Addressing the root cause of economic crises

[epiphany]

In the early 20th century, 70% of the UK money supply was created (loaned) by commercial banks. Now, according to the New Economics Foundation, it's 95%. What does this mean?

 

Well, for one it means that 95% of currency in circulation has commercial interest attached. Why is this a problem? Because when a commercial bank loans money it obviously only loans the principal, not the interest, and if it's a private institution with private shareholders, much of the interest that is paid from the pool of existing credit never cycles back into the real economy as purchasing power. So how does society, now bloated and wholly reliant on interest laiden private credit, pay back principal plus interest when only the principal means to pay it back exist?

 

They must borrow more money. In other words, more debt must be created to pay off existing debt.

 

What an ingenious money making scheme for any bank with the chartered privilege to create money out of thin air (no, they do not loan depositor money) and charge interest on it!

 

This issue of compound interest should be an obvious area of reform for any government, but it matters not how evident it is - contractually, the creditor is the master and the debtor is the slave, and when the creditors call in the debt, you must observe the terms and conditions of your loan.

 

So what is the alternative to such an inherently parasitic system? Thankfully, our central bank is not the ECB. We still have the power to create our own money on our own terms, interest free. But wouldn't that lead to hyperinflation? It would if we used it to pay off existing private debt, but not if we funnelled, what would have been private credit anyway (under ridiculously loose capital requirements), into current projects that created jobs and wealth. We would set up banks that make private investors customers (with their own fair, but non-controlling stake) and pay bankers (generously) on their performance and adherence to an ethical, green, sustainable charter. Interest would be returned back to the treasury, back into communities and back into the real economy rather than being hoarded in off shore trusts.

 

The only real difference between this and the current monetary system is we've cut out the middleman, the needless parasites, the unnecessary weight on our economy. We have created a public option.

 

Thankfully, there are economists, lawyers and business people (yes, even filthy capitalists!) who understand the problem and are proposing we do something about it.

[Vague_Boy]

In the early 20th century, 70% of the UK money supply was created (loaned) by commercial banks. Now, according to the New Economics Foundation, it's 95%. What does this mean?

 

1. Much of the money in circulation is created electronically out of nothing (such as the £200 billion worth of quantatative easing).

 

2. Unlike the early part of the 20th century, the UK is not on a gold standard. In fact no one is anymore, not even the Swiss. This puts no restriction on money.

creation.

 

Flooding the economy with money has one inescapable effect, the debasement of the currency.

 

The US dollar has lost 97% of its purchasing power since 1913, most of this occurring since 1971 when Nixon took the US off of its pseudo-gold standard.

 

Inflation and currency debasement are not inevitable, like the forces of nature, they are deliberate actions that amount to theft from all of us, particularly savers.

[epiphany]

1. Much of the money in circulation is created electronically out of nothing (such as the £200 billion worth of quantatative easing).

 

2. Unlike the early part of the 20th century, the UK is not on a gold standard. In fact no one is anymore, not even the Swiss. This puts no restriction on money creation.

 

Two very important points. Many people still believe that banks lend their customers' deposits, but the fractional reserve system has become so far removed from this that they literally are creating money out of nothing as you say. It is quite a privilege to be able to profit from such a push-button process.

 

What makes quantatatative easing worse is when it is pushed through the same commercial banking system that profits (via interest) from simply creating these accounting entries, thus creating more interest, and therefore more debt that must be created to pay off said interest.

 

The argument being made by reformers such as those on http://www.bankofenglandact.co.uk is that if QE is to be used for non-inflationary purposes, it should at least be delivered direct to productive businesses and community projects through public banks (where interest would cover the cost of administration only) as opposed to relying on the commercial banking sector to distribute it efficiently. They have shown that their idea of "efficiency" is based on a single bottom line and not in the interests of society-wide economic recovery.

[KamalJoe]

The problem is that everybody knows everything but no one can do anything. The banking system which is hundreds of years old is now perfected to this day. The recession, inflation etc are all tailored. When you've got consumerism at its peak, you'll obviously run for more money. And money is with banks.

 

Regards,

[chem1st]

The Yorkshire Pfund Y€ is the way to go, at least if we care about our local economy.

 

As it stands in the 1/3.2010 world the opening sequence needs editing to include Bernard Rd incinerator, it's neighbouring Mosque, censorism of Catholicism, a JC+ and its associated claimants.

 

http://www.youtube.com/watch?v=6fRJ0T-y-pw

[mancom]

The reason this country's finances are in a mess is because there are too many people in this country. If we were to give the death penalty to a few petty criminals, euthanasia to thousands of old people who are too ill to ethically be kept alive, and deportation to immigrant criminals then this country will have a sensible population and can get back on track.

[Anna B]

The reason this country's finances are in a mess is because there are too many people in this country. If we were to give the death penalty to a few petty criminals, euthanasia to thousands of old people who are too ill to ethically be kept alive, and deportation to immigrant criminals then this country will have a sensible population and can get back on track.

 

Personally I'd rather get rid of a few bankers and politicians, but then I'm reasonably sane...