Draghi: 'United States of Europe' not necessary to save the euro

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The economic and banking problems in the EU, and indeed in much of the rest of the world, stem from the fractional reserve banking system, which is unsustainable by its very nature, with its boom-bust cycles and escalating levels of debt. Banks go bust unless they receive bailouts from the taxpayer! Banks’ behaviour is parasitic. See www.positivemoney.org.uk/2011/09/fractional-reserve-banking-leads-booms-busts/
In a fractional reserve banking system, whenever a bank makes a loan (always of digital money – the stuff we have in our bank accounts), it creates the loan principal ex nihilo (out of thin air) as interest-bearing debt, and when the borrower pays the loan principal back, it disappears back into the nothing from whence it came. So every time an inevitable bust comes, people lose confidence, and so do banks, and banks cut back on their lending at the same time as people try to increase the rate at which they pay down their debts. This, of course, means that there is a reducing amount of (debt) money in circulation, and voilà, we have a recession. See the book “Where Does Money Come From?” which is available at http://www.positivemoney.org.uk/where-does-money-come-from-book/
In contrast, a full reserve banking system is sustainable. Banks would no longer create money ex nihilo as interest-bearing debt. In a full reserve banking system, government would create all of the new money with which people expand their economy, and banks would create none. All new money would be created interest free and debt free by an independent Monetary Policy Committee, at a rate just sufficient to keep inflation at a long-term average of zero. This new money could be gifted to the government of each member country in proportion to its GDP as a proportion of the total EU GDP. Each member country’s government would spend its entire share of new money into existence according to its democratic mandate.
Banks would be neither too big, nor too old, to fail. Sounds too good to be true? It’s not – it’s how it could be, and very soon. Earlier this month, two research economists at the International Monetary Fund (IMF), published a paper (the US documentary film-maker Bill Still has made a 6-minute documentary video on this paper: www.positivemoney.org.uk/2012/08/bill-still-on-the-chicago-plan-revisited/
The URL for the IMF paper on the IMF website is: www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf) in which they report that they have run a full-reserve banking system on the IMF’s best mathematical computer model, to test the proposal first put forward by the famous US economist Irving Fisher in 1933. This proposal became known as “The Chicago Plan” and was supported by a raft of other famous economists including James Tobin, John Kay and Milton Friedman, and more recently by Martin Wolf, present chief financial editor of the Financial Times, Sir Mervyn King, present governor of the Bank of England, and Herman Daly, former World Bank economist. Irving Fisher said that its four main benefits would be:
(1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.
(2) Complete elimination of bank runs.
(3) Dramatic reduction of the (net) public debt.
(4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.
In the economic situation we are in today it would be a massive improvement if we could achieve even only one of these four benefits. Imagine getting all four of them!
In addition to these huge benefits the IMF researchers were able to prove that there would be large steady state output gains of almost 10%, due to the removal or reduction of multiple distortions, including interest rate risk spreads, distortionary taxes, and costly monitoring of macroeconomically unnecessary credit risks.
Another advantage is the ability to drive steady state inflation to zero in an environment where liquidity traps do not exist…
The above shows that there is a solution to the debt crisis, and there is an alternative to the austerity. This is what newspapers should be full of today!

A very simple (and funny) explanation for the euro crisis: The euro crisis explained to grannies

/ideasforarevolution.wordpress.com/foreign-translations/the-euro-crisis-explained-to-grannies/

Well said, Sue!
It is perfectly feasible to have a free trade zone without a currency union or a political union. Independent sovereign states are free to organise themselves into such free trade zones should they so wish. If Greece is less productive than Germany over time, this would be reflected in the Drachma falling in value against the Deutschmark, meaning that wages and salaries in Greece would decline relative to wages and salaries in Germany. The cost to the independent nation states of Europe of having a whole bunch of businesses earning their profits from currency trading pales into insignificance compared with the crippling costs of having European bureaucrats and a European parliament and a European central bank. Think about it!
Every country in Europe could be prosperous if only each one would adopt "The Chicago Plan" for its banking system, with each nation's government taking back from the banks the power to create money.
It is all explained, and proved, in the paper on the IMF website: www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

PMJ
Your lengthy disertation above is a " Red Herring "and doesn't awswer the question at all .
Your criticisms of current practices in the banking industry are valid ; but I do not believe are directly related to the economic crisis in the EU .

an european
The EU is already showing signs of being an EUSSR .
The soviet union lasted approx. 70yrs and failed through bankruptcy , just as the EU is beginning to fail now .
European companies are as much to blame for outsoursing industries to China and S/E Asia for the cheap labour . Markets in Europe are already flooded with cheap , attractive and serviceable goods that undercut home products . The cost of social services , improving infrastructure , maintaining higher standards of living than we can afford , paying for the HUGE COST of the EU Bueaucracy , Brussels and all its national satellites is an impractical socialist dream . European industries and their employees have priced themselves out of the market . Everything is relative . We were better off 60yrs ago in real terms than we are today . We had simpler lives , a less ambitious outlook and our cost of living was infinitely less . In the late 1960s , my wife and I allowed ourselves £5 per week to live on , that covered all our food , petrol for the car , beers at the pub etc. Think what your cost of living is today .
In the 1960s I could travel from London to Italy for £10 or stay at an Italian Riviera hotel by the sea , full board , cabin , umbrella and deckchair included , £10 for the week.
In my view the only way forward to closer union is by force and the EU hasn't the means . Every effort is being made by the EU to diminish democracy at national level ; but I do not believe there is the democratic will of the people to sacrifice national sovereignty for a united federal state of Europe . Economically we can now see that it would not work .

I agree with you when Europe is going to more Americanish or "Road of the Deutsche Bund"!
History changes every day..
Why comparing The USSR with "EUSSR" !???
Well,we have our National Presidents , we democracially elected! I don't see the point to compare the differences now EU /Sowjet!!
As you said we not only need an Bank Union with "redemption-system" or "Federal Reserve" but economic Union and political Union and maybe Fiscalpact too...
Whatever it as bo done to regaign our economie and most important to fight against unemployement and poverty we don't outcome this way!!
As we know, we don't have a real EU constitution!
we only have a "President" of EU-Council elected by prime's wich were elected democracially!
Maybe sooner or later EU will have a "light" federal Constitution (legislature/executive) when achieved and we will for sure elect our EU-President democratically!

an european
You can believe the EU propaganda if you like ; but I believe you should personally be more analytical .
The original Constitution was voted out by France and Holland , two original member states . Following the Lisbon Treaty , which has had serious problems , I do not see another try at a constitution is likely to succeed . The bank union too , may help prevent some problems in the future , but is not going to correct the present ones . So what , if Estonia has ratified the ESM ; I do not believe the the ESM idea will work when so many countries committed to it are bankrupt or will have to borrow to contribute . The single currency itself has laid open to bank speculation ; whereas it wouldn't have happened to 27 different currencies . The EU sells the idea that European countries couldn't manage as individuals in a global market . One of the principal reasons for saving the Euro at all cost , is that its failure could cause a huge depression in the global market . In my view Globalism has been a huge mistake and the EU established itself as Europe's part of globalism .

Dr David Hill
Well Said !!!

People believe EU propaganda and what the politicians say . I cannot understand how British and European politicians can actually believe themselves the untruths and half truths that they expound .
I am in fairly regular correspondence with a British MP regarding the EU and other world affairs . I get replies giving the present UK governments policy on the matter , which reads as if simplified and expurgated for children . My immediate reaction is , how can you be so naive to believe this , never mind send it out to people .
I have opposed Globalism from when I first heard of it . I used to support the French farmer and his cow that attended all the anti global demonstrations .
Globalism ,supposedly to open up world markets to third world countries to give them a market economy , has been greatly abused . In reality it is designed to open up the world to western markets ; heaven help a country that supercedes western products with cheaper of their own . Globalism is used for the US to more easily get a finger in every pie around the world .
Manufacturers have seen the advantage of opening factories in countries where there is cheep labour , thus depriving their own country of jobs , services like telephone enquires are politely answered by Indians . Globalism and the EU represents an " All the eggs in one basket , that is about to be dropped ".
When the sovereign powers of individual countries are taken away and given to an overiding conglomerate power , the whole structure of society , business , the economy , government are in danger of collapse , as now with the EU .

Dear an european

So you think that the EU should have no restraints , that the people of Europe should have no say as to future government , undemocratically beyond their control ?
In citing the US example , you overlook that the US can go on printing money ad infinitum .
The US was formed after a massive civil war . For the EU to operate without breaks ,there is a risk of civil war and all out war in Europe .
It is no argument that the people of France can elect an extreme right wing Le Penn , or for the people of Britain to elect UKIP . National general elections are confined to the running of the country internally , where the EU is a minor detail .
You call yourself an European . My objection to the EU is that it is fast destroying the Europe that I have known and loved . The political Ideology of the USE outwieghs the impracticability of creating a single federal state .
The EU can go on bailing out the bankrupt countries till the whole EU is broke , you can enjoy being excessively taxed to pay for it . I now live outside the EU and don't pay any taxes at all .
The bailing out of Greece is perhaps mostly to save the US and Global economy . All hell would break loose if the Euro collapsed and US banks had to pay out huge sums on CDS .

Dear an european

I begin to think you must be an EU insider giving the Brussels opinion .

" undemocratically beyond their control ?"
What whould we elect democratically when the EU has no constitution" The Eu-council and parlament / governors knows what to do! It's to important that we let them do their work ".

Clearly , if they knew what to do and did it , the EU/Eurozone would not be in the state its in today .
I do not believe that European leaders , parliament , bureaucrats do know about economics ; or they defy economics , that get in the way of political ambitions .

The US has debts of $16trillion , it can only keep going by printing more money . They were nearly stopped last year , but were given a breathing space . Britain too can print more money ; it's just paper , but serves the purpose .

The EU IS trying to create a single federal state , not a confederation of self governing nation states .
The US is peopled by immigrants escaping oppression an poverty ; which is very different from the historic separate sovereign states in Europe .

As a result of greed , corruption and the need for political power , economies are living beyond their means , governing on borrowed money . That has got to stop , government cannot promise what their country cannot afford . If need be people have to step back and be content with simpler less luxurious lives .

You say " Maybe the EU will enter into a depression "
I believe it has already entered a depression and is going to remain there for a long time to come .
Time will tell what the future holds !!! With the bunch of weak , dimwit leaders we have both nationally and at Brussels , I do not hold much hope for the foreseeable future .

" THE STONE RETAINS ITS VALUE "
Most stones have little value !
History tends to work in spirals as does nature ; so maybe Europe has returned to the great depression of circa 1930 .
Following the Russian revolution the Soviet Union was created ; that failed and I believe so will the EU .

Dr David Hill

Thanks for those kind words .

You are right the commission , president etc. bureaucrats are parasites on all the people of Europe , they have to keep the EU going at all costs , because their excessive salaries , expenses and perks depend upon it . There is an element of club blackmail that forces the leaders of member states not to let the side down . I cannot believe the obduracy an stupidity of all the European political leaders .
Of course there must be great pressure put on the EU from America , where banks are holding CDS .

The federalist EU is a socialist construct. Socialism, works fine until you run out of other people's money! That is why it is now bankrupt, kaputt, finito!

Sorry an european, the european workforce who pay taxes are losing their homes and jobs and cannot afford to keep your masters in the luxury they've become accustomed to. Barroso and his mate Rumpy Pumpy with their jet planes and silk suits will just have to find another way to steal taxpayers money.

I don't think I can take another 20 years of this. Surely the EU can't last that much longer. The people of Greece and Spain are already rioting and things are about to get much worse.

@ Sue Posted on : 08/09/2012

In Spain Thast's their governement Zapatero who did the great misteak in let to be 17 regions working autonomiously!

IT's not the EU butEven the Greece governement again!

IT's not the fault of the EU!!
Eu bailouts more than the Federal Reserve of the U.S.
So why insulting the EU?

Dear an european
Dream On !!!

It is all a question of time . The bailouts save the Eurozone from collapse ; which in turn saves the EU from break up ; so protecting the jobs of thousands of overpaid bureaucrats at Brussels .
A collapse of the Euro would cause a call on CDS to some $30trillion , which would bankrupt the US and western world , destroy the world economy . Without the EU and its single currency , Europe could not have arrived at this desparate point of fighting for survival .
What difference is going federal going to make ? Is Brussels going to send the Tanks and Storm Troops to Barcelona and Athens , as the Soviet Union did to Budapest and Prague ?
The European Stability fund will further enable the EU to collectively bankrupt itself . The EU/Eurozone depends on an internal market ; when half the countries are bankrupt and austerity measures across the board , the market will dry up . Holland sells much of its produce withing the EU , but if people cannot afford to buy , then what .
The belief that when Greece , Italy , Spain ,Portugal, have instituted the cuts and austerity measures , they will be on the road to prosperity , is a nonsense .
Greece's economy shrinks by 5% year on year . Greece will be as destitute within the Eurozone as out of it and with no prospect of ever being able to compete .
The EU is teetering on the edge of a precipice and will continue to do so no matter what measures are taken to save .
I would like , for the benefit of The People Of Europe , to see the Euro systematically ended , the EU returning to self governing soverein states . All the Parasite Bureaucrats at Brussels and elsewhere sacked and the buildings sold off or demolished .

PJM - They don't want it to boom. If we are all desperate like the Greeks, they can carry out their plans for a dictatorship. That is the true aim of the Eurocrats. If the EU breaks up, those like Barroso and Rompuy will have lost all influence and power. You must remember that the aim is a political union, not a successful Europe.

PJM, I have already downloaded it and will give it a good read later with my coffee. Anyone with a brain knows this "project" was doomed to fail from the start. Quite apart from trying to merge differing economies, they will find that merging people will be even more difficult, especially without their explicit consent.

The sooner this whole shambles collapses, the sooner we can get back to rebuilding our own economies.

Dear an european
" Unquenchable Fire " " The Magic Of Believing "

" I didn't know that the EU was so powerfull in destroying the World economie entirely !!"

You learn something new every day !! The level of CDS relative to EU banks constitutes a huge sum of money that would likely swamp the USA and other countries if the Eurozone collaped .

Yes , Karlsruhe has approved the ESM , but capping Germany's contribution at €190bl , All Eurozone contributors including Germany will have to borrow to contribute , even those so heavily in debt . SO !!

The bank union will be too late to save the present situation . I don't believe political union will ever be achieved . You have to remember that the silent majority of people in Europe are populists .
The level of debt in the EU , both governmental , corporate and personal , exceeds what any of the recommended remedies can possibly overcome .
The EU/Eurozone is playing for time and nothing more .

Dear an european ( What happened to your post )

I have expressed the opinion before , that you are a Brussels Insider , perhaps in the forward planning department . Look Forward , don't ever look back , lest you are disheartened by the failures the EU planning has created .

The EU is playing for time !!! That the Dutch now have two parties instead of three , will make no difference,
the big market for their products is drying up through bankruptcy , austerity and shortage of money . The bank union will not in anyway improve the present insolvencies . Trying to shut th door after the horse has bolted ! Greece will need bailing out interminably , even if the Germans exceed the €190bl , the people of Germany will rebel . The possibility of the ECB becoming a lender of unlimited resources is likely to bankrupt it .

" The people must believe in themselves "; but that doesn't mean they believe in the EU . You believe in the EU as if it was God in Heaven , that cannot fail , no matter what adversities it is encountering .

One comforting thought is that when the EU becomes a single federal state,it will lose Britain and all those nagging eurosceptics , voicing truths that were better left unsaid .