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!

A small step in the right direction

Following the General Election, and five days of discussions, the Liberal Democrats have negotiated a referendum on electoral reform, as part of a coalition of the type not seen for over 70 years.   Whilst not a proposal to move to full proportional representation, the alternative vote (AV) is at least one step forward towards 21st century democracy.  

Most countries around the world already have such systems, and their political parties are quite used to working together as part of a coalition.  Parties have to work together and compromise, and make sure key policies are sufficiently scrutinised and prioritised, rather than simply 'nodded through' or 'pushed through' by party whips.  The effect of this is already starting to appear, with compromises already on the make up of Government (e.g. Shared cabinet), electoral reform (e.g. AV referendum) and economic policy (e.g. with lower rate tax thresholds taking priority over providing inheritance tax breaks for the rich) for the greater good. Rather than a 'hung parliament' in my humble opinion a better description is a 'balanced parliament'.

A new system based on fundamental 'values' such as fairness, responsibility and respect is also a good start, but there is a great deal to do and far more will be needed.  The challenge (particularly for the Liberal Democrats) is to now show how effective a UK coalition Government can be, showing how 21st century politics could work for the benefit of the people, as if they do not electoral reform will fall at the first hurdle - i.e. in the referendum itself.  One thing is certain, the Tory dominated press will take any opportunity to attack any change to the voting system. The Conservatives did not want to see a referendum on the voting system (as the 'first passed the post' system serves their party, and the labour party, so well), and will I am sure argue strongly against it when it comes to the referendum.  The press tried hard to push for a majority Conservative Government so they could avoid such concessions, but even with the clear headwind provided by an unfair voting system, they did not succeed.  

The voice of the people was still sufficiently large to demand compromise and coalition - and 21st Century democracy. There's a long long way to go ... and many challenges ahead ... hence we wish our new leaders, and everyone in the UK, every success in bringing this about ... and in successfully turning our economy around.

Can the UK have a 21st Century Democracy please

The lack of trust of MP's, and in Parliament, is going to be extremely difficult to turn around - in fact it will be almost impossible without a root and branch reform of the electoral system. 

The internet is creating a 21st century platform for democracy - which a number of Government's are starting to use and benefit from.  In previous posts the application of Poweromics* has been often raised and the lack of effective democracy** in the UK too ... and the time for change is now ...

and it's not just me saying it ... Ministers within the Government are now saying it too (e.g. Alan Johnson, Health Secretary and Michael Wills, Justice Minister). They are all starting to realise they will have to fundamentally change how Parliament (as well as political parties) work to regain the trust of people, and to properly represent people ... so perhaps the expenses fiasco is a blessing in disguise ...

The political parties know that previous supporters are less likely to support them now, either with their votes or with their cash (see the PCS union comments previously), with many parties now wanting the tax-payer to fund them too!  

If they have any hope of persuading us this is the right thing to do, we will need to see much more transparency and have much more of a say as to what is allowed and how things are done ... so we are properly represented ... and not opening up another gravy train for 'politicians' and/or 'political parties' to exploit and profit from ...

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed. 

**  We only get a say/vote once every five years in a general election, and even then only a small minority of votes actually make a difference as to which of the two main parties gets in Government ... the only votes that effectively 'count' are fringe votes in marginal constituencies (2-3% of the total) - and that's why the two main parties keep changing the voting boundaries too! 21st Century democracy? ... and yet we often hear politicians quote our 'democracy' as an example for others to follow!

Posted on the Panorama blog Is Your MP Working for you?  No 1 (leanomist)