capital adequacy
From Anarchopedia
Overview
Creating money is
- a form of tax, when done by the central bank, as public revenue. Only appr 3% of all money existing today was issued like this (3% of GBP, 5..10% of most other currencies, except USD: 0% of USD, as the USA central bank, the Federal Reserve issues money for the benefit of its owner private banks)
- stealing from the public, when done by private individuals (like illegal counterfeiting) or corporations, like banks (which is legal today)
Many argue that creating money for private profit should have been made illegal a long ago. It was legalized instead, in a regulated way. Traditionally fractional reserves, today the revised capital adequacy is
- used to limit the amount of created money by the money multiplication process
- also act as smoke and mirrors to hide the main power of banking: creating money for private benefit
As James Robertson points out (download Creating New Money from jamesrobertson.com), both methods are meaningless if commercial banks are prohibited to create money (and all money, including electronic money, be created as public revenue). This is traditionally (Irving Fischer, Milton Friedman) referred to as "100% reserves" (mind-locked in the old reserve system). If electronic money is declared "just a different form of real money" (as it really is, in practice), the same way paper money was declared in the past (equivalent to coins, just a different form), than banks can still manage their clients money and loan out existing money (borrowed from their clients). Being able to create 0.0 new money, however, no special rules/magic is needed any longer to define how much they are allowed to create: zero is zero.
Capital adequacy system
The way that the central bank and accountants assess the value of various kinds of capital determines how much financial capital each is determined to be "worth" for purposes of adequacy assessment. Criticisms of various theories of this tend to say that different kinds are undervalued. For instance, Paul Hawken claims natural capital is undervalued while Amartya Sen says individual capital is. A great many critics of debt argue that undervaluing actual productive capital is inevitable as long as debt interest exists, since it is effectively payment for keeping money liquid.
- in reality, it is the underperforming loans being called in that are causing productive capital to change hands. Only if the new people receiving new loans were doing less social good with them than the people whose loans were being called in, would there be much problem. Which seems to be the main problem today. Any owner who assigns higher weights to social and environmental good than the competitors will lose out and become less dominant (or totally out of business). As a result, those assigning 0 weight to social and environmental good become dominant. Many (eg. Michael Moore) points out that this is a psychopatic system
- Also, bankers decided who goes bankrupt
Future (?) of capital adequacy
If people want to quit paying (in many economies, over 20% of GNP now !) interest for a debt that is essentially higher than all money in the system (=being enslaved by a perpetual, unescapable debt), seigniorage reform should prohibit money creation for private benefit and capital adequacy should be a thing of the past.
