[R-G] [BillTottenWeblog] The Case for Monetary Reform

[Bill Totten]

by Bill Clarke

Prosperity (July 2001)


Where Does Real Economic Power Lie?

The development of the global market, particularly in the spheres of
free trade, the instantaneous movement of capital and the trading of
currencies, means that to a very great extent national governments have
lost the power to control their economies.

These developments have come about because most governments have
accepted the theory that they should not interfere in the running of the
economy but should leave it to business men and financiers.

The handing over of control of interest rates to central banks is
confirmation that politicians have surrendered the economic field to
financiers. Further confirmation is in the almost wholesale deregulation
of financial markets.

Governments have the same attitude to the global markets. Around $2
trillion are traded daily on global currency markets purely for
speculative reasons - to make profits, not to finance legitimate trade -
and governments do nothing about it despite the damage caused to the
value of their currencies and to their economies.

Further proof that financiers are in the driving seat is that they can
make profit by buying majority shareholdings in companies. Then, using
borrowed money, they can strip the assets - that is, sell off anything
of value - sack thousands of employees and destroy whole sections of
industries in order to pay good returns to shareholders and those who
lent money. The market value of shares and the dividends paid are all
that matter to them. The pivotal role of bankers and other financial
institutions confirms that money and the pursuit of profit are the
determining factors of economic activity. The financiers and the
multinationals are in power, not the politicians.

We are at the mercy of profiteers who determine what shall be done and
not done, and governments which stand aside and do nothing to protect
the jobs or the well-being of the people.

In effect, governments have surrendered the interests and welfare of the
people to the not-so tender mercies of financiers and tycoons. This
should be seen as a dereliction of duty on the part of politicians who
are there to serve the people.


Learning About Money

An essential part of this financially-dominated economy is the way money
is created. Despite, the central role that money plays in all our lives,
there is an appalling ignorance about it.

This ignorance is caused by the mystique which has been fostered by
bankers and financiers that money matters are far too difficult for
ordinary people to understand. They have spread the idea, aided and
abetted by economists, that understanding and controlling money should,
therefore, be left to the experts.

The truth is that the essential facts about money are simple. When they
are known by the general public they will start asking questions and
demanding that the government should do something about reforming the
injustices which bankers are allowed to perpetrate. There will be a
demand for governments to right the wrongs which banker control of money
is causing.


Five Ways the Man in the Street is Bamboozled

1. He thinks that money is created by the government, through the Mint
and the Bank of England, and it consists largely of notes and coins.

Fact:  Only three per cent of money is in the form of notes and coins
created by the government.


2. He believes that when banks lend money then the money which is
borrowed is that which other bank customers have deposited.

Fact: The money one borrows from a bank is not depositors' money at all.
It is new money created by the simple process of writing the amount of
the loan on the credit side of the borrower's account. Ninety seven
percent of all money in circulation originates in this way. If banks
actually lent their depositors' money it would not be available when
they wanted it. If someone wanted to draw out money and was told,
"Sorry, we've lent it to Joe Blow", he would be justifiably annoyed.

In other words, 97% of money is not "real" money at all but credit, just
figures in a bank's ledger or computer. It is created out of nothing.
Yet is used and accepted as real money. To all intents and purposes it
is money. Borrowers buy houses with it, pay wages and buy raw materials
with it, and spend it in many ways. Yet it is just figures in a ledger
transferred from one account to another. It is called various things -
credit, bank-money, number-money, cheque-money, debt-money, electronic
money. Whatever it is called, it is used and trusted because people know
they can obtain real money, notes and coins, if they want.


3. He believes that there is strict control and regulation by the
government, of banks and building societies.

Fact: The belief that there are strict controls over what banks and
building societies can and cannot do is also false. There are no
statutory deposits which banks at one time had to lodge with the Bank of
England. There are no fractional reserves of currency to be held by a
bank as security for loans. All that has gone in the deregulation so
beloved by financiers and, now, politicians. The only stipulation now is
that banks must deposit with the Bank of England, 0.35% of their assets,
which consist mainly of the loans they have made. This paltry percentage
shows that borrowers have no real security, no proper regulations to
protect them. The banks, however, have the property of borrowers,
pledged as collateral, as security.


4. He believes that the interest he pays for the loan is a legitimate
charge because it is other people's money he is borrowing.

Fact: Interest is considered to be a recompense for lenders giving up
the use of their money, for the sacrifice they make by not spending it
on satisfying immediate needs or pleasures.

This may be so for depositors but it is not so for banks which create
money out of thin air when they make a loan. They are charging a tribute
- interest - for money which did not exist before the loan was made. So
they are getting money, in the form of interest, for nothing. It would
be legitimate for them to charge a fee for administering the loan but
that would be far smaller than the interest they charge.


5. He is persuaded that if he cannot pay back his debt then it is right
that the bank should take his property to reimburse itself.

Fact: The borrower owes a debt which has to be paid, in regular
installments, plus the interest, or legal penalties come into force. If
the borrower defaults - cannot pay - then his property which he put up
as security for the loan is legally confiscated and used to reimburse
the bank, no matter what distress and hardship is suffered by the
borrower, be it the loss of a home or a business. Whatever the reason,
debts must be paid, and on time.

Remember, though, this money was created out of thin air. It was debt-money.


Remember 97% of All Money Starts as Debt

Most people, however, are in debt. The total amount owed is greater than
the total money supply. Sixty per cent of debt is for mortgages.
Business debt is increasing as more is borrowed to keep enterprises
afloat with the intensification of competition caused by the global market.

There is a chronic shortage of ready money, which means there is not
sufficient purchasing power to buy all the goods and services on offer.
This endemic shortage of spending money is brought about because of the
debt burden that most people have.

If they want to keep their homes and businesses they must make regular
payments to service their debts.

This is the basic reason that governments are loath to raise direct
taxes. It reduces still further people's spending money and the total
demand for goods and services. As a result not enough government revenue
is raised from taxation to meet essential services.


The National Debt

The amount of the taxation shortfall is called the budget deficit and is
compensated for by government borrowing from the private sector, mainly
from banks.

The total of this debt is called the national debt. It has to be paid
back, eventually, by the taxpayers. In practice, when the Treasury
Bonds, which the government sells as a means of borrowing money from the
private sector, are due to be paid, the government issues new bonds -
borrows new money - to pay back the old ones plus interest.

Let us consider the money which the government obtains from banks buying
Treasury Bonds. Where does it come from? You've guessed it. It is
created out of thin air, in the same way as the money for your mortgage
was. It isn't real money. It's credit, debt-money. When financial
enterprises such as pension funds or insurance companies buy Treasury
Bonds, also called gilts, the money used is the savings of their
customers so it is money already in existence being recycled, used again.

The money banks use to buy gilts is not. It's created on the spot, out
of nothing. So the government is in hock to the banks for money which
did not exist until it was borrowed.

At this point you are most likely asking the same question which many
people are now asking. If the banks can create money out of nothing to
lend to the government as debt, with all the burdens that places on the
taxpayer, why on earth doesn't the government create money for itself,
at least for public services, and remove the burden of having to borrow
money?


Government-Created Money

If the government funded its budget deficits by creating money (instead
of the banks doing if for them, at a high cost to the taxpayer) it would
not be debt-money and no interest would be paid. It would be money for
the essential public services to spend. It would not have to be paid back.

The cry which we hear so often these days from the government,
economists, bankers and other "experts" is, "There is not enough money.
Government and council services have to be cut." So nurses are sacked,
old people's homes closed, schoolteachers made redundant, the London
underground allowed to fall into disrepair, and so on. All this is
brought about because not enough is raised in taxes, for the reasons
outlined above, and because the government is reluctant to increase the
national debt. In fact, it is trying to cut it down. So there is a
chronic shortage of money for public services.

If the government created the money it needs, many of these problems
would disappear. Why doesn't it do it?


Excuses, Excuses, Excuses

Again, the "experts" are brought in. Remember, these people are the
bankers, financiers, economists, all with a vested interest in things
financial staying as they are.

They say, "Government can't just print money for what it needs. It would
increase the amount of money in circulation, prices would rise and the
value of money fall. In other words, it would cause inflation with all
its subsequent woes, which we are desperately trying to offset. The Bank
of England Monetary Committee is regulating the interest rate in order
to stop inflation. We can't have the government creating money and
adding to their problems." Are these "experts" right?


The Way to Prevent Inflation

They are only telling half the story. Remember how we pointed out that a
mystique has been created around money to the effect that it must be
left to the experts?

Part of this mystique is based upon not revealing the facts about money,
about who is really in control of it and who mainly benefits from the
status quo. When they are forced to do some explaining, they muddy the
water, and tell only part of the story. They say that government-created
money would be inflationary but they don't say the same about
bank-created money. They don't tell us that governments, if they want
to, can regulate the amount of bank lending, as they used to do.

The "experts" remain silent on these matters because they don't want a
public discussion of them.

They don't want ordinary people hearing the idea that we can have
debt-free money, with all its benefits. This would lead to a popular
demand for government debt-free money and for banks to be regulated. No
wonder the bankers, and the media in which they have investments, don't
want it discussed. The least said about it the better, for them.

Monetary reformers want to spill the beans, let the cat out of the bag,
reveal the true state of affairs.

Bank lending can be controlled by several methods: statutory deposits
can be re-introduced, whereby an effective proportion of a bank's assets
must be lodged with the Bank of England. The fractional reserve can be
brought back, whereby banks must keep in cash a fraction of the loans
they make. Bank-created credits can also be reduced by regulating the
terms and conditions under which they are made.


The Real Reason for Government Not Creating Money

So the "inflation" bogey is just an excuse especially if legislation to
control bank lending were to be put into place.

What then is the real reason for government failing to provide adequate
essential services which the people need?

The continuation of the system which puts government, and consequently,
the nation, in hock to the banks and other private financial
institutions gives the government more political power.

It can push through policies which are unpopular by using the "No money,
we must cut back" excuse. It can use the same excuse to stand by and see
basic industries destroyed and workers put out of work.

We are not told that money is a man-made device by which to finance the
exchange of goods and service and should be used as man's servant
instead of his master.

We are kept in the dark about the fact that when something is socially
desirable, such as a new hospital or a new school, and when the
materials and unemployed builders are available, and when only the
shortage of money is stopping the project, then debt-free money could be
created by the government and the project could go ahead with the
consequent benefits for all.

There is a conspiracy of silence shrouding monetary reform. It is never
raised in Parliament, never discussed in the media. The whole topic of
government-created money is taboo.

We are trapped in the hidebound thinking of those in favour of the
status quo. It is understandable that bankers and those who profit from
the present system want to keep quiet about it.

However, it is inexcusable for politicians and the media to go along
with it. Why do they do so? Largely, the media is in hock to the bankers
and financial tycoons.

The politicians have swallowed the bankers' theory that money matters
are best left in the hands of financiers. We have to force them into
debate and show that the theory is false.


Mobilisng Opinion for Fair and Sensible Money

So it is unlikely that our Parliamentary representatives, the people
with the political power to change the present system of creating money,
are going to do anything to put things right without pressure from the
general public, from the electorate.

People have to be informed as to the true state of affairs so that
public opinion will change and monetary reform can be put on the
political agenda.

If they can see that they are going to lose votes then politicians will
start to listen.

We need much more public discussion of these vital matters.

_____

Please print out, photocopy and distribute these articles. Also copy and
paste them to emails, and circulate widely, and please include all the
essential contact information below. Thank you.

Essential Further Reading:

PROSPERITY: Freedom from Debt Slavery - is a four-page quarterly journal
which campaigns for publicly-created debt-free money, edited and
published by Alistair McConnachie. A four-issue subscription is
available for GBP 10 payable to PROSPERITY at 268 Bath Street, Glasgow,
Scotland, UK, G2 4JR
Tel: 0141 332 2214; Fax: 0141 353 6900
admcc at admcc.freeserve.co.uk  http://www.ProsperityUK.com
Or you can follow this link to our subscribe page:
http://www.prosperityuk.com/get_involved/subscribe/index.php

The Grip of Death: A study of modern money, debt slavery and destructive
economics by Michael Rowbotham [Jon Carpenter Publishing, 1998] and
Goodbye America! Globalisation, debt and the dollar empire by Michael
Rowbotham [Jon Carpenter Publishing, 2000] both available from the
address above.

http://www.prosperityuk.com/articles_and_reviews/articles/casefmr.php


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