Tuesday 20 July 2010

Reforming the Banking System ... Simple



Here's how a simple reform to the banking system could save us £200 billion each year...

Every year up to £200 billion of new money is created and spent into the economy. Most of us would assume that this new money is created by the government, or at least an agent of the state. In reality, this new money is created by the private banking system as debt, and lent into the economy. Between 2000 and 2009, £1,225 billion of new debt has been created by the banks.

Read that again: in the last 10 years, the banks have created up to £200 billion per year, lent this into the economy as mortgages, personal loans and credit cards, and are now living off the interest*. This is what laid the foundation for the debt crisis that is crippling government and society right now.

If you find this hard to believe, ask an economist. They'll call this process the 'money multiplier' or 'credit expansion' but they really mean the following: private companies (banks) create money, lend it into the economy, and collect interest on it. With the exception of the loose change in your pocket, this is where all our money comes from now - the creation of money as debt by private companies. Ever wondered why we are in so much debt?!

There is no good economic or practical reason why governments permit the banking sector to create new money while the government itself cannot fund adequate healthcare or education for its people. The banking system only works in this way because the law that makes it illegal to print your own £5 notes has not been updated to apply to the digital, electronic money that now makes up £97 in every £100. This loophole, in conjunction with a fundamental flaw in the design of the banking system, means that every single loan that is taken out actually creates brand new money. (In computing terms, making a loan is more like 'copy and paste' rather than 'drag and drop').

So when David Cameron says that 'there is no money', what he means is this: "we've handed the keys to the printing press to private corporations, and now we are dependent on the banking system to issue the nation's money supply". So to pay off the debt we need money, but we can only get money if we go into debt. Good luck solving that one Dave!

But there is a way to change this. There is a way to avoid the tax rises and spending cuts that currently seem inevitable. In fact, there's even a way to do the opposite - cut taxes and increase spending at the same time - and end the recession in one fell swoop... and here's how we make it happen: 

Put simply:

* Make a few small tweaks to the banking system to prevent commercial banks creating new money every time they make a loan.
* In place of the banks, set up an independent agent of the state (such as the Royal Mint or the Bank of England) which would be responsible for creating the additional money that the economy needs each year to keep running smoothly.
* Add the newly created money to total government revenue, where it can be used in the same way as tax revenue, or can be used in place of tax revenue to reduce the tax burden.

Doing this would open up a huge range of options. The money that was previously used to generate huge profits for the banks will now come first into the hands of the elected government. It can then be used to raise the income tax threshold, reduce regressive taxes that hurt the poor, increase investment in public services and infrastructure by up to 30%, fund interest-free lending for government bodies or local councils (saving 70% compared to PFI), or a combination of all of these.

So this is how a simple reform to the banking system can avoid cuts in public services and save us up to £200 billion a year (i.e. 30% of the tax bill - the equivalent of removing income tax and council tax completely). There are a far more benefits on doing implementing such a reform too.  If you're thinking that it's easier said than done, there's a 20,000 word manual on exactly how it can be done, plus a fully drafted model bill at The Proposed Bank of England Act ... and  if your head is now spinning and you need a plain-English explanation of how this monumental con-trick works, and why it's destroying the economy, you'll find it here and support from James Robertson's recent newsletter too.

The current financial system doesn't work - that should be obvious to everyone. But so far no-one is looking at the root of the problem. That needs to change. Head to one of the sites above, sign up for the newsletter and they'll keep you updated as the campaign picks up speed...

Adding such reforms to the implementation of a Land Value Tax would go a long way to fixing our broken system and introducing simpler and fairer systems** - e.g. where 'adding real value' is what's rewarded.  Will those in 'Power' do it ... well the small but highly influential minority (who are benefiting greatly from the current system - and practicing 'Poweromics') will fight 'tooth and nail' to ensure the current systems remain, so they can continue to profit from them (at the expense of society as a whole).  

There is currently a 'lot of talk' about 'liberty' and importance of providing 'power to the people' but whilst banks, and those in position of power, avoid such reforms they seeking to continue to deliberately control people's lives and hold society to ransom, the antithesis of real liberty and the actions of people devoid of any moral values (i.e. Practitioners of Poweromics).

The idea nothing can be done is so wrong ... the idea that the few people who are really in 'power' won't 'allow it' to be done is far closer to the truth! ... and this is set to continue for a little while longer yet ... until more people realize this that is ... which is continuing to accelerate - thanks to those who still have a moral compass and an interest in things that go beyond just them themselves (hence my links to their good work too).



* a subsidy that costs each of us over £4,000 every year!

** Leonardo Da Vinci once proclaimed "Simplicity is the ultimate in sophistication" - a saying dear to my heart (as well as Leanomics) ... e.g. if your proposed 'solution' turns out not to be 'simple', you should take a little more time ... and look a little harder!

Thursday 8 July 2010

House prices wilting - a little more reality creeping in?




In recent months new channels (including the BBC only yesterday) and papers have been reporting the 'return to growth' of house prices ... based on a mixture of 'hope' and 'flawed economics'.  Today, following the Halifax figures showing them falling the BBC has had to report the situation slightly differently ...

UK house prices wilting in summer

House prices are falling in part because of more properties for sale. UK house prices have fallen slightly in the early summer compared with the start of the year, a survey has found.

Property values dropped by 0.6% in June compared with May, following a 0.5% fall the previous month, the Halifax said. This meant prices in the second three months of the year were 0.1% lower than the first quarter.

More properties coming onto the market and less activity from house buyers has caused the fall, the lender said. The average home in the UK is now valued at £166,203 according to Halifax figures.

The typical property was still 6.3% higher than a year ago, although the figures point to the house price recovery faltering this year.

Martin Ellis, housing economist for the Halifax, said that the figures were not a great surprise. "This pattern is in line with our view that house prices will be broadly unchanged over 2010 as a whole," he said.

"A shortage of properties for sale in 2009 contributed to an imbalance between supply and demand and was a key factor driving up house prices last year.

"An increase in the number of properties available for sale in recent months has helped to reduce the imbalance, relieving the upward pressure on prices."

He said that the continued low level of interest rates continued to keep demand steady. The Bank of England's Monetary Policy Committee is widely expected to announce later that it is to keep the Bank rate at 0.5%."

David Smith, of property consultants Carter Jonas had previously told the BBC "where house prices go from here is difficult to predict because there are so many factors at work at the moment ... the fallout from the Budget will certainly have a major role to play in the coming months, with uncertainty surrounding impending public sector cuts and higher taxes, and of course we still have the ever-present threat of interest rate rises in the mix".

He is right, except for the predicted future for house prices (e.g. take a look at the standard curve for any 'asset' above - we are just going past the 'return to normal' point).  In fact the only thing that will slow the second decline is the realisation that supply of new property under the last Government was allowed to consistently lag well behind known demand (helping to 'inflate' prices and provide a 'feeling of wealth') ... but to everyone's cost.  If you currently feel you are a beneficiary of this, please think again ... e.g. think about the 'hand' you have dealt to your children (and grand children) and all young people today (and how long those clever enough to spot this are likely to stay in this country as a result), about how much you (and everyone else) have actually paid in your lifetime to banks (e.g. double the value of your mortgage) and bankers bonuses (and inflated estate agent fees), the fact that you only actually recover any actual 'profit' when you die and when it's of no use to you (as you still have to live somewhere), and the fact the Government plan to fund your old age care by selling your house to pay for it (as they don't have the cash to do it any other way)!  Speculation and investment in property also does nothing to improve the massive trade imbalance (and our ability to fund the nation's public services) or halt rising Government debt ...  etc etc

The new Government do not appear to be planning anything with regard to easing constraints to building new property either, which will maintain the long term imbalance between supply and demand, and will obviously reduce the speed and final level of decline.  They have also reduced the top rate of capital gains to help the 'speculators' who benefited greatly from property speculation in the past, to maintain people's interest in property, and to once again reduce the speed and final level of decline. None of these things solve any of the real problems however, and just wait until public sector jobs are slashed and interest rates start to increase (due to the rising costs of imports e.g. petrol prices up 30% to £5.30/gallon).

A little more reality still needs to creep in I'm afraid ... and 'flawed economics' (Poweromics - self interest, and greed) needs be replaced by a 'new economics' (Leanomics - based on value, values, trust, honesty, responsibility and respect). Nothing else will do ... as nothing else will work.  Where do you think the millions of jobs are going to come from to reduce the trade deficit, reduce Government debt, and pay for public services?