I just posted the following review of "Modernising Money" on the Amazon Customer review site. It joins an increasing number of ecstatic 5 star reviews. May those reviews continue to roll in!
How many times do you hear that the government is massively in debt, and
that there are only two options - either (a) increase taxes, or (b) cut
government spending?
This story, which is repeated endlessly by
policitians, economists and journalists is a fiction. And Andrew Jackson
and Ben Dyson's excellent book explains why. The real problem is that
governments have handed the power to create the nation's money supply to
the commercial banking system. And those banks are responsible for
creating 97% of the money in the UK system. They create that money "out
of thin air" when they make loans. And then they charge everyone -
individuals, businesses and governments - interest on those loans.
My
own calculations back up the claims made both in Modernising Money, and
in the Positive Money groups's previous book "Where does money come
from?" (also highly recommended). Since 1995, the UK goverment has paid
over £495 billion in interest charges on government debt. That's a
substantial proportion of the £1.1 trillion in public sector debt. And
these payments have been going on for decades. Indeed for most of the
1960s and 1970s, the government was paying around 3.5% of GDP to the
banks in the form of interest charges, reaching a peak of over 4.5% in
1981-2.
What Jackson and Dyson demonstrate is that those payments
were totally unnecessary, because there is absolutely no reason why the
nation's money supply needs to be created as interest bearing debt by
commercial banks. The Bank of England could, and should, be creating the
money supply. And it should be providing that money supply to power the
economy free of interest charges.
The usual argument trotted out
by the defenders of the Banks right to create the money supply is that
if governments were to be given control of the money supply, they would
be tempted to increase the money supply too fast, and the result would
be hyperinflation - we would end up in Zimbabwe, or the Weimer Republic.
But
Jackson and Dyson calmly demolish these arguments. In an appendix, they
demonstrate that the Zimbabwe/Weimar Republic arguments are phoney.
They also demonstrate that, left to the commercial banks, money creation
is done in a way that follows only one objective - maximising bank
profits. And that is why a vast amount of the newly created money has
gone to fuel house price inflation - with the result that working
families are now priced out of the housing market.
But the real
killer is that they don't propose to hand over the keys of the money
creation mechanism to the government. No, they propose that money
creation for the economy should be the responsibility of an independent,
yet publicly accountable "Money Creation Committee" whose job would be
to regulate the supply of money in the economy. I find this argument
absolutely convincing, and it completely avoids all the usual
counterarguments to monetary reform.
Putting the money creation
process in the hands of people who have nothing to gain from excessive
money creation would end the boom and bust cycles that have plagued
economies since the dawn of banking. It's a point that was also
demonstrated in a recent publication by two IMF economists who used
state of the art economic modelling to show that taking the money
creation power away from commercial banks and using what is known as
Full-Reserve Banking would be extremely beneficial ("The Chicago Plan
Revisited").
To make one last point, consider the following.
Since 1983, the UK banking system has been increasing the total money
supply (measured by M4) by an average of 10% every year. Even if you
take into account inflation, you still get a net increase of 7% per year. But since the financial crisis in 2008-2009, the banks have
effectively been removing around 7-8% of the money in the economy every
year. That's because everyone has been desperately trying to pay back
their debts. And when they pay back the money they owe to banks, that
money actually disappears. That is why the economy is in crisis.
The
commercial banks not only have the power to create money out of thin
air when they create loans, they have the power to destroy in when those
loans are paid off. Indeed, if we all tightened out belts, eliminated
all our debts, and the government slashed all public spending to pay
back all the "money" that it has borrowed from the banking system, there
would be no "money" left.
That is why the system needs to be
fixed. The money supply should be in the hands of a publicly accountable
central authority, and it should be injected into the economy
debt-free. That is what Jackson and Dyson are proposing. And they are
absolutely right.
Everyone, but everyone, should read this book.
If you hear a politician, economist or jouralist saying that tax rises
and cuts in public spending are the only options, you can tell them that
they are completely wrong.
According to the Maastricht Treaty, EU member states are not allowed to finance
ReplyDeletetheir public deficits by printing money. That is one reason why the Bank of
England has been buying government bonds from financial institutions, not
directly from the government.
In other words, it can't be done until we get the f'k out of the ruinous EU.
Indeed, article 123 of the Lisbon treaty forbids direct lending to governments. However, there are ways round that. Paragraph 2 of the same article specifically allows lending to "publicly owned credit institutions". The BoE could thus lend to RBS which could hand the money to the government and pay off all the debt. The government would now "owe" the debt to the BoE which could decide to charge 0% interest and require repayment after an arbitrary period, say 1000 years ;-).
ReplyDelete