An article from Ben Dyson of the Guardian
Right now, this electronic money makes up over 97% of all the money in the economy. Only 3% of money is still in that old-fashioned form of real cash that can be touched.
Here’s how it works. When you ask the bank for the money to buy a one-bedroom box in London, the money that appears in your account isn’t borrowed from some prudent grandmother’s life savings. In fact, the bank simply types those numbers into your account, creating brand new money that you can now spend. As other banks do exactly the same, the amount of money in the economy grows and grows. Every new mortgage creates new money, which pushes up house prices just a little more and forces the next buyer to borrow even more from the banks.
Through this process of creating money, banks have been able to inflate the money supply at a rate of 11.5% a year, pushing up the prices of houses and pricing out an entire generation.
Of course, the flipside to this creation of money is that with every new loan comes a new debt. This is the source of our mountain of personal debt – not money that had been prudently saved up by pensioners, but money that was created out of nothing by banks and lent to anyone and everyone. Eventually the debt burden becomes just too high, and we see the wave of defaults that triggered the start of the ongoing financial crisis.
But how did something as important as money become privatised? How did the power to create money fall into the hands of the same banks who caused the crisis, with such devastating consequences for millions of ordinary people?
Incredibly, the law that makes it illegal to print your own tenners at home has never been updated to apply to the electronic money that is now created by banks. As we began to use electronic money to make the vast majority of payments, cash became less important and the power to create money shifted to the banks that caused the crisis. Without anyone noticing, the power to create money was privatised by stealth.
So while criminal gangs manage to create about £2.5bn of fake cash each year, the banks collectively create more than £100bn a year without breaking a single law. Their reward for doing so is the interest that is currently being collected on nearly every pound in existence. The cost to the rest of us is a lifetime in debt.
This brings us to a very simple solution to the financial crisis. Many of the current protesters might be surprised to hear that the answer to our current crisis comes from a former Tory prime minister. Back in 1844, Sir Robert Peel realised that metal coins, which at that time were the only legal form of money, had been superseded by new paper notes issued by banks. These paper notes were lighter and more convenient, and therefore much more popular. Peel’s 1844 Bank Charter Act took the power to create paper money away from the banks and placed it back under control of the Bank of England. We should now do exactly the same with the power to create electronic money. My own organisation, Positive Money, has even drafted the legislation that would be required to do this.
By reclaiming this power, we can ensure that new money is not used to blow up house price bubbles and fund risky speculation. Instead, newly created money can be put in at the roots of the economy, through ordinary consumers. It will then end up with shops, businesses and factories, who can use it to invest, grow and create jobs. Simply “getting banks lending again” won’t help when the public are already saddled under a mountain of debt. What we need is more money, not more debt. This is impossible while all money is created by banks when people go into debt.
Of course, we need to shelter this power to create money from vote-seeking politicians. But the power to create money is far too dangerous to leave in the hands of the banks who caused the crisis. Taking this power away from them is our best hope of both ending the current crisis, and preventing the next one.
Nov 21, 2011 @ 13:17:11
I know this if off topic but I’m looking into starting my own weblog and was curious what all is needed to get setup? I’m assuming having a blog like yours would cost a pretty penny? I’m not very web smart so I’m not 100% sure. Any suggestions or advice would be greatly appreciated. Thanks
Nov 21, 2011 @ 14:36:00
just sign up with wordpress, its free. its very straight forward after that, just give you blog a name, pick a template and then add a post. this blog is only running a week so you can see how easy it is.
Nov 22, 2011 @ 07:33:08
I’m really loving the theme/design of your web site. Do you ever run into any internet browser compatibility problems? A number of my blog readers have complained about my blog not working correctly in Explorer but looks great in Opera. Do you have any recommendations to help fix this problem?
Nov 22, 2011 @ 17:57:18
Hi carolee, wordpress take care of most problems automatically, but I haven’t tested on all browsers, just explorer, firefox, and safari ,I.e iPad. Not sure if older browsers support it.
Nov 23, 2011 @ 13:14:59
Hello there! I know this is kind of off topic but I was wondering which blog platform are you using for this website? I’m getting fed up of WordPress because I’ve had issues with hackers and I’m looking at options for another platform. I would be great if you could point me in the direction of a good platform.
Nov 23, 2011 @ 17:36:27
sorry, i only have experience using wordpress. this maybe one for some techie out there.
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Dec 17, 2011 @ 06:03:08