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:
* 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!