This article is from the Legal Forgery website where author Bill Davies explains some of the things about money and the banks that everyone should know. It is truly shocking. Read on and find out why.
Introduction : The causes and cure for monetary chaos
For three thousand years mankind has used money and banking but the form that money has taken in the last fifty years is something completely different.
Nearly all of our money is now intangible, it is not cowrie shells, metal, coin, or paper; it is binary code, electrical signals in millions of computers. The quantity of money in existence is many times greater than required for trade and has been expanding at enormous velocity.
Coining money was always the prerogative of the King and those that did it themselves were liable to lose a hand or their lives. Now only £3 out of every £100 we use is genuine government backed money, created by the Government, mostly in the form of cash, the remaining £97 was created on a computer screen by one of the clearing banks.
This has always been legal forgery but has been allowed to become grand larceny. It now threatens the whole of the world economy. It is a casino where real money flies around at hundreds of times real trade, breeding fraud and corruption on an epic scale. It must be stopped before any progress can be made and this book describes the way it happens and the way to stop it.
The chart below gives the total money supply of the UK as measured by the statistic M4 (Bank deposits) and the total bank lending M4 Lending in each of the years from 2004 to 2009.
It shows that M4 Lending increased by about £1000 Billion in the five years, rising in step with M4 deposits. The rate of increase slowed in the last year but remained positive. Money, both in the form of bank deposits and loans made by banks continued to increase after 2008 but at a slower pace.
People who gamble on horses or cards can only win if someone else loses. This is known as a zero sum game but bankers who finance gamblers on the financial markets can create new money in vast quantities, which means that there are many more winners than losers. A lot of gamblers began to believe it would last for ever, then some of the players realized that the money they were using was only as good as the reputation of the bank that lent them the money.
In 2008 several of our largest banks lost their reputation and with it went the value of much of the money deposited with them plus an unknown amount of exotic derivatives and insurances. The damage done to us as ordinary citizens is very well documented. The cost of saving the banks using taxpayers’ money was enormous and much of it was directed at allowing the banks to resume lending money created by themselves without much thought on how to prevent it all happening again.
The ability of banks to lend money deposited with them is essential but their ability to create the money they loan is forgery. It is forgery because money created in this way transmutes from a temporary addition to credit into permanent legal tender when it escapes into the clearing system. See Chapter 2.
This book was first written at the end of the 1980s as a result of the author’s research into the causes of the high rate of inflation during the 1970s. This revealed that the money supply was created in the private banking system and that all efforts made to control the amount created had failed.
Statutory liquidity ratios were reduced from 32% in 1947 to virtually nil in 1996 (Chapter 6).
During the 1980s we moved from a variety of physical controls on the creation of bank money to almost complete dependence on varying short term interest rates. “It is therefore futile to target the CPI as a measure of inflation because it is neither a measure of our rate of inflation nor is it much affected by our only control lever, namely interest rates (Chapter 5)
The amount of new money created each year is very large and was increasing at ever increasing speed. New money is created in the form of bank loans of money that has not been first deposited as savings. This can only be done by banks who are members of the Central Clearing System (APACS) see Chapter 3, because all money lent by one member bank is deposited in another member bank, which has the effect of keeping it all in the family of clearing banks.
This ability to create new money in vast quantities raises the question of “seigniorage” or the benefit which accrues to those who can mint money. Originally minting money was the sole prerogative of the Monarch and forging or counterfeiting currency is still a felony. It is truly remarkable that the clearing banks are allowed to do it, even encouraged to do it. How often have you heard Gordon Brown saying that he wants to get the banks lending again?
If the power to create new money were removed from the private banks it could be replaced by new money created by the government. New money created by the government could be used for government expenditure to replace part of taxation or the need for borrowing by the government.
During 2009 the government through the Bank of England created £200 billion of new money under the name “Quantitative Easing”. The money was used to buy existing government securities (Gilt edged securities, or Gilts) which were held in a special account. The interest on these Gilts, amounting to about £10 billion was still paid by the government but into the special account, thus saving the expense of paying it to the original holders of the Gilts. The £200 billion cost nothing, not even printing as it was all done electronically.
The Gilts are scheduled to be re-sold to the public sometime when the situation is back to normal but that is not going to be easy if we are still trying to fund new government debt by selling new gilts. Meanwhile government debt has effectively (even if only temporarily) reduced by £200 billion and government expenditure on interest payments has effectively reduced by £10 billion a year.
This exercise demonstrates the power of seigniorage. It could be extended but the power of private banks to create money at the same time would have to be curbed.
The way in which private banks could be prevented from committing legal forgery is open to suggestions. The fact that it should be done is not open to question. The damage that has been caused and the injustice of allowing legal forgery to occur at all are now very clear. The rest of this book expands on the causes and possible cures for monetary chaos.
The rest of this excellent book can be read online here at the Legal Forgery website
About the author Bill Davies
BIll is a retired engineer who read engineering at Cambridge and became a Chartered Mechanical Engineer.
He worked for ICI making polythene at the then cutting edge of technology, was Works Director of the National Glass Works in York and ran his own business making office equipment and garden products for thirty years. He held five patents and made dozens of inventions for production processes. He exported his products around the world.
Bill became increasingly interested in monetary control in the years following the great inflation and industrial chaos of the 1970s. He saw at first hand the problems of productive industry, caused by incompetent government policies for taxation and monetary control, which resulted in the decay of British Industry and the rise of short term profiteering where no one was interested in building a production business and growth was mainly the financial engineering of take over bids, asset stripping, and increasingly the magic of replacing equity by debt.
It took Bill a long time to work out where the money was coming from to fuel the increasingly frantic financial activity that occupied some of our most able citizens. The arrival of the internet showed him he was not alone in believing that the banks were running out of control but all three of the main political parties in the UK were too dependent on the largesse of bank created money to question what was going on. This book is an attempt to describe what has gone wrong and what is far more important, the solution to the problem.