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More information on page 103 How interest, the moneymarket and banks work [email protected] Author: ISSN Impressum andinformation Reader services Index The BasicMalikModels System-cybernetic Malikknowledge List ofallMalikLetters byHeinsohn/Steiger How interest, themoneymarket andbankswork About theauthor Preface Table ofContents Leading inGenaral Management&Leadership Solutions liability. all disclaim author and publisher The account. this on accepted be will liability No source. personal the opinion. of Data and given facts are have been conscientiously researched details or originate full from sources which are generally provided considered to be reliable. permitted are Quotations consent. explicit publisher's © All rights reserved. 1662-2200 (Internet), Volume 20, appears monthly. monthly. appears 20, Volume (Internet), 1662-2200 Prof. Dr. Fredmund Malik, Malik Malik Malik, Dr. Prof. Fredmund ��

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103 102 101 100 99 90 89 88

NOTES 87 /103 How interest, the moneymarket and banks work process look like –intheidealcaseappliedcombinationwithour crisis rather thansolveitandwhatgenuinesolutionsattheeconomiclevelshould measures taken sofar, despite all goodintentions, to haveonlyserved intensify the economics hasfailedto grasp to day. thisvery Theywillthenunderstandwhythe about theinterrelationship betweeninterest, moneyandbanks,whichmainstream flaws thathaveledstraight to today's euro crisis.Inthisissue readers willlearn structional flawsasearlyMarch 1998.Amongotherthings,itisprecisely these The twopioneeringthinkers wrote abouttheeuro anditshighlydangerous con thinking ofgreat scientific pioneerssuchasCopernicusandEinstein. ity – isarevolutionary academicbreakthrough –comparable initssignificance to the Their passed awaymuchtoo soon,havecreated afundamentally neweconomictheory. The twoBremen professors GunnarHeinsohnandOtto Steiger, whounfortunately Gunnar Heinsohnhasbeenaguestauthorformymanagementletter since1998. schools ofthought. economy andculture andinpositionsofgenuineliberalism asopposedto neo-liberal to allthosewhoare interested innew, sophisticated pointsofviewonpolitics,the allowing itto bereprinted here. Irecommend “Schweizer Monat”forregular reading in July2012.IwarmlythankRenéScheu,thepublisherandeditor-in-chief, for Market andBanks Sincerely yours, St. For readers ofmyMalikLetter Iampublishingtheinterview on economists andpresents awellthought-outcounterview. and banks work. ThisGermanthinker issuesaprovocative challengeto traditional H Mainstream economists Preface Leading inGenaral Management&Leadership Solutions einsohn. Gallen, July2012 “ property economics” attheleveloforganization andmanagement. That iswhytheyalsodonotunderstandhow thatGunnarHeinsohngaveforthemagazine“Schweizer Monat” do notunderstandwhatmoneyis,says or“debitism” ofeconomicactiv –i.e. theproperty theory

Malik Letter 07 /12 interest, the money market Interest, theMoney SuperSyntegration

Gunnar

NOTES Malik Systems 88 /10388 ® How interest, the moneymarket and banks work About theauthor Leading inGenaral Management&Leadership Solutions E-Mail: am Main). Maynard Keynes attheMoneyMuseumofGermanBundesbank(Frankfurt theoriesofAristotle,with themonetary AdamSmith,Bernhard LaumandJohn Money] 2000 thecore ideas ofthebook only livingGerman-speakingauthorandfourofhisworksare mentioned.Since ins 20.Jahrhundert In tional newspapers. and co-editor ofthemagazine“Zeitensprünge”. Healsowrites formajorinterna Women]. the Wise Economics] (1996, 9thedition2009)[Property, Interest andMoney:Unresolved Enigmasof are Lexikon ökonomischer Werke: 650wegweisendeSchriften vonderAntike bis Eigentum, Zins und Geld: Ungelöste Rätsel der Wirtschaftswissenschaft Eigentum, ZinsundGeld:Ungelöste RätselderWirtschaftswissenschaft whichhepresented together withOtto Steiger in1996,are confronted [email protected] and DieVernichtung derweisenFrauen (1984)[TheDestructionof Professor Heinsohnistheauthorofmore than750publications (Düsseldorf: Wirtschaft undFinanzen, Wirtschaft 2006)heislisted (Düsseldorf: asthe at theFree UniversityofBerlin.Hisbestknownworks Prof. Dr. Dr. HeinsohnwasborninPoland andstudied “youth bulge”theory. nation: Terror intheRiseandFall ofNations] und Fall derNationen(2003)[Sons andWorld Domi with hisbook point ofhisresearch isdemography. Herose to fame and economicsattheUniversityofBremen. Thefocal Prof. Dr. Dr. GunnarHeinsohnisaprofessor ofsociology Eigentum, ZinsundGeld[Property, Interest and

Malik Letter 07 Söhne undWeltmacht: Terror imAufstieg /12 andhis

NOTES 89 /10389 How interest, the moneymarket and banks work the asset and therefore holding it in readiness for debt enforcement or redemption. or enforcement debt the assetandtherefore holdingitinreadinessfor the ownershipsideofhisasset,foreconomic activity by pledging or encumbering side, iure) (de non-physical disturbing thisproduction inany way,heactivatesthe the physical(defacto) side,thepossessionside.At the same time, and without the grass grow andtheanimalsgraze sothathecanmake cheese, heisusing session nowallowstwoparallel operations to take placesimultaneously. Inletting an ownershiptitleto hisasset.Thisdivisionofanassetinto ownershipandpos unfamiliar to othersocieties,suchastribalorfeudalnamelyalegaltitle, our socialstructure hehassomethingelseinadditionto possession, something This physicalaspectofhisassetisthepossessionside. But atthesametime,in cattle canroam, and hecanmilkthecowsandmake cheeseoutoftheirmilk. No problem. Let's take theownerofapasture. Thisownerhaspastureland where legalistic.TheaskersThat allsoundsvery needmore graphic explanations! money ownerisdirected againsttheproperty ofthemoneycreator. hold aclaimto sameproperty. thisvery Thecentral pointisthattheclaimof of amoney-creating entityandthosewhoholdcirculating moneyintheirhands As Isaid,forget about thatfornow!Moneyincirculation represents theproperty … person whoissuesthemoney. That'stheessentialpoint Alright, here wego. Moneyisarightofintervention againstthe property ofthe Agreed. know orthinkyouaboutmoney. Okay? Heinsohn: not know one asksme,Iknowwhatitis.Ifwishto explain itto himwhoasks,Ido scarce resource alsoseemsto applyto money:“Whatthenistime?Ifno Scheu/Mäder: Interview conducted byRenéScheuandClaudiaMäder of Schweizer MonatinJuly2012(www.schweizermonat.ch). Interview withProf. Dr. Dr. GunnarHeinsohn,publishedinissueno.998 and bankswork How interest, themoneymarket Leading inGenaral Management&Leadership Solutions Stop! Isn'tmoneya . It'snotreally thatdifficult.Firstofall,you'dbetter forget you everything ” Can youexplain whatmoneyis? ThesamethingthatSaintAugustineoncesaidaboutanother means ofexchange

Malik Letter 07 ? /12 …

NOTES Malik standard model of effectiveness 90 /10390 ®

How interest, the moneymarket and banks work order to facilitate The opposite isusuallyassumedto bethecase:wasn'tmoneycreated in the basisofpropertywasfactor that seteconomicactivityinmotion. That allsoundsrather complicated . Itwouldmeanthatcreating moneyon money andinterest, engendereconomicactivity. money –whichexplains thedynamismwhereby property andits derivatives, creation process pieceofmoneyhas aninherent meansthatevery claim to more property issuer not onlyistheriskofdefaultcovered bytheprovision ofcollateral, butthe interest –havebeenmadethatthemoneycreation process issetinmotion.So to payinterest. It'sonlywhenthesethree promises –redemption, collateral, collateral equivalentto thevalueofproperty received debtor andevery promises promises to redeem thedebtafter anagreed debtor period;every provides created fora Neither Ynoranyoneelsecreates moneyforthemselves.Moneyisalways could Yhaveto encumberhispropertyinorder to create money? That soundslike analtruistichigh-riskgame.Whatpossiblemotivation does notinvolvemovingmaterial items to andfro. addition heenjoysthe period. However, he'scompensated forthislossbythepaymentof property thathecannotsell,giveawayasagiftorevenencumberduringthecredit with aclaimto ofY'sproperty. part Ymerely losesthe his cattlecontinueto graze there completely undisturbed.Xisnowwalkingaround or paper–backed byhisownershipofthe100square meters ofpasture, while anything to Xhehasto create 100Ymarks–whetherdocumented inclay,metal Precisely. InthiswayYbecomesanissuerofmoney. Inorder to beableto lend … redeemed againstproperty ownedbyY. thus becomesvaluableandcapableofbeingcirculated by thefactthatitcanbe but anote withwhichhecollateralizes theownershipsideofhispasture. Thisnote to help,butlendsthesupplicantneitherhaynorcattlefrom hispossessionside, in adifficultpositionandapproaches ownerYlookingforhelp.Thelatter iswilling Money istheproduct ofnon-physical That makes sense.Buthowexactly ismoneycreated inthepasture? Leading inGenaral Management&Leadership Solutions X wantsmoneyandYcreates money? alsohastheprospect ofearninginterest inreturn formaking notfree. However, thefactthat interest isadirect ofthe money part debtor economic activity . Andthisdebtor enters into three earnings from thecontinued useofhispasture. Credit thus thathadalready beensetinmotion? ownership

Malik Letter 07 . Try to imaginepersonXwhois /12 free disposition obligations . Everydebtor collateralized interest overthis money

. In

NOTES Malik Systems 91 /103 ® How interest, the moneymarket and banks work Leading inGenaral Management&Leadership Solutions two documentsare alwaysneededto create money. Oneofthemisthe credit Through credit betweentwoowners.Moneyisnotthesameascredit. Rather, So you're saying thatmoneycameinto theworldas prevailing doctrine may beintuitive,butthere's nohistorical evidenceto backitup. …You maywellberight.Butthere's plentyofempiricalevidenceto it.The support counterintuitive … That's exchange basedonmoney.” bartering stage[...]before neverwasanevolutionary thebeginningofamarket in societiespastandpresent, forwhichreliable informationisavailable.Moneyless a quantitativelyappreciable orevenadominantpattern for economictransactions exchange ofcommodities–inthestrict senseofmoneylessbartering –neverwas was thusableto summarize onehundred yearsofresearch as follows:“Thepure Asearlyas30yearsagotheeconomistGeorgmoney” wasneverobserved. Dalton from exchanging “commodity forcommodity”to exchanging “commodity for A donkey thencost80andapigonly40guineapigs,theysay. Butthetransition guinea pigs–andchosethisso-calledstandard commodityastheirmoney. between thetwoanimalstheyresorted to athird commodity–itcouldhavebeen else's donkey. Butsincethetwoofthemdidn'tknowhowto findafair relationship their viewsomeoneonceuponatimewanted to exchange apigforsomeone Nobel Prize-winning economists,moneyisameansoffacilitatingexchange. In money! Theprevailing doctrine,ofcourse,sayssomethingelse.For almostall No! It'snotmoneythatcomesfrom exchange, butexchange thatcomesfrom Swiss Nationalbank property, because itisbacked byproperty. Inthecaseofaten franc note it'sthe Paper canbeusedto acquire property becauseititselfiscollateralized with of paperforacoffeeinthis restaurant. But Idon'tseeornoticeanycredit agreement whenIexchange mypiece of thedebtor are thenfree againandcanbeencumbered anew. destroyed overandagainjustlike credit. Theproperty oftheownerandthat the credit agreement andthebanknote –canbetorn up. Moneyiscreated and end ofthecontractual periodandtheinterest hasbeenpaid,bothdocuments– collateral, redemption andinterest havebeenpledged.Ifthedebtisrepaid atthe does notcomeinto circulation untilthecredit agreement hasbeensignedandthe always created simultaneously. Somoneyasarightofredemption inproperty cash, whichisusedto collateralize thecreditor's property. Thesetwotitlesare period; thedebtor collateralizes thiswithhisproperty. Theotherdocumentis agreement setting outtheamount,interest, thecollateral andtherepayment that,asthemoneyissuer, vouchesforthe papernote with

Malik Letter 07 /12 credit ?

NOTES Central Performance Control ( 92 /10392 CPC ® ) How interest, the moneymarket and banks work market isprevented. Governmentbondsare thusstillseenastop collateral. simultaneouslydefinewhat'ssecure,these uncertainties adjustmentbythe collateral ofcentral banksislousy,butbecausethoseentitiesthataccept Things are evidently different today by market ortheusersofmoney. participants more property oraccepted poor collateral, thevalueofmoneywasdiscounted easy to make upforthisuncertainty. Whenword gotaround thatabankhadno collateral. Inthepast,whenprivate central banksstillissuedmoney,itwasrelatively That wouldrequire twothings.Firstofall,thatthestate hasenoughcitizens with can thestate seize thepropertyofitscitizens? bonds. Nowwhenpushcomesto shoveandredemption isreally demanded property thatconsistsofnothingbutpromises, namelyflimsygovernment concrete terms inthiscase.Astheownerofoneeuro Ihaveaclaimto Then there in isthequestionofwhat“rightintervention”worth for money:getoutofthismoney! there wouldhaveonlybeenonepossiblereaction to securitieslike thisascollateral accumulated bycountrieslike Germany,France, theUSAand UK. At onetime grew from 11to 31trilliondollars,andthismountainofdebthasprimarilybeen whose found insomedynamicdevelopingcountrieswhosepopulationsare youngand populations andare therefore hardly Well serviceable. bondscanbe serviceable government bonds estate, oragriculture. industry Inbothinstancestheproperty takes theformof banks thatborrow moneyare madeupofclassicalassetsintheformreal banks, thecollateralizers ofmoney,northe collateral provided bycommercial Today inoursystem itiseffectivelythecasethatneitherequityofcentral the pasture, today in circulation iscollateralized bygoodproperty ofthemoneycreator –formerly As amatter offact,you,asasystem blindlyassumethatthemoney participant, So inadditionto credit, our banknote wouldbenothingmore thanjustthinair. and thecommercial bankthatprovides collateral really exist, your forotherwise signed theagreement. Asauserofmoneyyousimplyhopethatthiscredit document created yourbanknote andonlytheissuerknowswhichcommercial bankhas property oftheNationalBank.Ofcourse,youdon'tseecredit agreement that its property –today wecallthisequity. Afranc istherefore collateralized withthe Leading inGenaral Management&Leadership Solutions a state will impose taxes on its citizens before entering theirhomes. state needs to beableto enter thehomesofitscitizens withaloadedgun.Normally property intheformofhouses,land,businessesandsoon. Andsecondly,the debt ratios are low. Between2001and2011 equity –whichinmanyplacesoriginate from ageingandshrinking –andthatacredit agreement isbacked byproper monetary system monetary . Today word doesgetaround thatthe

Malik Letter 07 isalsobasedongoodfaith? government debt /12 worldwide

NOTES Malik General ManagementModel GMM 93 /10393 ® ® How interest, the moneymarket and banks work times overwithin40years,theyare considered to betheworldchampionsofsolidity. EUR 800to EUR24,000.SoalthoughtheGermanshaveenlarged theirdebtthirty between 1970and2012Germancitizens increased theirpercapitadebtfrom known to humankind.Buttheyhaveneverredeemed thedebt.Oncontrary, Surprisingly enough,Germancitizens are regarded asbeingthebestdebtors worldwide debtmountainandishighlyindebted itself,guarantee something? likeHow canacountry Germany,whichplayedamajorrole inaccumulatingthe it closeto 10,000unitsto stop itfrom reaching itstruepriceof2,000units. German orDutchbondsthatare regarded asbeingstrong. Theywantto keep This isprecisely why theypromise to guarantee thejunkfrom thesouthwith 17 taxation paidbycitizens, thentheysetthebondto junkstatus.Theclubof from– thatonly2,000unitsofagovernmentbondfor10,000canbeserviced When agenciesestimate –aswasthecase withGreece in2011forinstance problem, notthe solution. The EUhasadifferent rhetoric. For itrating agenciesareofthe part side andtheindebtedness onthepubliccitizen side. attention to theunbridgeablegapbetweenabilityto payontheprivate citizen safeguard forthe citizen. Ifitallocates junkstatusto agovernment bond,itdraws No, thecitizen isnotasked. Thatiswhytherating astheultimate agencyserves whether wewantto borrow amillion. Although weliveinademocracy, noonehaseverasked usascitizens andarethe bondscan'tbeserviced nomore thanjunk. than 10million,whileitscitizens onlyhaveproperty 5million,it'sclearthat worth calculate thesafetyrating ofagovernmentbond.Ifstate issuesbondsformore to Thisdiscrepancy apart. andfurther driftfurther isusedby about itslimitof50,000unitsandwatcheswithhorror asitstwohalvescontinue borrows awholemillion,whichtheprivate sideregisters aghast.After all,itknows units. However, whilethissideconstantlygaugesitslimits,thepubliccitizen side of –say50,000unitsandknowsthatthisdoesnot made up,soto speak,ofaprivate andapublichalf.Theprivate sidehasproperty As acitizen onefindsoneselfinastrangely disparate situation.citizenEvery is the propertyofitscitizens! But thereringing.Thestate hasadutyto thealarmbellsstart protect Leading inGenaral Management&Leadership Solutions Eurozone countries naturally knowsthatthesebondsare largely worthless.

Malik Letter 07 allow /12 itto borrow 100,000

rating agencies

to to

NOTES Malik ModelIMS The Integrated 94 /10394 ® How interest, the moneymarket and banks work like astate-owned electric companythathasto ensure thesupplyofelectricity. Politicians andprofessors regard thecentral bankasapublicauthority–something interest. Howcantheyafford to dothat? Central banksconsequentlygiveuptheircore businessifthey minimize his business,namelyto encumberandriskproperty. disposition. Hethuscannotdowithouttheinterest becauseitistheobjectof arises. Hecharges interest to make upforthis12-monthlossofhisfreedom of must retain thetitleto boththemandthepasture incaseaclaimto redemption He stillgoesonmilkingthecowsfrom thepossessionsideofhisasset.But he sell itandhecannotevenencumberit. because hemakes hisproperty notfree forthe12-month a singlecowandisnotlosingdrop ofmilk.Thelenderdemandsinterest This iswhatwefindinthe textbooks. Butweknowthatthelenderhasnotlentout ofthecheeseasinterestpart from theborrower whousesthemilkinthisway. he wouldlosesothatcannolongermake cheeseandtherefore hasto demand Why doeshecharge interest to hisdebtor? Notforlendinghimacowwhosemilk explain interest, letuspayanother visitto ourpasture ownerandmoneyissuer. which theyseeasacommodity. Butthepriceofmoneyisitsexchange rate. To bankers andNobelPrize winnersthinkthatinterest isthepricepaidformoney, the lossofalenderwhomborrower hasto compensate withinterest? Central The problem liesin thewrong answerto thecore questionofeconomics:whatis Where exactly doestheproblem lieifinterest islowandmoneycheap? arrest, through rescue packagesmadeupofGermangovernmentbonds. at whichthesoutherncountriesofEUhadto besavedfrom deathbycardiac charged 5percent interest, theGermanswouldhaveto offer6or7percent, rates central bankisevenlowerthanthe patheticreturns theybring.Ifthecentral bank of Germangovernmentbondscanonlyworkaslongtheinterest charged bythe one borrows at4percent to buysomethingthatpaysonly2percent. Sothesale bank at4to 5percent wouldbeableto afford it.Thiswouldbesheerlunacy!No percent interest, nobankthathasborrowed themoneyto buyitfrom itscentral the central bank.Becausealong-term Germanbondonlypaysbetween2and3 Germanbondsalsoneedabitofhelpfromthan Germanbonds.Nevertheless, from thebondsofothercountries,whichdefinitely fallfrom 10,000 to 2,000faster However, abondof10,000unitscanevencost12,000ifinvestors havefled Of course, with thebestwillinworld. of debtcanhelpsettleanenormousmountainishard to understand Among theblind,one-eyedmaybeking.Buthowahugemountain Leading inGenaral Management&Leadership Solutions German governmentbonds are alsosecured bymere airto someextent.

Malik Letter 07 /12 term oftheloan ; he cannot ; hecannot

NOTES of Corporate Governance Malik BasicSystem 95 /10395

How interest, the moneymarket and banks work of thepopulation time fewerchildren were thusbeingbornthanwere neededto preserve the fell to belowtwoforthefirsttime,asitdidinGermanyinstance. For thefirst 1970wasalsotheyearwhennumberof childrencan beobserved: inafamily in 1970;there istalkofthiseverywhere. Butaninteresting parallel development There are tworeasons. Firstofall,course,there's theabolitionof where collateral worthless isexchanged forunsecured ownershiptitles? have comefrom concrete property thatcreates moneyto thisflimsystructure The system appearsto be oneofcleverlyconstruedfolly pushing updaisiesbythen. see theirfuture compromised byastate bankruptcy,theoldthink:I'lllong be This iswhyyoungpeopletoday are more thantheold.Whileyoung nervous and lettingthesystem comecrashing downasfarinthefuture aspossible. means thatthere isacollectiveinterest inlettingthingsgoonthewaythey are collapse willnotcomeuntiltheirownprivate sidehasbeenextinguished. This mountain ofdebtcanneverberepaid hopesthatthe andconsequentlyeveryone Because allcitizens secretly wantthisto continue.Everyone knowsthatthe But that'sscandalous.Whyaren't citizens upinarms? the publiccitizen sideofthepopulation. bonds. Theinterest earnedbybanksthusappearsdirectly asanadditional debton their governmentgetthemoneyfortheseinterest payments?From newgovernment their interest rate isabovethatcharged bythecentral bank.After all,where does to payinterest to commercial banksthatonlybuygovernmentbondsaslong profit from theinterest ontheirshare inthecentral bank.On top ofthis theyhave You've gotit.Andultimately thismustallcomefullcircle. purchase?no oneelsewouldotherwise collateral andwaiveinterest sothatcommercial bankscanbuysecuritiesthat To putitinanutshelldoesallthismeanthatcentral bankslendagainstweak profits fornewhospitalsorhighways. you citizens don'tearninterest anymore andloseyourshare ofthecentral bank's pensation formakingproperty notfree becausetheysay:itdoesn'tinterest usif So central bankers canonlyslashinterest rates to zero andthuswaiveanycom to collateralize itsmoney:property thatisdeposited byitscitizens. lends moneyto smallcommercial banksandmakes itsproperty notfree inorder But inreality thecentral bankisnothingotherthanalarge commercial bankthat Leading inGenaral Management&Leadership Solutions which isnowproceeding atbreathtaking pace. property, butthisyearalsomarked thebeginningof . In1970notonlydidcurrencies becomedetached from gold

Malik Letter 07 /12 ageing Citizens . Howcouldwe Western population, not only lose the notonlylosethe gold standard gold standard stability stability

NOTES Malik ModelIMS The Integrated 96 /10396 ® How interest, the moneymarket and banks work collateral. Today's consequently allcommercial banks,to issuemoneyonlyagainstfirst-rate The rigorofthishigherbankwouldhavethenforced allcentral banks,and euro there againstadebtsecurityfrom Palermo. banks from thiscentral hyperbank.Bancad'Italiawouldnothave gotten asingle banks wouldhavehadto borrow theirmoneyforrelending to theircommercial Ciampi euro. In1989,forinstance,theformerPresident oftheItalianCentral Bank, That's trueandit'ssomethingthatwasconsidered before theintroduction ofthe to suitthemselves. they are incommand oftheresponsible institutionsthey'llmake therules Ultimately governmentshaveaninterest intakingon that can'tbesolvedevenwiththebestBaselIVforcentral banks. That soundsgreat butinpractice intheory, there's aproblem ofincentive interest, thesystem wouldstabilize innext to notime. only acceptfirst-rate collateral, have proper equityandhave to charge 4 to 5percent regulation ofcentral banks keep onregulating belowasmuchyoulike. TheG-20couldorganize sucha worldwide. For aslongwekeep pouringfuelonthe fire from above,youcan for 10,000commercial banks,butforthe30or40central banksthatare relevant It's aboutthemanipulationofcentral banks.WhatweneedisaBaselIVnotonly money, andthisissomethingthatcan'tbesolvedinoursystem. waiving collateral, it'sultimately aquestionofthepoliticalmanipulability of If bybunglingyoumeanthediscussedpractice ofminimizinginterest and as itisnotbungled. the contrary: thesystem allowsforthemaximumactivationofproperty –aslong Austrian School,Itherefore don'tconsider thesystem to bebadinprinciple.On this isdefinitely astep intherightdirection. Unlike the representatives ofthe precious metalmeansthatalltypesofproperty canbeusedto create moneyand suddenly becomeeconomicallysterile. Ontheotherhand,abreak awayfrom that canbeusedascollateral formoney,ownershipofapasture andsoonwould but anobstaclebecausetheyimposealimitation.Ifgoldistheonlyformofproperty In myview economic system? would returning to apreciousBut metalstandard beasolutionforour This ageingofthepopulationcanhardly bestopped bydecree. Leading inGenaral Management&Leadership Solutions to setorrather announceinterest rates. Disturbingly,it'sallowed to create new banks. Ithasnocommercial bankdealingsand actuallyonlyhasauthority , suggested settingupaEuropean central hyperbank.Nationalcentral precious metalcurrencies ECB is only a small subsidiary ofthe17national central isonlyasmallsubsidiary . Iftheywere to decidethatallcentral banksmay andstandards are notonlyunnecessary,

Malik Letter 07 /12 debt andaslong

Carlo

NOTES Malik General ManagementModell GMM 97 /103 ® ® How interest, the moneymarket and banks work while thecurrency continuesto beundermined. south, wewouldatleasthavehadahard Yes, the butit'sworse.With without anycentral hyperbank! But thisisexactly payingthesouth– whatishappeningtoday, thenorth everywhere, butit'snotalwaysissuedagainstthesamehard collateral. to thefactthatit'ssupposedto beasinglecurrency thathasto beaccepted 1:1 Germany gavein.Sincethenthesore underlyingtheeuro hasbeenfestering due that, theysaid,wouldacceptthecollateralization rulesdemandedby Germany. wouldn't beableto anymore. paytheircivilservants IfGermany were to accept the municipalities,regions andcentral governments that issuesuchdebtsecurities and Athens were notallowedto acceptjunkbondsascollateral forfresh euros, and alsoahyperbankwoulddemand.Butifthecentral banksinLisbon,Rome said thattheyhardly hadanycollateral ofaqualitythattheGermanBundesbank I'll tell youwhyyou're right.WhywasCiampioverruled?The southernersopenly along asbefore. international resolution, sothatnationalgovernmentscancontinueto muddle be amended–notthrough anationalresolution, butthrough aunanimous If thesituationgetsdicey,lawsgoverningcentral hyperbankwould a In theory those cases.Thatliesatthediscretion oftheheadsnationalcentral banks. the endofJune2012.NotevenECBknowswhatcollateral thebanksgavein ELA loansmadeto commercial banksinGreece, Ireland, SpainandCyprusat outlandish are theEUR145billionorsoof“Emergency LiquidityAssistance”or debt securitiesof279billionastheendMarch 2012.Almostevenmore money to buysecurities,andwithanequityof11billionitalready heldunstable Leading inGenaral Management&Leadership Solutions hyperbank soundsgreat, buttheobjectionremains thesame. transfer payments

Malik Letter 07 euro . Nowpaymentsare beingmade originallydemandedbythe /12

NOTES Malik Systems 98 /10398 ® How interest, the moneymarket and banks work The euro andcorporate strategy, 3/98 Prof. Dr. Dr. GunnarHeinsohn,Prof. Dr. Fredmund Maliku.Prof. Dr. Otto Steiger: The European Central BankingSystem, 2/99 Prof. Dr. Dr. GunnarHeinsohn,Prof. Dr. Fredmund Maliku.Prof. Dr. Otto Steiger: Prof. Dr. Dr. GunnarHeinsohn:Howdoeseconomicactivitycomeabout Prof. Dr. Dr. GunnarHeinsohn:Globalfinancialcrisis-why?,4/09 Prof. Dr. Dr. GunnarHeinsohn:Market destructionbygovernments,3/12 by Heinsohn/Steiger List ofallMalikLetters Leading inGenaral Management&Leadership Solutions

Malik Letter 07

/12 ..., 6/00

NOTES 99 /10399 How interest, the moneymarket and banks work Leading inGenaral Management&Leadership Solutions 3. 2. SELF-REGULATING 1. UNIVERSAL: Characteristics oftheMalikSystems istics andfeatures. the tools forleadershipinthe21 what RightandGoodManagementisthussetthestandards forthemanager’s role. Theyare mastery ofcomplexity andtheoptimalfunctioningoforganizations. Thisenablesthemto define We havedevisedourgloballyuniquesystem-cybernetic managementsystems forthepractical Tools forleadershipinthe21 are applied. organizationManagement ispossibleinevery ifthenatural lawsofhowcomplex systems function Beyond allfashionsandundesirable developmentsinmanagementteaching, RightandGood System-cybernetic Malikknowledge manage them. manage them. financial system, andpublishedtheminatimelymanner–designedfunctioning solutions to undesirable developmentsinmanaginghumanresources. We havepointed outtherisksin approach” taughteverywhere leads to massivemistakes inmanagingeconomicresources andto and to puttheminto action.For example, wewere thefirst to prove thatthe“shareholder value … are thewrong managementteachings to enableyou to developtherightsolutionsallbetter What youwilllearnto understandwith the MalikSystems … 5. 4.

COMPATIBLE: MODEL-SUPPORTED: MODULAR AND CONFIGURABLE:MODULAR AND AND SELF-ORGANIZING:

st century. To thisend,theMalikSystems have special character st century

applications. and concept, andinthiswaycompatibilityall Our modelsensure theuniformityoflanguage tive applicationmanytimesover. quicker learning,easier retention andhighlyeffec The MalikEducationismodel-based.Theyenable grow withtheorganization. compatible andscalableacross theboard. They their content andmethodologiesnetworked, and ured foranypurpose.Theirelementsare logical, Our systems are modularandcanthusbeconfig and organize themselves. Our systems empowerorganizations to regulate thus beappliedinanyorganization andculture. The Maliksystems are universallyvalidandcan ®

: Malik Letter 07 /12

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NOTES 100 / 103 / 100 How interest, the moneymarket and banks work and Executives. ManagingOrganizations Policy, Governance,Strategy, Structure, Culture These are thesevenelementsofEnvironment, agement ofanorganization initsenvironment. and containsallcomponentsfortheoverall man GMM The MalikGeneral ManagementModel andsuccessofpeople. the effectiveness,performance components forRightandGoodManagement,theoptimalfunctioningoforganizations andfor to dynamicmaps.Theinnercore ismadeupofthethree followingbasicmodels,whichcontainall The workingtools fortheMalikSystems are models.Thewaytheyfunctioncanbe compared The BasicMalikModels Leading inGenaral Management&Leadership Solutions MANAGING ORGANIZATIONS ®

It defines the functioning of organizations It definesthefunctioningoforganizations can beappliedinanyorganization. ManagingtheIntegrated System successful leadershipofaresult-producing unitanditspeople. It of Effectiveness.TheIMScomprises all relevant elementsforthe tion oftheGeneral ManagementModelandtheStandard Model The Integrated MalikModelIMS MANAGING THE INTEGRATED SYSTEM ® ®

® Malik Letter 07

It isproduced from thecombina Managing People Princi-ples, CommunicationandResponsibility. They are thefiveelementsof Tasks, Tools, effectively managethemselvesandotherpeople. executives needatalltimesandinplacesto manager andcontainsthosecomponentsthatall It definestheprofession oftheprofessional The Standard ModelofEffectiveness MANAGING PEOPLE /12 ®

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NOTES 101 / 103 / 101 How interest, the moneymarket and banks work interest I hyperbank Heinsohn H government debt government bonds gold standard German governmentbonds G free disposition F Eurozone countries euro equity economic activity ECB earnings E debt ratios debtor debt D credit Citizens Carlo Ciampi C allow ageing A Index* Leading inGenaral Management&Leadership Solutions * Thecomplete index and tableofcontents ispublishedonceayear......

, 91 98 88 93 93 96 95 91 94 98 93 91 97 91 93 91 97 92 96 97 94 96

Malik Letter 07 R property economics precious metalcurrencies P ownership obligations O money issuer systemmonetary means ofexchange Mainstream economists M transfer payments term oftheloan T Swiss Nationalbank SuperSyntegration process stability ofthepopulation S regulation ofcentral banks rating agencies ...... /12 ......

88 97 91 91 91 93 90 88 98 95 92 88 96 97 94

NOTES 102 / 103 / 102 How interest, the money market and banks work

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