The Bishop of Durham is right to condemn the extortionate rates of interest extracted from those too poor to have bank accounts (The Journal, May 14). However, he should look further, and ask why it is that government, businesses and families are all so deeply in debt to the banks.
As Professor Richard Werner of Southampton University explains in an easy-to-understand series of six short videos, when a nation relies on compound interest-bearing loans from the commercial banks to their customers for its means of exchange, money effectively is debt.
With those barely able to avoid the pay-day money-lenders using their portfolio of credit cards to pay the rent, it seems that we are now so saturated with this chronic, systemic debt that we can absorb no more: but unfortunately, when money is debt, paying off the debt means that the money supply shrinks.
The solution is not austerity, but Keynes without the borrowing: that is to say, a money supply created entirely by public authority, but without generating an equal quantity of debt at source.
If notes and coins can be produced as a public utility, and sold to the high-street banks at a profit of some billions to the nation, why not the digital money which now forms around 97% of our means of exchange?
There is absolutely no reason why increasing numbers of people should be forced to lay down their solvency on behalf of their country just to keep money in circulation. It’s time we took money-lending out of the money-creation equation, as proposed by Positive Money in the Bank of England (Creation of Currency) Bill, which already has the support of far-sighted MPs on both sides of the House.
Newcastle Journal, 23 May
Banks profit from money creation
Gillian Swanson (Views of the North, May 21) is right to draw attention to the fact that almost all money is created by private banks and as a result of the loans they make.
It’s not created by the Government or the Bank of England. Money creation is profitable. The people of the country as a whole should receive the profit, not the private banks.
Martin Wolf, chief economics commentator at the Financial Times, said: “The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.”
Abrahamn Lincoln also opposed private money creation. He said: “The government should create, issue and circulated all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers.”
One of the drawbacks of private money creation not mentioned by Gillian Swanson is that it contributes to instabilities, like the credit crunch we are still suffering from.
What happens is that the price of some asset rises (house prices over the last ten years and share prices prior to the 1929 crash), making that asset a better form of collateral for obtaining loans. So people borrow more and buy bigger houses. And since every pound of loan made by private banks increases the money supply by a pound, the extra money pushes up house prices even further.
Then comes the inevitable crash.
Newcastle Journal, Monday, 28 May, 2012
Supply-side solutions to the crisis
It was good to see the two recent letters printed in The Journal. They clearly highlight the problems we have with our current money system.
My only worry is that people will still not believe that most money (97%) is really created as debt, so I will quote Paul Tucker, Deputy Governor of the Bank of Englad (who surely knows how money is created): “ … banks extend credit (ie, make loans) by simply increasing the borrowing cutsomer’s current account – that is, banks extend credit (ie, make loans) by creating money.” (Speech on December 13, 2007.)
That’s right, when someone takes out a loan the numbers are typed into a computer and new money appears in the economy. Both the borrower and the loan officer have undertaken a great civic service by creating new money. However, neither of them probably knows they just did and the way they do it creates a multitude of problems.
As a manager of a charity I see the effects of this money system every day. In terms of cuts to funding, job losses, greater poverty, increased debt, lack of services, crushed aspirations, widening inequality, reduced hope and no long-term solutions. The Big Society can’t fix this; austerity can’t fix this; monetary reform is the only way.
As Gillian Swanson mentioned, the profit from this should be in the public interest (as it is for notes and coins) and not with private banks. This would mean that austerity and cuts would not be necessary and the economy would be able to get moving again.
Search for the Positive Money website online to get more information on the problems with the system and a viable solution for a better future.