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Chapter 3: The Central Clearing System (APACS)

Chapter 3: The Central Clearing System (APACS)

A further useful indicator of the growth in the quantity of money is the central clearing system, APACS.  It shows the flows actually taking place between clearing banks.  These flows are far higher than M4 or GDP and can only be treated as general indicators but they do show the enormous volumes of monetary flows and how they were increasing very rapidly.

APACS, the Association for Payment Clearing Services, has the task of transmitting and settling payments between accounts held at different banks (the inter-bank clearings), or at different branches of the same bank (the inter-branch clearings).

There are three operational clearing companies:
  • BACS Ltd, which operates the bulk electronic clearing:
  • The Chaps and the earlier Town Clearing Company which operates the high value same-day inter-bank clearings:
  • The Cheque and Credit Clearing Company, which operates the bulk paper inter-bank clearings in London.

The members of APACS are referred to in this book as Clearing Banks to distinguish them from financial institutions such as Building Societies which also take deposits but are not members of APACS and therefore do not receive regular deposits returned to them as their customers receive payments and credit their current accounts.

The chart below shows the curve for CHAPS which represents major transfers (largely speculative operations) between banks who are members of the system up to the end of 2009. At the height of the bubble in 2007 the annual turnover was well over 120 trillionbut had fallen to just over 60 trillion at the end of 2009.  These figures should be compared to GDP of 1.3 trillion for 2007.

At their height in 2007 these speculative operations were about one hundred times GDP and have since fallen to 46 times GDP.  They are still falling and the significance of this must mean that there is far less speculation going on now.

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The chart clearly shows the enormous expansion in speculative flows (CHAPS) that completely dwarf the real economy, with two minor setbacks (1991 and 2002) until in 2008 these speculative flows fell off the edge of a cliff.  Comparison with GDP of not much more than 1 TRILLION gives some idea of how insane the gambling had become and remember that this is real money, a speculator only needed a tiny part of it to be rich beyond the dreams of avarice.

If only this was monopoly money it would not be a serious matter.  Only the gamblers would lose.  Unfortunately it is genuine money and what is even more horrifying is that the supply had been increasing as fast as the gamblers wanted it and could make up a good story to get the banks to finance their next bet.  It moved industries from one country to another, it put property prices into orbit, and it moved exchange rates, but the only end product was a lot of surplus offices and general misery.  There must be a better way to run the economy.

The Central Clearing System is not the cause of extreme monetary growth but membership of it allows the creation of more money than can possibly be used for useful new investment; but the Central Clearing System also holds the key to control of the money supply through the creation of 100% Registered Money.

On the day after all bank deposits were registered there would be no change in the amount held on deposit in clearing banks; business would continue without a flicker on a computer screen to indicate that forgery was illegal at last.  As the days passed the need for more money in the system would be met by new registered money created directly by the Treasury through the Bank of England.  This would allow a reduction in taxation or Government borrowing of equal amount.

The clearing banks would make lower profits and the gambling games of hedge funds would be far less profitable, but all genuine financial activities would benefit from lower taxes.  Bonuses would have to be earned by useful work instead of gambling based on the proceeds of legal forgery.