority impose on their central banks the issuing of money in euros equal to the public debt of the country, in order to rescue the euro. This is according to the plan that was proposed in the first part of this brief. A recent example of an attempt to renationalise the Hungarian economy and to disobey the orders of the troika (EU, ECB, and IMF) shows that the situation has become untenable. The other example is the referendum proposal in Greece that was abandoned under orders of the troika. This shows that our democracies are seriously affected. 

The States are in danger of economic death, under the intolerable pressure of the financial powers which are unable to break the deadlock, and due to the monetary disorder that they themselves created by their greed. They are trying by all means possible to burden the working masses with their own mistakes.  

In the USA, they have cast off the Federal Reserve, causing the loss of its status of being the lender of last resort. This is how the American State has become now the payer of last resort! It is only a matter of time before this occurs in Europe.

Our European leaders, who have proved their allegiance to the moneyed interests like the others, are about to introduce a new ‘golden’ law in our Constitutions which is based on monetary criteria as decreed by the Maastricht Treaty, without any scientific basis and with no other aim than our enslavement. This rule would impose upon us unnecessary sacrifices that we must strongly reject. It would have as an inevitable effect the inscription ofthe economic recession upon our legislation, and all that it entails: desolation, rising unemployment, poverty and human tragedies.

The time has come to put an end to all this using certain measures that I believe are appropriate. Those measures are aimed at every country and are to be added to or complete the measures described in the first part of this brief concerning the Eurozone.

We must as a necessity break up the links of subordination between political power and monetary and financial power. To do so, the State must as a priority retake control of its Central Bank.

Nothing is possible without a complete overhaul of systems, methods and attitudes. Nothing is possible without getting rid of the archaic theories that have proven their inability to solve our fundamental economic problems.

4.1 – Reform of the monetary and banking system

We can divide the financial distribution of the economy according to the following rules:

a) – the Central Bank only provides the needs of the State in ‘permanent’ money, that is with no interest or repayment date, since taxes cover the operating costs of the State.

This permanent money is aimed at financing the public investment net of depreciation on one hand and monetary regulation of the country on the other hand, which is an indispensable instrument of economic governance. For now, it could be set to the level of term deposit accounts (TDA), which it would aim to neutralise in the first instance.

b) – deposit banks, which create secondary money, provide the financial needs of non-banking agents (households, companies and credit establishment which don’t create money), while the risk of insolvency is covered in the conditions examined hereafter.

As a priority, the State must first devise bank regulations with the reform of the solvency ratio of the banks and other credit establishments (also known as the Cooke ratio, modified Basel II and III) which is the cause of the system failure.

The parameters of this ratio have to be thoroughly reorganised. Lending to the economy should be removed from these parameters, in order to target only bank operations for its own account.

Lending to the economy would be framed by the coverage of the insolvency risk, to be shared between the Central Bank on the one hand, and banks and other credit establishments on the other hand, in the ratio of 90/10 (for example). This would oblige all of them to take responsibilities, against remuneration, obviously. It must be stipulated that the Central Bank gives its prior consent to the granting of funds, as it takes the largest share of the risk.

The government, which is responsible for monetary policy, must provisionally determine a fixed interest rate for a period of one year, for example. At the same time, banks and credit establishments would charge fees for all of their services, in order to prepare for monetary reform and the gradual disappearance of interest rates. Currently, if we brutally eliminated their interest incomes and expenses, the banks would show a deficit for their operating costs which would not be completely covered by their operating revenues (for example, see BNP).

In order to facilitate the use of credit, it would be good if in the long term the interests of loans were eliminated and replaced by indexing on an appropriate index: that of monetary erosion, which would be calculated by an independent institute of statistics. Ultimately, the borrower would bear the cost of covering the insolvency risk on the one hand, and the actual remuneration for provided services (such as portfolio management) on the other hand, for the benefit of the lending institution. The advantage of such a system is that the borrower would be allowed to extend repayment deadlines, at very low costs, in case of temporary difficulties.

These conditions would promote access to housing for everyone.

As there would be no more variable rate of interest, speculation would disappear. No variable interest rate = no speculation.

4.1.2 – Interbank relations

The technical recommendations that follow are addressed to each national Central Bank that exercises its full responsibilities, i.e. the control over the banking system.

The first measure consists in forcing the Central Bank to play its role of being the Super Bank during the period ofcompensations, not to merely serve as a rubber-stamper of accounting operations.  It should replace the OTC and interbank markets, which have been removed for the occasion. 

After the period of compensation, debit positions are equal to credit positions. The banks would no longer settle their positions towards each other as it was the case before the monetary storm, but towards monetary authority. The Issuing Institute would settle the positions of the banks in a specific unavailable account in each bank’s name, and would set up a daily interest rate, pending the elimination of the rates and their replacement by brokerage fees. As the daily positions accumulate, these specific accounts would vary from day to day in the account balance: debit = credit. The Super Bank would set the maximum level of permitted overdrafts until the introduction of the coverage of the insolvency risk, as described above. This measure would help avoid (if it’s implemented when the collateral securities become toxic) the overabundance of central money issuing, as well as feeding of the liquidity trap.

Banks must be absolutely prohibited from ‘evading compensation’ via clearing operations for their own accounts. Banks should no longer take money out of their own accounts but rather use a demand deposit account open at the Central Bank to collect or pay. They should be subject to the same rules as anybody else: be credited on the basis of credit lines duly authorised by the Central Bank. There are, however, exceptions for practical reasons: the payment of the salaries for their employees and the collection of the interests and bank charges from their customers, who are holders of open accounts at each bank. 

-   the first measure: the Central Bank does its work, and

-   the reorganisation measure: the collateral securities are no longer necessary as the insolvency risks are covered and thus banks are better supervised.

Essentially, this would give us two monetary flows coming through the deposit banks (which create money): lending to non-banking agents, controlled by monetary power and guaranteed by the insolvency insurance, on one hand, and operations for the banks’ own accounts, on the other hand. These flows are doubly framed: firstly by the solvency ratio and secondly by the control of the use of credits granted to the banks by the Central Bank.

The system would thus be locked.

The system of obligatory reserves would be abolished. Central deposit money would serve only as exchanges between the holders of an account at the Central Bank (as is already the case) but under effective control.

Finally, insurance business would be placed in a structure independent of the banks (subsidiary), this in order to avoid any consequences in terms of the destruction of secondary money.

4.1.3 – International monetary relations

It would be good if the concerned countries agreed to establish a realistic and flexible exchange system to help achieve a balance of trade. The currency rates would no longer be set by the markets but by Purchasing Power Parities (PPP), calculated and modified yearly by independent international statistics institutes.

As there would be no more exchange rate variation, the speculation on exchange rate variations would disappear. No variable prices = no speculation.

4.1.4 – Other provisions

In order to finally put an end to the speculative excesses of the banking system, it is particularly important to put new laws in place in order to prohib it:

-   price speculation on raw materials and food products, whose prices currently depend on monetary and price regulation by the State,

-   so-called “short sales”,

-   securities transactions.

These provisions should be incorporated into the Constitution of each country.

4.1.5 - Conclusions

By restoring monetary order, this reform would result in the following:

                a) avoiding the systemic risks of the banking system,
                b) permanently ending financial speculation on raw materials, currencies and interest,

Finally, it would result in the creation of permanent money exclusively for the State, made possible in Europe by the termination of the Maastricht agreements, as well as terminating the operations of financial markets and rating agencies on a sovereign debt that no longer runs the risk of defaulting. It is with good reason that there will no longer be sovereign debt, not to speak of inflation, this ghost created for the exploitation of man by the banks!

4.2 – Stimulating the economy

The Keynesian stimulus is usually made by injecting funds into major projects. This measure seems not only slow but also inappropriate. We need to give purchasing power to lower incomes as a priority measure, in order to restart the machine.

Here is what can be done to save our national economies. Every country is invited to do the same while adapting the measures on a case-by-case basis:

-   significantly increase the salaries of civil servants, especially the lowest ones, knowing that the lowest incomes have the highest propensity to consume and the lowest propensity to save, as well as increasing social aids to the most needy, with the creation of a minimum income subsistence for citizens – all the while eliminating the different aids that have been developed in an archaic manner,

- block the highest incomes (for a while), those which have the highest propensity to save,

-  commence the most urgent expenses with regard to public services (research, education, health, justice, security, etc.), including operating costs and investments as well as the maintenance of buildings, materials and installations (which has been neglected for too long); the scope of application of this measure is considerable and one will be spoilt for choice in looking for candidates,

-  raise the minimum wage (SMIC in France) progressively but not before the activities of the private sector (boosted by the steps taken above) feed the purchasing power of the whole population – at which point we could finally see the effective decrease in unemployment. 

Therefore, money first injected in the public sector will boost the private production activity (i.e. consumption and investments) which will then initiate the growth process (obviously positive) until returning to the expansionary spiral that France had previously known during thirty glorious years (just like Japan from the 1960s to the 1990s).

4.2.1 – Control of price inflation

It is obvious that with this recovery, inflation risks increase and thus measures have to be taken to limit them (companies should commit themselves to moderate prices, for instance). As a last resort we have general or partial price suppression, pending the development and implementation of income regulation via prices.

If the past experiences in the field of recovery have failed, it is because price suppressions were always accompanied by severe monetary restrictions, as we were convinced that there was too much circulating money, which is false, if only due to monetary parking places.

The difference is crucial, because it favours an abundance of money to the exclusive destination of the real economy.

4.2.2 – Organisation of international trade

The stimulus must be accompanied by an absolute control of foreign trade for there should be no chance that the produced purchasing power goes abroad. The case of China is significant in this respect. 

As it’s the same for all countries, the following solutions seem to be the most appropriate. Let us remember that there is a fundamental rule for international trade:

When there is an exporter in a country, there is an importer in another country, and as the exchange value is the same for both parties, it is obvious that on a world-wide scale exports are by definition equal to imports.

This means that there is no other growth than domestic growth. The growth of a country is then essentially based on its domestic activity: consumption and investment. This rule is universal. It is the same for all countries.

If we want to put an end to unemployment and human misery, each country should focus on the development of its national economy, not the economy of its neighbours, and give work to its own employees as a priority. Each country has a sufficient amount of its own currency to develop its own economy.

The first arrangements should aim to stop the bleeding of relocations and of know-how, and to re-establish agricultural, craft and industrial activities that has almost been destroyed on the altar of free trade.

There are two options open to us: the countries that we trade with (which also have an interest in developing their domestic activities)

- either create bilateral or multilateral agreements so that the equilibrium of trade between countries is guaranteed, possibly under the aegis of a body such as the World Trade Organisation (WTO),

- or do not accept this (which seems very unlikely), in which case quotas will arbitrarily be imposed on them.

The organisation of foreign trade must aim at monetary equilibrium: import = export. 

Balanced trade also means the return to financial independence vis- à-vis the outside world. No country needs foreign assistance, except if it has a trade deficit. And if everybody agrees to these arrangements, there will be no more trade deficit, nor associated problems or brake effects on the means of production.

However, there is a large stumbling block to these provisions: petroleum products must be subject to special treatment, as this is vital for the economy of each country. Thus, it is strongly advised that all importing countries subsidise, finance and encourage without any limit the research, development and production of new energies, while controlling the use of allocated funds.

All human and financial resources should be used to free us from our dependence on oil. It is a vital question in the long term (we speak here of the next three or four generations) when these resources will be completely depleted.

4.3 – Economic governance

The governance of a country should no longer be an issue of taxation but of finance and money.

If we want to direct the pace of progress of national activity to growth and improvement of the purchasing power of our working people, the State should have as a priority the following objectives:               

                a) to substantially lower the tax burden on the taxpayers, by effective and efficient economic governance based on the monetary reform proposed in paragraph 4.1. above,

                b) to restore purchasing power, especially that of the working classes, and to obtain a fairer distribution thanks to income regulation by prices (for prices make incomes),

                c) to reduce unemployment thanks to monetary regulation, which should return within ten years to an incompressible rate of 1% or 2% of the active population, as was the case in France at the end of thirty glorious years.

4.3.1 – Monetary regulation for durable growth and prosperity

The objective here is to control a spiral of expansion and then to adapt it to changes in demographics.

Instrument panels must be developed in order to prepare for the economic and monetary management of the country.

It is necessary to know the real time levels of net corporate debt and net savings by households. The analysis of cash flows of NBA in deposit banks should allow us to manage this.

With these instruments at its disposal, the State must ensure that corporate debt always tends to be higher than household savings. With the intervention on the State’s incomes and expenditures, the State can correct the projected growth target, in one direction or the other. This basically means playing the two pedals that control the injection of money into the real economy: brake and accelerator.

Some measures would be taken in order to combat price inflation (as suggested in paragraph 4.2.1) and to ensure the equilibrium of foreign trade (as explained in paragraph 4.2.2).

Even on the described bases, everything has to be invented. We could then start to speak about economic governance.

Human and material resources being insufficient or abundant, the issuing of money has to be measured so that all exchanges involved by the resources are realised without any distortion.

The true meaning of economics must be seen with the well-being of everyone in mind, through all the difficulties and challenges, with money to serve it.

Happiness concerns everybody. Well-being concerns all of us.


Jean Bayard
January 2012


Appendice I


The Power of the Central Bank Towards Issuing Secondary Money


We have seen that central deposit money issued by the Issuing Institute can only be exchanged between holders of open accounts at the Central Bank: commercial banks and the Treasury.

We have also seen that deposit banks create deposit money called ‘secondary money’ that can only be exchanged between holders of open accounts at a deposit bank.

We finally showed that both moneys are exchanged in two distinct zones as if they were two watertight compartments.

The two moneys should not be mixed up. Their hierarchy and organisation has worked to separate them because the holders of an account in one zone do not hold an account in the other zone.

The vital question thus arises of whether or not the central bank has the power and the means to limit the issuing of money by banks? Is secondary money under the narrow dependence of central money as the theory of the multiplier wants us to believe, or is there a real channel of communication between both moneys?

First of all, for several decades, the management tools which the Central Bank required in order to conduct monetary policy have been reduced – thanks to the forces of liberalisation – to the bare minimum: the interest rate and required reserves.

We should not forget that in the 60s and 70s, the Banque de France had to impose a credit control, which was the only means for limiting the increase (which was considered excessive) of the creation of monetary signs by banks.

The authority of the Central Bank over banks is essentially based on relationships of dependence that can be analysed as follows:

                a) – in order to work, banks must have at their disposal a permanent authorisation granted by monetary power,

                b) – they need to obtain from the Issuing Institute currency (coins and banknotes) that they must be able to provide at the request of their customers,

                c) – they have the obligation to comply with banking regulations, which imposes reserves known as obligatory reserves; the amount of these reserves, calculated for each bank on the basis of a percentage of its customers deposits, has to be the object of a daily average deposit on an open account under its name at the Central Bank,
This account is not an account in the usual sense of the term. It is intended to meet expenses or disbursements or to receive cash, as the Banque de France highlighted in its report No. 70 in October 1999,

                d) – finally, the Central Bank sets the rate of ‘refinancing’ to which the banks must subscribe to in order to get central money.

The term ‘refinancing’ allows us to believe that the banks must ‘refinance themselves’ with this money so as to feed their activity of monetary issuing. This is not so as we shall later see.

If we leave aside the first obligation, which concerns the permission to work as a banker, what remains is that in order to fulfil the said conditions (b and c) the banks need to obtain central money from the Issuing Institute, at a determined cost (d).

So in theory ‘refinancing’ and its cost are well known by all banks. In practice it is different, as explained below.

Let us now examine how banks are getting central money.

Obviously they cannot release money by removing it from their establishment, as they usually do for most of their transactions with non-banking agents.  Therefore, a particular mechanism based on the transfer of claims was established. This is what one calls reverse repurchase of claims by the Central Bank, which is an elementary form of ‘refinancing’, that is to say, nothing in the final analysis that needs funding of Central Bank money (currency and obligatory reserves).

Indeed, banks have had no other means to obtain this money than raising or exchanging credit (which is the origin of their activity of money creation) from a lower level (theirs) to a higher level (that of the Super Bank).

Since then, the Issuing Institute has decided to intervene in a market, known as the open market, in order to give banks more flexible means to get central money. Thus, the Central Bank grants a permanent refinancing to the banking sector that can take a number of forms: discounting at fixed rate or variable rate, the purchase, sale and reverse repurchase of claims, etc. It also grants intra-day advances. In return, they have to provide underlying ‘eligible’ guarantees to the Super Bank.

Due to the serious risks of destabilisation of the banking and economic apparatus, monetary power cannot refuse to provide banks with central money. The banks that would find themselves in difficulties due to bad management, for instance, are not covered here.

Yet the financial disaster of American mortgages, known as the ‘subprime disaster’ (2007-2008), due to its size proves otherwise!

The Central Bank supervises the activities of the banks by requiring them to pass their daily transactions through their account at the Central Bank.

If we look at the daily activities of the banks we can notice grosso modo two large groups of flows of funds: 

Once upon a time in France, and probably in other places, compensation used to be applied almost exclusively to the transactions of the customers of the banks; the latter liquidated their positions between each other on the basis of reciprocal overdraft authorisations, known as bilateral exposure limits. 

Regarding their own debts toward non-banking agents, when the latter had no open account at their bank, the bank would service them with a cheque or bank transfer drawn on their account at the Banque de France. This was in place until the 80s, when banks began to give instructions to their treasurers to replace the cheques drawn on the Banque de France by cheques or wire transfers drawn on their accounts, payable via the process of clearing. This was done successfully.

In using the clearing system in order to pay off some of their own debts, banks managed to escape supervision (to a certain extent) from the Issuing Institute.

Nowadays, banks liquidate positions resulting not only from the transactions of their customers but also from a fraction of their debts, without any money and with complete freedom, thanks to the loans they grant each other!

Moreover, the obligation to account for every transaction at the Central bank, including the clearing ones, does not in any way limit the banks’ power towards secondary money issuing. The Super Bank plays the role of a mere rubberstamp here, as banks do their business of settling inter-company transactions through loan agreements accompanied by guarantees.

It appears that there has been no channel of communication, at least until now, between central money and secondary money. Thus, at this level the Central Bank does not control the creation of secondary money by the banks.

However, in the second large group of flows of funds (as mentioned above) the most important interbank transactions take place via the Central Bank, and therefore in central money. This means that banks have to obtain against guarantees the money necessary for the execution of these transfer orders. In doing so, they depend on the credit authorisations that monetary power is willing to grant them. We have never heard of the Super Bank refusing to provide liquidity for the execution of these orders.

Then, via the transfer of Central Bank money from one bank to another, the supply of the needs at some banks feed temporary or permanent surplus at others.  That is why the Super Bank offers banks the opportunity to get back their excess liquidities, what is known as liquidities absorption. Central money cannot be exchanged between banks, meaning that when a bank has surplus it cannot offer it to a bank which requires money. The open market is there for that and going through the Central Bank is an obligatory step.

We have just seen that banks have to finance themselves in central bank money up to the amount of banknotes and coins that they keep at the Issuing Institute on one hand, and of obligatory reserves that they are required to keep in their account on the other hand. Therefore, with all banks taken into consideration, the level of refinancing and the resulting cost should be known.

It is not the case, however, as banks have central money at disposal (we might say for free) which allows them to reduce the ‘refinancing’ amount and, as a consequence, its cost, even sometimes benefiting from the situation, at the expense of the Central Bank. 

Additionally, as the accounts that receive reserves are interest-bearing (at least in Europe) the cost of refinancing these reserves is to a great part neutralised, as the rate differential is very small.  As a consequence, obligatory reserves do not mean anything anymore, except from allowing us to believe that monetary power is about controlling the issuing of money by the deposit banks.

There are, indeed, three sources of free central money that inevitably comes back to the banks as it is shared only between them and the Treasury. The Super Bank proceeds to create (or conversely to destroy) this money when:

The latter, in its study on the concept of the Central Bank, recognises that: « ces opérations (the first two operations) constituent des facteurs autonomes de la liquidité bancaire qui échappent à l'autorité monétaire ». It is never questions the third source as it a known secret – a secret to be taken to the grave.

Thus, the foreign currency available to banks (coming from their customers’ exports, for instance) represents cash that is immediately convertible into central money at the Super Bank. Exporters of foreign currencies offer their banks a windfall of central money issued as a balance by the Issuing Institutes.

As for advances made to the Public Treasury (as in the case of the Federal Reserve) which has an account at the Central Bank like any other bank, they provide to the latter central money as soon as the funds are used by the State to settle its expenses in the private sector.

When it obtains assets or releases liabilities, the Issuing Institute creates central money. It destroys it when it sells assets or makes a commitment to liabilities, with one exception: the issuing of banknotes, registered under its liabilities. Finally, it monetises its losses and demonetises its profits in central money. In short, the Super Bank creates money that it puts at the disposal of that entity that sells it a good, a service or a value, whereas it destroys money when that entity buys them. Banks have the same power with secondary money, which we are careful to highlight!

Having said that, this creation of central money benefits banks and has an effect of lowering their ‘refinancing’ needs, and as a secondary consequence, reduces the influence of monetary power on them.

In order to analyse the impact of this free money on the financing of the banks, we will select and compare the balance sheets of three central banks: the Banque de France, the Eurosytem and the Federal Reserve as of 31 December 2006. Indeed, since the crisis, balance sheets have revealed such large variations that the exceptional situation affecting them today prevents a good analysis. 

Bilan de la Banque de France au 31 décembre 2006 (en milliards €):





Avoirs en devises


Billets émis en circulation


Opérations de refinancement


Compte de dépôts des banques


Autres actifs


Autres passifs


(Source : Banque de France)

Situation financière consolidée de l’Eurosystème au 31 décembre 2006 (en milliards €) :





Avoirs en devises


Billets émis en circulation


Opérations de refinancement


Reprise de liquidités




Compte de dépôts des banques


Autres actifs


Autres passifs


(Source : Banque Centrale Européenne)

Bilan de la Fed au 31 décembre 2006 (en milliards $) :





Bons et Obligations d’Etat


Billets émis en circulation


Prises en pension (Refi)


Reprise de liquidités




Compte de dépôts des banques


Autres actifs


Autres passifs


(Source : Fed)

The comparison of the three balance situations reveals a lot of interest; provided that the other assets include gold reserves and some outside assistance (like the IMF or SDR). 

(dans leurs monnaies respectives)






A - Refinancement des banques

 + 15.8

+ 450.6

+ 40.8

B - Compte de dépôts des banques (R.O)

- 26.4

- 174.8

- 18.8

C - Reprise de liquidités


- 2.7

- 29.6


Position nette des banques à la Banque Centrale (A-B-C)

- 10.6

+ 273.1

  - 7.6



Apport de liquidités par la Banque Centrale




D – Avoirs en devises

+ 36.0

+ 143.1


E – Bons et obligations d’Etat



+ 783.6

F – Différence (autres actifs – autres passifs)

+ 94.8

+ 213.4

+ 7.0

Retrait de liquidités par la Banque Centle




G – Billets émis

- 120.2

- 629.6

- 783.0


Apport net de liquidités par la Banque Centrale (D+E+F-G)

+ 10.6

- 273.1

 + 7.6


The above table shows that the Banque de France and the Federal Reserve brought to their respective banks, as a whole, more liquidity than needed. So central money is abundant in France and in the United States.

In France it must be noted that banks on the whole financed their needs in currency (€ 56.8 billion) and their obligatory reserves (€ 26.4 billion) due solely to their refinancing. Therefore, they have benefited from €69.5 billion of free central money.

What gives commercial banks the right to receive free money - for their private purposes – issued by the Central Bank? Nothing, apparently. What have they done to benefit this exorbitant privilege? Nothing, but for merely being there and taking advantage of an organisation tailor-made for them.   

This windfall of central money comes from the three quoted sources: in the USA, from the advances made by the Federal Reserve to the government and from an issuing of money resulting from a surplus of the other assets over the other liabilities of the Issuing Institute; in France, it comes from currency assets and from a surplus of the other assets over the other liabilities of Banque de France.

In any case, the three Super Banks have created central money as their other assets were higher than their other liabilities.

In the USA, the refinancing operations (40.8 billion dollars) are made up of contrasting situations highlighted by fixed-term deposits (29.6 billion dollars). Indeed, there is a steep structural imbalance between American banks, with some of them becoming exceptional competition (refinancing) that brings to other banks a surplus which is placed in savings (liquidity absorption) at the Federal Reserve. This imbalance does not exist in France, as there is no liquidity absorption, even though the net position of French banks is higher than those of American banks, in relative and absolute value.

Finally, in France alone, refinancing operations are lower than the amount of obligatory reserves (the deposit accounts of the banks) whereas they are higher in the Eurosystem and in the United States.

Summing up, we can say that banks are in total control of issuing secondary money, because:

- they make their case, independently and without any money, about their positions resulting from the compensation of their customers’ transactions, therefore without having to provide central money; there is no channel of communication between both moneys,

- their needs for refinancing – in order to deal with their customers’ requests for banknotes and coins – and their reserve requirements are in practice deeply reduced by the Issuing Institute’s policies and monetary management (purchase of foreign currencies, advances to the State and activities of the Super Bank), as the influence of the monetary power is reduced accordingly,

- the secondary money never leaves the banks that create it, just as the central money never leaves the Central Bank,

This allows us to suggest that in their activity of issuing banknotes and coins, the first limit that banks face is demand, that is to say effective demand, notwithstanding the solvency ratio.

The quantity of central money held by the banks at the Central Bank is equal to the sum of their accounts at the Issuing Institute, i.e. approximately obligatory reserves and the collection of deposits. These accounts are recorded as assets in their balance sheets, just like the debts that led to their creation of money.  We can therefore conclude that this quantity of central money was used as a counterpart for the creation of secondary money by banks.

Let us see now what role the last instrument can play towards the disposal of monetary power, i.e. the policy interest rate.

Experience shows us that the level of the interest rates charged by the banks has deviated more and more from the central interest rate since the beginning of this century. If we compare the average weighted rate (the closest one to the policy rate) on a daily basis in France over a long period (1969-2009) that was charged by banks, and the basic bank rates (charged to their customers, mainly companies), we can note that both lines are approaching each other when the central interest rate is high and moving away from each other when it is low. It is the threshold effect under which banks cannot lend without losing money or they take advantage of the situation to earn a little bit more.

This is shown in the graph below.


In conclusion, the Central Bank has no power over how banks issue money and as a consequence has no power over price stability – the ultimate responsibility which the Central Bank invested itself with!

It has abandoned to the private banks the right and the power to issue money without any real control.

It is abusing public opinion by pretending to struggle against a monetary inflation that has not existed for a long time. The origin of rising prices is to be found in the behaviour of those who make a profit on it.

It also purports to manage monetary policy with interest rates, whereas they clearly don’t have the desired effect. Furthermore, it seems that since the beginning of this century the banks have broken free of the central interest rate. Finally, with the crisis, the economies of many Western countries have paralleled that of Japan, whose economy, despite an interest rate close to zero over the span of several decades, has not managed to take off for over twenty years. This confirms our analysis.

The use of the only instrument on board – the mass M3 – is completely disoriented, because it is based on a false measure – and this is known! Finally, obligatory reserves are useless! To sum up, everything is based on false pretences meant to cloak banking deficiencies!

And it gets more serious: in reality, the Federal Reserve is under the control of private banks, which are shareholders of the twelve regional federal reserves. All the evidence suggests that the subprime crisis is due to gross manipulations made by this corporation, headed by a governor that seems to pay more attention to banks than public interest.

This is not very reassuring for the future. There is every reason to believe that the misguided organisation will once again begin functioning like before, with some small touch-ups here and there to appease the masses. For they look forward to regain and consolidate the conditions under which their shameless profits were made.

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Appendice II


Growth and Inflation

Growth is the difference in the volume of activity between two periods that follow each other. It can be positive or negative. The period can be a month, a quarter, a semester or a year. The activity is represented by a determined number of different quantities, each of them at a given price during the period. From one period to the other, the number of different quantities varies and it is the same for prices. In order to define the volume of activity or growth, the two variables being quantity and price, we need to neutralise the price variable, in order to compare quantities at constant prices. This definition does not include foreign trade for the moment.

Growth is thus the difference existing between the sum of a series of quantities identified during a given period and the sum of another series of quantities identified during the prior period, with the quantities of each period being calculated at common or constant prices.

If we write: Σ Q1P1 being the activity of a first period, Σ Q2P2 being the activity of the following period, and Σ Q2P1, being the activity of the second period at the prices of the first period, the difference in volume or growth will be obtained by the mathematic expression:

Σ Q2P1 - Σ Q1P1

In which prices being constant are used for the measurement of volumes.
If we now include foreign trade, it should be deducted from the price of each identified quantity, the part corresponding to the price (or average price) of the imported product included in it. If we give the symbol QPi to this part, growth will be obtained by the following expression:

Σ (Q2P1 - Q2Pi1) - Σ (Q1P1 - Q1Pi1)

Now if M1 is the product, expressed in monetary units of the activity of the first period:

Σ (Q1P1 - Q1Pi1) = M1

M2 being the product of the activity of the second period:

Σ (Q2P2 - Q2Pi2) = M2

And M'2 being the product of the second period at the prices of the first period:

Σ (Q2P1 - Q2Pi1) = M'2

We can write that growth Gr is:

Gr = M'2 - M1

And its rate is:

                                                             M'2 - M1
                                                          ------------- x  100


Similarly, one can write that price inflation I is:

I = M2 - M'2

And its rate is:

                                                             M2 - M'2
                                                          ------------- x  100


The institutes of statistics do not practice differently when they measure growth and inflation rates of all national economies.

The product M1 of the activity of the first period corresponds to the net quantity of money used for the exchanges of this period. Similarly, the product M2 of the activity of the second period corresponds to the net quantity of money used for the exchanges of this second period, while the product M'2 corresponds to the quantity of net “deflated” money used for the exchanges of the second period.

The difference of money, i.e. M2 - M1, which allows us to go from one period to another, therefore includes growth and inflation. Three characteristic economic situations result from this:

- the general case when M2 > M'2 > M1, reflects an economy in which there is growth and inflation,

- the reverse case when M2 < M'2 < M1, reflects an economy in which there is recession and deflation, as the observed facts have shown so far.

- and the theoretical case when M'2 > M1 > M2, reflects an economy in which there is growth and deflation. 

Currently the pressure of free-trade on prices is such that the last theoretical case could be demonstrated at scale. Japan is indeed an outstanding example in this respect, for this country has faced alternatively all of the three situations. The third case is an extreme situation full of dangers for it can only be obtained at the cost of very strong tensions between economic agents in the sharing of national income.

In any event, growth ultimately corresponds to a monetary variation adjusted for inflation, which proves that monetary mass is not circulating in the real economy as one would believe. Growth is positive if the net quantity of “deflated” money injected in the real economy is higher during a period than in the previous one, and it is negative otherwise.

The conclusions that we have just drawn corroborate the conclusions resulting from macro-economic law. Therefore, the production activity of a country cannot be financed like any other business activity.

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