The Money Reform Party Blog

The Whole World is Practically Insolvent

2011-07-02T07:39:00.000-07:00

The people and all the countries of the world are collectively close to insolvency because their collective financial assets are only marginally greater than their collective financial liabilities. Also, although the world could never actually be technically insolvent (to owe more than it is owed), it could become insolvent in practical terms. Indeed, it might already be so.

There are two definitions of insolvency. One is when liabilities exceed assets. However, this state covers many individuals and businesses who are not normally regarded as insolvent because they have an income which exceeds their expenditure, including payments towards their liabilities. The second definition of insolvency is when expenditure exceeds income.

Bankruptcy
Bankruptcy normally only occurs when there is both an excess of liabilities over assets and of expenditure over income, for example, when the interest due on debts exceeds income, or when the excess of expenditure over income requires assets to be sold, until liabilities exceed assets.

All these quantities - assets, liabilities, income and expenditure - are measured in monetary terms, or what is called 'liquidity'. Non-liquid assets only have value if they can be sold for money. An asset that cannot be sold, no matter what price was paid for it, or what it might be considered to be 'worth', effectively has no value. Solvency is thus a matter of liquidity, which is to say, of having enough money.

To whom is the world in debt?
The question must thus arise as to whom is all the world's debt owed? What 'extra-terrestrials' are in credit with all the world's debtors?

The major creditors in the world are the commercial banks, the 'High St' clearing banks with which most people have accounts, and of which many were helped out during the initial stages of the credit crunch.

The banks themselves are also major debtors. Their debts form the world's money supply. Banks' debts are what most people regard as their 'money in the bank'. The banks have very little cash to back their liabilities, but they do have enormous financial assets. These are their customers' debts, which far exceed the banks' liabilities. By convention, a debt owed by a bank to a customer, which the customer can spend, is called money, whereas a debt owed by a customer to a bank, which the bank cannot spend, is not.

The UK money supply
The UK economy will serve as a microcosm of the whole world. In March 2011, the total UK stock of liquid assets was £2,165 billion, being the total UK money supply (M4). Of this total, £57 billion consisted of notes and coins, of which some £50 billion was held by the banks. The remaining £2,110 billion or so of the money supply consisted of £920 billion owed by one commercial bank to another (inter-bank lending) and the £1,190 billion owed by the commercial banks to their non-bank customers – individuals, businesses and government bodies - being their deposits with these banks.

Set against the liquid assets (money) of the non-banking part of the British economy, are our collective nett liabilities, which are the banks' assets. This consists of £1,450 billion of personal debt, mostly mortgages, some £500 billion of corporate debt, and about £550 billion of Government debt (out of a total Government or National Debt of £900 billion).

Total UK debt
The total amount of debt owed to the banks is more than twice the amount on deposit from their customers. The banks' ratio of assets to liabilities is about £2,500 billion against £1,190 billion (excluding inter-bank debt). This might seem to give the banks good financial security, but it does not.

There is a saying that if you owe the bank £1,000, you have a problem, but if you owe the bank £1 million, then the bank has a problem, and never was this fact more applicable than now. The banks' nett assets are almost entirely non-liquid. The banks continued viability depends upon the financial viability of their debtors, be they business borrowers or householders with mortgages. Unfortunately, many businesses and households are struggling financially because they are so heavily indebted to their bank.

In recent years, commercial property has fallen in value so much that the approach of the banks to commercial mortgages has become known as 'pretend and extend'. They pretend that the property has retained its value and have extended the period of their mortgages in order to maintain the fiction of the nominal value of their assets. In similar vein, they have become more reluctant to repossess homes, as doing so on a large scale would reduce house prices even more than the current rate of decline.

Economic growth needs more debt
Economic growth would end this log-jam, but growth requires an injection of more money into the economy, which in turn requires more people to borrow more money into existence. This is unlikely to happen given that so many people are so heavily indebted already, and given the fact that banks are already too nervous about the value of their existing assets to want to increase their liabilities (the money supply) against further assets (new loans) that could also go 'toxic'.

Debt repayment without growth
The only way that the country's myriad debts could be reduced without growth (and a necessary increase in debt) would be for everyone with any money to spend it in such a way as those with the debts could earn it and use it to pay off their debts. This in turn would reduce the banks' liabilities as the amount of money on deposit with them would fall to the same extent.

The problem with this approach is that if everyone did spend all of their savings, they would risk financial disaster themselves. There would be many more bankruptcies, both household and commercial, if fewer people had the financial cushion of some savings.

The eradication of the nation's bank accounts would see the money supply almost totally disappear, causing a complete collapse in the economy. We would still collectively owe at least £1,300 billion, with no means of paying it off. Possibly it would be soon be written off, but having returned to a sort of mediaeval pre-monetary economy, few people would care.

However, we would have a small collective nett positive liquidity (the £57 billion in notes and coins) for the first time since 1985 (Result!). We would not actually be collectively insolvent, but would be practically so.

All around the world
One can apply the same scenario across the world, not only within a country, but across borders. The Germans might complain that they are lending too much to the Irish and the Greeks, but what do they think that their money consists of? Their credit has to be someone else's debt. That is how the modern money system works. Very little money, of any currency, consists of purely positive money, such as notes and coins.

All around the world, one person's credit is another's debt, and the only way that the debtors can reduce or eradicate their debt is if the creditors spend their money with them. If the creditors refuse to spend their money with the debtors, but insist on selling them more stuff, lending them the money to buy it, they cannot in all honesty then complain when their debtors' debts continue to increase.

A zero-sum game
Debt-based money is a zero-sum game. The only way for no one to be below zero is for everyone to have zero. The only way that debtors can avoid bankruptcy is for creditors to spend so much of their money that they themselves risk bankruptcy. In practical terms this not likely, but given that creditors' credit is dependent upon the financial viability of their debtors, it is ultimately the only way that they can secure their credit.Debt-free money as a proportion of the whole

The money supply is not entirely a zero-sum game. In Britain, out of a total money supply of £2,165 billion (March 2011), £57 billion is not based on debt. This amounts to 2.6% of the total. In 1946, when the Bank of England was nationalised, notes and coins, the debt-free element within the money supply, was 46% of the total.In the following decades, both in Britain and around the world, this wholly positive, debt-free element of the money supply has steadily fallen, and as it has fallen, so the capacity for widespread solvency has also fallen.

It might seem impossible for the proportion to fall further, but it can, as less and less cash is used by people who increasingly prefer the convenience and security of various types of plastic. It is possible to envisage a world without cash, where there is no longer any margin between collective solvency and collective insolvency.

The solution
The solution to our economic problems is staggeringly simple. Ban the facility whereby commercial banks can create credit based on their borrowers' debts. Require all bank loans to be backed by the banks holding some form of positive, publicly-issued and government sanctioned money, whether as cash or as credits with the Bank of England, and then issue enough of such money to enable the economy to function without having to have people, businesses or the government itself massively in debt.

Money Reform is the Alternative

2011-03-27T11:25:00.000-07:00

The TUC March for the Alternative that made its noisy but good-natured way through London on March 26th called for an alternative to the Government's spending cuts. Unfortunately, none of the organisations associated with this march has an alternative.

The usual suspects

Certainly, there are calls for a clamp down on tax avoidance (which is entirely legal) and tax evasion (which is alrewady illegal), but the most difficult task for our often derided and comp[aratively poorly-paid civil servants is to extract more tax from wealthy companies who are able to afford clever specialist accountants to get around whatever rules are imposed. In opposition, every political party calls for such a clampdown, only to fail in government.

Nor can denuding our armed forces of resources offer us the means of paying for our other public services. The defence of the realm is the first responsibility of any government, and Britain has been a player on the world stage for too long to assume a role akin to that of the Swiss. As a consequence of our history, we have responsibilities to fulfil

The problem of debt-based money

Furthermore, neither of the above approaches deals with the central problem facing both the British economy and most other developed economies, a problem of which few are aware, including most economists and politicians.

The central problem stemming from the Government's determination to reduce its borrowing is that such a measure will reduce the amount of money in circulation within the British economy in comparison with the amount required. The amount required grows annually at an exponential rate as more new money has to be borrowed into existence each year to pay the interest on money borrowed into existence during previous years.

Someone has to do the borrowing, whether Government (£900 billion), private business (£500 billion) or private individuals or households (£1,500 billion). It is noticeable that no one seeking an alternative seems to be suggesting that government borrowing should continue to grow exponentially, and there is opposition to increased private borrowing in the form of increased student debt. With debt-based money, the alternative to ever increasing borrowing, by whomsoever, is economic recession.

This is a situation that neither the Coalition Government nor the coalition against the cuts are addressing, because neither side is aware of the problem.

Ending the bankers' money-creation scam

Money reform would address this problem of debt-based money and also provide sufficient funds both to maintain public services and to reduce government debt.

Money reform is simply this. A law would be passed that prohibited the clearing banks (the likes of Barclays, HSBC, LloydsTSB, RBS, etc.), or any other private body, from creating credit based on their borrowers' debts. In other words, banks would no longer be able to lend money that they did not have. They would no longer be able to create the nation's money supply in a process that requires ever-increasing indebtedness. This would, of course, reduce bank profits, down from billions to mere millions, and bankers would revert to being well-paid businessmen, rather than being the Masters of the Universe.

The shortfall in the nation's money supply would be met by increasing the amount created by the only other (legal) creator of the nation's money supply - the Bank of England, a publicly-owned Government agency.

Currently, the Bank of England creates just 2.6% of the nation's money supply, in the form of the notes and coins. The £2 billion or so of extra cash that it creates each year (in addition to old notes and coins being withdrawn) is almost wholly extra income for the Government's coffers. Printing up a £20 note costs a few pence. This is free money for the public purse, derived from the new money that the economy requires.

A public money supply

Money reform would simply increase the proportion of the nation's money supply created by the Bank of England from 2.6% to 100%. This need not be in the form of notes and coins, but could consist of credits in a Bank of England computer. In the process we could expect to see the revenue due to government grow from around £2 billion per year to some £100 billion per year, at least for about 10 years, until the economy had an adequate stock of permanent money. This money would not require anyone to be in debt.

This sum of extra government revenue would enable the deficit to be paid off in about 18 months, whilst the entire National Debt, which has been growing exponentially for over 300 years, could easily be paid off within a decade, all without spending cuts or tax increases.

Reducing inflation

A further benefit would be the stabilisation of inflation at a point closer to zero than it presently is. The Government's oft-quoted inflation target stands at 2%. Few people ever ask why it is not 0%. The reason is that with a money supply based on debt more new money has to be borrowed into existence each year to pay the interest on money borrowed into existence during earlier years. Debt-based money requires inflation.

With a money supply created debt-free by the Bank of England, not only would inflation be unnecessary, with one single body controlling the money supply and being charged with a 0% inflation target, such a target would be more readily achieved than at present, with money creation being determined by the clearing banks' pursuit of profits.

Certainly, money reform will not protect us from inflation shocks derived from external sources such as oil price increases, but it would better enable us to invest in technology that would reduce our dependence upon foreign oil.

The Financial Services (Regulation of Deposits and Lending) Bill

The distance between this idea being promoted on a blog and becoming law is not perhaps as far as many might imagine. No new legislation would be needed to enable the Bank of England to provide us with our money supply The only legislation required would be that to prevent the clearing banks (or anyone else) from creating money.

As I write (27th March 2011), such a piece of legislation is currently before Parliament. It is called the Financial Services (Regulation of Deposits and Lending) Bill. It is a private member's bill and, lacking Government support, it is unlikely to become law, if only because few politicians are aware of how crucial it is to our economic well-being.

Yet, the mere fact that such legislation stands before Parliament means that the concept will be credible to our legislators when its full benefits are drawn to their attention, even more so, given that the movers of this bill are Conservatives.

Real reform or posturing

Such an origin might ring alarm bells in the minds of many who oppose the Government cuts, but such legislation can only hope to be passed with support from the Government benches. A rallying of support for such a bill is therefore entirely possible from across the political spectrum, but support will only be effected by those interested in real reform. This is how real reform is achieved.

Of course, real reform will not interest those who are secretly delighted by the programme of cuts, which gives them the opportunity to dress all in black or in some other political imagery of their own deluded fancy, in order to posture and strut and create mayhem on the streets of London.

Debt/money requires some people to 'live beyond their means'

2010-11-12T06:42:00.000-08:00

Much has been made of late of 'living within our means'. At a personal level, I could not imagine living any other way. As I sit and write this blog on a cool November morning, I am well wrapped up wearing two thick cardigans as the central heating is not on. It has not worked for 10 years.

If one is single, free of debts, a home owner (with mortgage paid off) and in good health, I have discovered over recent years that one can live well on a modest income. I hear talk of the level of income that constitutes 'the poverty line' and imagine the luxury that I could enjoy if only I had such riches – a working central heating system, perhaps.

As a volunteer with my local credit union, I have often found myself discussing the money troubles of people with far larger incomes than my own, two or three times my own, who yet somehow never have any surplus funds at the end of each week or month that they squirrel away for the proverbial rainy day. With no surplus disposable income, over and above their normal living expenses, I am wont to ask how will they repay the money, together with its modest interest charge, that they seek to borrow?

Indeed, with some younger people in particular, the very concept of savings seems entirely alien. Often, they are in debt already and turn to us as other sources of borrowing are exhausted. Mr Micawber would be spinning in his grave like a top, were he not a fictional character.

It is easy for those us comfortably in credit with the financial system to regard with pious disdain those of our fellows who are wallowing in a mire of self-inflicted debt, just as the Chinese can regard the trade imbalance between themselves and the 'North Atlantic' countries as our problem, not theirs; but there are two sides to every coin, and just as a single-sided coin or a single-sided sheet of paper is a physical impossibility, so a credit balance is impossible without a corresponding debt held by the other party to the credit.

Consider money in a bank. We talk of having money in a bank, and of putting money in a bank, when in fact, we do not put money into banks, so much as lend money to banks, and we certainly do not have any money 'in' a bank, unless, of course, one uses the same terminology to describe the other side of the coin.

Do banks have money 'in' their debtors? Do Barclay's, HSBC, LloydsTSB, etc, regard the loans and mortgages owed to them as money 'in' Mr and Mrs Smith of Acacia Avenue, or 'in' Dr Jones of Sunnyside Close, or 'in' the van of Fred Brown, self-employed plumber and central heating engineer?

Probably not. So it makes no more sense to think of ourselves as having money 'in' a bank. What we have is the bank's debt to us. The bank itself has nothing more than its debtors' debts owed to it, whether they are home mortgages, businesses loans, credit card advances or Government bonds. These are the assets which (more than) balance out the liabilities in the form of its debts to its depositors.

So, indirectly, those of us with money 'in' a bank are dependent upon those with debts owed to the banks for our money even to exist. This is the reversal of the common assumption, that people who borrow do so from people who have something to lend. This borrowing of existing money happens when one borrows from a (small) building society or credit union. They are not part of the bank clearing system, so cannot create debt/money. They can only lend out such money as they themselves have on deposit with a bank. (Some of the larger building societies are part of the bank clearing system, enabling them to provide current accounts, but do not seem to rely on inter-bank lending except as creditors like ordinary depositors.)

When borrowing from a bank, the bank has no bank account from which it can take the money, as most people would imagine it. Its depositors' money is what it itself OWES, it is not a credit upon which it can draw. It can no more pay out loans from its debts to its depositors than I could lend you a sum of money in the form of a bill to me from my telephone company.

Banks do not lend money, as most people think of it. Instead they lend credit, which can be thought of as a single entity, which I think can best be called 'debt/money.' or even 'debtmoney'. It is not money based on debt, wherein the money and the debt are associated but distinct. Rather, it is a single entity, like the two sides of a coin, or the two sides of a sheet of paper. The money only exists when the debt exists, and both disappear together when the debt is paid off.

The reverse, however, is not true. Disregarding the 2.6% of the money supply that is not debt/money, that exists in the purely positive state of notes and coins, the entirety of the UK money supply is debt/money, wherein the money cannot exist without the debt, but debt can happily exist without money.

It does so when when I receive a bill from my telephone provider. The telephone company doubtless regards my debt to it as an asset on its books the moment it raises the bill and sends it to me, but it won't regard it as money until I transfer their credit with me to their bank, by transferring credit that I enjoy with my building society to credit that they enjoy with their bank.

By contrast, I am happy to be in credit with my utility companies, notably my gas and electricity supplier. I pay, by direct debit, rather more than they estimate - still no central heating, guys! - so when bills arrive they are usually showing that I am owed money, which is a form of savings. I can, and occasionally do, ask for them to credit it to my building society current account.

This existence of debt without what we would regard as money, although it is certainly an asset on the banks' books, enables the banks to build up massive credit balances with the rest of the economy. It is not money that the banks can lend out, because it is what they are already owed, it is the money that they have 'in' their debtors, many of whom are quite possibly 'living beyond their means'.

Without someone 'living beyond their means', the rest of us would have no money to enable us to live comfortably, and piously, within our means. We will only be able to achieve a situation whereby nobody needs to 'live beyond their means' and for the economy still to be able to function, at both a global and national level, when one party's credit does not, necessarily, consist of another's debt.

Anne Belsey
(Leader of the MRP)

Cutting the deficit will not be possible (without money reform)

2010-05-13T07:52:00.000-07:00

As promised, our new Government has immediately announced its intention to cut the deficit that it inherited from Labour. This initiative was applauded by the Governor of the Bank of England and, if Mrs Gillian Duffy is to be our Everyperson, it will no doubt be accepted as inevitable and even desirable by a sizeable section of the British people. At the same time, our new Minister for Banks and Business, Mr Vince Cable, has announced his intention to force the banks to increase their lending.

Both of these two announcements indicate that the new Government, as well as the old one, the Bank of England, and a sizeable proportion of the British people have no understanding of the money supply, nor of the way it impacts upon the economy.

We have had recessions before, of course, and each one was ended by a cut in base lending rates. This reduced the cost of borrowing, inducing companies to borrow to invest in their businesses and consumers to borrow in order to buy the products of those businesses, so causing the economy to resume its upward path again.

Bank base rates have been at 0.5% for well over a year. They have never before been so low, and they have never been kept low for so long. Yet, few people are borrowing. There has been no net increase in borrowing by private households or private businesses for the past year. Such borrowing that is occurring is simply matching the amount of old debts being paid off.

This level of borrowing is not enough to get the economy to grow. Indeed, it is not enough even to prevent the economy from sliding into recession. Look at the figures. Total UK debt (excluding inter-bank debt) is about £3 trillion. Half of this, £1.5 trillion, is household debt, mostly mortgages. Nearly another trillion is Government debt and the remainder is business debt. Most of this debt is low risk, low interest stuff, say 5% to 6% on average. This means that to create enough new money to pay the interest on this debt, new borrowing had to increase during the last year by at least 5% or 6% of £3 trillion, a figure of around £160 billion.

If this figure seems familiar, it is the amount of the Government's deficit on its budget for last year. In other words, only government borrowing created enough new money last year to pay the interest on all the nation's outstanding debts. If this figure is cut by any significant amount, there will be insufficent money to meet the interest on all our debts and we can expect a rise in bankrupticies, unemployment and house repossessions, causing a double-dip recession, if nothing more serious.

To get the country out of recession, net borrowing will have to be far greater than £160 billion, maybe £260 billion, which is why the government wants to get the banks lending.

To put it another way, they want to get the rest of the country, private households and private businesses, to increase their borrowing on a massive scale. But with such massive levels of debt already, who can afford to borrow the extra hundred billion that will be needed each year? And remember, as the debt rises so the level of new borrowing to pay the costs of the debt will rise as well, year after year after year. If net borrowing had to increase by £160 billion this year, it will need to increase by £170 billion next year, and by £182 billion the year after that, rising ever higher at an ever increasing rate – exponential growth.

This madness can only be ended by reforming the nation's money supply so that for our economy to function we do not have to have the nation's total debts rising exponentially year on year. We need a money supply that is not based on people being in debt.

Anne Belsey

MRP Leader

“Mankind's greatest failing is its inability to understand the exponential function.” Albert Einstein.

Wonderfully irrelevant Copenhagen

2009-12-23T04:09:00.000-08:00

So the Copenhagen conference ended with the sort of fudged semi-commitment that might have been predicted. I am not worried. I do not set much store by such conferences.

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I am particularly unimpressed by 'legally binding international treaties'. They are legally binding upon whom? Who gets arrested and banged-up if the treaty obligations are not met? If Britain, or the USA, or China, or any other major developed or developing nation fails to meet its treaty obligations will they be faced by a gun-boat from the Maldives or Tuvalu or Bangladesh sailing in to impose those obligations? I don't think so.

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Treaties will not save the planet.
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Only changes in human behaviour will do so, and only then if the behaviour is seen as preferable to that which currently pertains. In other words, a less carbon dependent economy has to be more desirable than the present highly carbon dependent one.
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Let me set out my views on climate change. I accept that there is a strong possibility that the world's climate is changing in a way that will be highly detrimental to human civilisation as it presently exists, with a large proportion of the world's population living a few metres above present sea levels. Should sea levels rise, then those people will not simply allow themselves to drown whilst the rest of us, living at higher levels, happily continue driving our SUVs (through the flood waters?) and jetting off to ever more sunnier climes.
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I am also prepared to accept that human behaviour is a contributing factor in this change, releasing carbon that has been locked up in the Earth's fossil fuels for millions of years, over and above the carbon emissions released into the atmosphere by the rest of the biosphere and by the chemistry of the world itself, and that it behoves humanity to reduce or eradicate such emissions as much as possible in order to prevent ourselves squabbling (with nuclear weapons) over fast diminishing resources, whether farmland or oil, but the truth of this issue is irrelevant.
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For Britain, the dispute over climate change is irrelevant.
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If Britain were a country rich in fossil fuels, it would make economic and security sense to pursue a policy of continued dependence upon such resources, but our reserves of these commodities are fast running out. (Okay, so we still have a lot of coal, but extracting it is difficult, unpleasant and dangerous. I grew up in a mining area. My very first job introduced me to the crippling effects of pneumoconiosis – 'miners' lung'.)

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Instead, Britain, being an island, is perfectly situated to take advantage of renewable energy. We are surrounded by tides, some of the strongest in the world, which flow whatever the weather, and by waves and wind, and if we need to dig holes in the ground, let us do so to create geothermal energy. We need renewable energy for energy security, if for no other reason.
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More particularly, would it not be a grand thing to create an economy where we simply do not need to use such amounts of energy as we presently do and still enjoy a higher quality of life; where the normal trip to work is a ten minute walk, not a half hour drive through traffic jams; where we don't keep having to make new stuff to replace stuff that, at two or three years old, is 'out-of-date' or 'life-expired'; where parents have time for their children so do not keep having to quieten them with this year's latest fad; where grand-parents live in walking distance of their grand-children and not half a world away as a consequence of someone's oh-so important career; where businesses are not so immersed in debt that they have to keep increasing production and their customers' consumption in order to stave off bankruptcy; where governments do not have to keep coming up with new reorganisations of the nation's public services to mask the inevitable unravelling of society as a consequence of the pressured lives that so many people lead?
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The world needs to chill out, but to do so it needs to remove the great driver of our increasingly frenetic and decreasingly productive society and economy – debt.
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We cannot hope for a sustainable economy, whether for environmental, economic, social or security reasons, unless we have a sustainable money supply, one that does not require its own constant expansion, and the expansion of consumption along with it.
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Before we can even think about protecting the environment, we have to reform the money supply.
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The money supply is not some natural phenomenon over which we have no control, like the weather or the amount of oil reserves that are still left to be exploited. The money supply is entirely man-made. It is the one factor in our economy over which we, collectively, have total control, and don't let economists kid you otherwise.
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Money is the driving factor in all our lives or, rather, the lack of it compared to our financial commitments is the biggest factor in most of our lives. The bonds of debt are stronger than the metal chains of slavery.
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Bind someone into high levels of debt, through the lure of all the goodies that our modern technology can provide, and you have an obedient and compliant worker, willing to work long hours for low wages, to travel great distances simply to get to work, to expend enormous amounts of time and effort in securing and maintaining employment (and to condemn their fellow citizens who are less successful in this game of musical chairs), to suffer high taxation and ever increasing prices as more and more of their nation's wealth is creamed off by those who still create the money supply - unbelievably so after the shenanigans of the past two years.
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We must end the absurdity of a money supply created by private interests, based upon the debt-bondage of the working population.
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Removing this pressure from peoples' lives is akin to turning off the water at the mains before fixing the plumbing. It is an essential first step without which no other steps can be undertaken. Furthermore, a money supply created by a public agency would create the means to pay for all the renewable energy projects that we need to give us energy security into the future. We have the technology, and it can be improved as we use it and develop it.
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Britain should not be arguing the case for 'legally binding international treaties'. Instead, we should be quietly leading the way towards an ever more prosperous, debt-free economy and an ever more contented society based upon an ever reducing need for the world's finite resources. The fewer our needs, the more luxuries we can have. For example, the car that is no longer needed as an everyday necessity can become the luxury used merely for social occasions, for days out and visiting friends.

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It may be that only Britain can take the lead in money reform, and so provide an example for the rest of the world to follow. We still have our own currency, making money reform easier within Britain than in Europe. We do not have the USA's perverse antagonism towards government involvement in the economy. We still have strong links with a diverse range of countries around the world - the Commonwealth - amongst whom we could create a genuine Commonwealth of Nations, sharing resources and technology in a mutually beneficial and co-operative manner, rather than engaging in the divisive and destructive 'beggar thy neighbour' approach of the World Trade Organisation.
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Despite our modest size as a nation, we have led the world before. We can do so again.

Anne Belsey

(Leader of the Money Reform Party)

The Pre Budget Reform - Do I laugh or do I cry?

2009-12-21T03:31:00.000-08:00

The Chancellor of the Exchequer has set out the state of the nation's finances in his Pre-Budget Report. He has set out his tax increases and his rather more vague spending cuts, and he has talked of his expectation of significant future growth in the economy in the medium term from which will be drawn the revenues to pay off the still considerable differences between these economies and the high level of Government debt (the National Debt).

It is enough to make one weep.
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Nor have we received any sense from the opposition parties. The ignorance of the Shadow Chancellor beggars belief. Slightly more sense comes from the Liberal Democrat's Treasury spokesman, but that is not saying much.
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Let us start at the very beginning; that's a very good place to start. When you read, you begin with A B C; when you count, you begin with 1 2 3...
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A functioning economy needs to have a money supply, a means by which goods, services and employment can be paid for. It is not rocket science.
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So what does Britain's money supply consist of?
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There is £54 billion in notes and coins in circulation (Bank of England Monetary & Financial Statistics October 2009 – the Bankstats). This is clearly not a very large sum when set against the hundreds of billions of pounds mentioned whenever Government borrowing or bank bailouts are discussed. Indeed, the Bankstats give us a total UK money supply of just over £2 trillion (£2,000 billion).
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This £2 trillion does not consist of bank notes or coins. Despite what has been said about quantitative easing over the past year in the popular media, neither the Bank of England, nor the Royal Mint, nor the Treasury nor any other Government agency has been printing up hundreds of billions of bank notes.
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Money in the UK and around the world consists of debt. When you have money 'in' a bank, that bank is in debt to you. Its debt to you, is your money. Similarly, a bank's money consists of its customers' debts to it. A bank can be said to have money 'in' those customers to whom it has lent.
In this whole process, no real money actually exists. It is just numbers in computers.
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However, the net result is that for there to be deposits in some people's bank accounts – giving us a national money supply (£2 trillion at the present time) - other people or businesses or the government have to be in debt to the banks. Without their debt, the money supply would not exist (except the £54 billion of notes and coins).
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“Everyone agrees that government spending has to be cut.”say all the major media outlets. “Oh no they don't!” say I.
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The popular media, proving itself to be no more knowledgeable than our politicians, keeps on spouting the mantra of austerity, that government spending has to be cut, and that taxes have to rise. The reason for such austerity is to reduce the level of government debt (the National Debt), currently some £800 billion and approaching 70% of GDP.
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This is the sort of thinking that we might expect to read in a schoolchild's essay, not opined by our leading politicians, economists and commentators. No wonder we are in a mess.
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THAT DEBT IS A MAJOR PART OF OUR MONEY SUPPLY, YOU CLOWNS! Reduce it and you will reduce the overall level of money within the UK economy, and it is due to a shortage of money already that we are in recession.
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The only way we can get out of recession is to increase the amount of money within the economy, and given that 97% of our money is based on debt, to increase the money supply, we have to increase the total level of debt!
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Who is going to have to carry all this debt if not the government? The people of Britain will, whether as private householders or private businesses. Although, of course, it is questionable whether we can afford to borrow significantly more. Most people, having woken up to their own high degree of indebtedness, are trying to reduce their own debts. This is good for them, their families and their businesses, but it is disastrous for the economy.
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So why is it that we need to keep expanding the money supply?
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More debt is needed to create enough new money repay the high levels of debt currently in existence.
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You might need to read that last sentence more than once to grasp the full absurdity of the situation in which we find ourselves.
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Yes, it is true. We can only repay past debts, both principal and interest, by borrowing even more money into existence. Without that, an ever increasing proportion of the money supply would need to go on repaying the principal and interest of existing debts, effectively shrinking the money supply and plunging us further into recession.
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If we have to borrow to provide the money supply, then government borrowing is best as it is cheapest. Governments, even the supposedly dubiously credit-worthy British Government, can still borrow at cheaper rates than most citizens or businesses.
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But why have a money supply based on debt at all? Even with 'cheap' government debt, the debt-based money system is mathematically unsustainable. With a bit of jiggery- pokery, we might be able to eke out another decade or so, especially if the Chinese people can be persuaded to follow the UK and USA into high levels of personal debt. But as with all pyramid schemes, eventually one runs out of people – of credit-worthy borrowers, in this case.
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This is the question that none of our senior politicians are addressing.
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It would be farcical if it were not so tragic.
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Anne Belsey
(Leader of the Money Reform Party)

The Debt Pyramid

2009-10-07T04:32:00.000-07:00

by Anne Belsey
(Leader of the Money Reform Party)

One way to get a sense of the historical significance of the present financial crisis is to visualise society as a triangle with a pointy top and a broad base. It is the picture of a side of a pyramid.

The rich people are those at the small pointed top of the pyramid, which broadens to encompass the 'comfortable' middle-classes and broadens further to include those less well off with the wide base of the very poor.

At the beginning of the 20th Century, that part of society which had bank loans consisted solely of those at the very top of this pyramid. The aristocracy, people with 'private incomes', were the only individuals who borrowed from banks. They were joined by large companies seeking short term loans and the government seeking much longer term loans.

As the century progressed, after the First World War, so bank-lending began to slide down the social scale, absorbing more and more of the population. A step down from the aristocracy, the upper-middle classes, professionals such as doctors and lawyers, began borrowing to buy the suburban villas they had previously rented, and smaller limited companies began to borrow to finance expansion or to cover cash-flow shortages.

After the Second World War, the lower middle classes, clerks, middle managers, teachers and other salaried workers, also started to take out mortgages to buy their three-bedroom-semis, whilst even very small family firms began to rely on an overdraft facility. This expansion of new lending was important for the economy because successive governments began to pay down the National Debt as a proportion of GDP (even though it kept rising in real terms), from 250% in 1945 to 40% in 2007.

So the burden of borrowing into existence the money supply that the economy needed (and paying it back with interest) shifted from the government to private individuals.

Into the 1980s and borrowing increasingly became a way of life for the 'skilled working classes' and anyone in secure employment, as council houses were sold, house-ownership became the realisable dream for almost everyone and credit cards became popular.

Then in the 1990s, students were brought in to carry their share of the nation's debt burden, as were the elderly in the form of equity release schemes. Meanwhile in business, a great many companies were the subject of highly-leveraged buyouts, leaving those companies heavily indebted.

By the early 21st Century, anyone who was willing to borrow and able to afford the repayments on such borrowing was in debt up to the hilt, but further borrowers were needed. With money coming into existence in the form of debt, not as an expression of positive value as many people suppose, the amount of borrowing has to rise year on year simply to keep the whole system from collapsing.

With the money supply being the collective principal of all outstanding bank loans, the amount of money needed to pay back these loans (with interest) is greater than the money supply. So more new money has to be borrowed each year in order to pay back both the principal and the interest on the borrowings of previous years. In effect, the amount borrowed each year has to meet the amount borrowed the previous year plus the interest on that debt.

It is an exponentially growing debt and one that is not repayable. It can be likened to a pyramid selling scam, wherein each successive intake of gullible participants has to be double the previous intake until the whole scheme collapses due to a lack of gullible participants.

In the real economy, over the past century, we have expanded the proportion of the population that is heavily in debt to the banks until we have reached exhaustion. We have run out of credit-worthy borrowers. Therein lies the simple reason for the credit crunch.

For those of us who advocate a reformed money supply, the solution to this problem is obvious. It is also very simple, and could be applied very quickly and easily. We should have a money supply that exists as a positive, permanent medium of exchange, the existence of which is not dependent upon anyone being in debt.

Unfortunately, mainstream economic thinking is tied to the existing system of money being based upon an ever increasing level of debt. Those economists and politicians who adhere to this viewpoint have to answer this question: 'With debt at saturation point, who is going to borrow into existence the extra money that the economy needs?'

Why money reformers are cranks

2009-04-11T13:42:00.000-07:00

by Anne Belsey
(Leader of the Money Reform Party)

I write this blog as something of a belated response to a comment posted on guardian.co.uk by Chris Colvin on 29th December 2008. This was brought to my attention by Mark Braund's article of 5th April 2009 via James Robertson.

The theme of Mr Colvin's article is that 'many whacky fixes for our broken financial system are currently floating around cyberspace' and they are not to be considered as serious alternatives to the excellent system that currently prevails.. He mentions the Money Reform Party by name and derides its performance at the Bromley by-election in 2006, trailing in even behind the Official Monster Raving Loony Party. As the leader of the MRP and the candidate in Bromley, I feel it appropriate to respond.

Firstly, I should correct a serious mistake made by Mr Colvin about the policy of the Money Reform Party. He asserts that the policy of the party is to adopt the gold standard. That is not so, and never has been.

Our policy is that bank loans should be backed 100% by holdings of legal tender. We do not advocate gold or other single commodity as the backing of the money supply. Rather we believe that Britain's money supply should be backed by the productivity of the British economy as a whole. This would done by the simple process of maintaining the money supply at a level that gives us a zero inflation rate.

I shall say no more about the other mistakes made by Mr Colvin in his analysis of money reform, they were more than adequately dealt with in Mr Braund's article.

For the record, in the 2006 Bromley & Chislehurst by-election, I received just 33 votes and came in 11th out of 11 candidates. It was an embarrassing result, but not for myself nor the Money Reform Party. No one who is clearly on record of having attempted to alert the British people, their politicians and media commentators to the problems building up within the money supply in the years before the credit crunch storm broke has any cause for embarrassment. That sentiment properly lies elsewhere.

I am pleased to use this opportunity to bring Mr Colvin's article and his views to wider public attention, for it is the purpose of the Money Reform Party to alert people to the nature and origin of our money supply. Were Mr Colvin's views to be more publicly known, discussed not merely on some obscure website column but in the leader columns of our major newspapers and by reporters on our major television and radio stations, there would be no need for the Money Reform Party.

An example of why this is occurred during the night of the count of the Bromley by-election itself. Myself and two or three of my supporters found ourselves in discussion with someone, presumably a supporter of a rival candidate, I know not which, who was curious to know what money reform was all about.

We explained how the present money system works and he frankly denied that it could be so. Put simply, he denied the existence of the present money system which Mr Colvin so assiduously defends. It could not be the case, he asserted, that banks are 'able to issue credit in excess of the government-backed notes and coins deposited in their vaults' (to use Mr Colvin's phrase).

I do not criticise this individual's ignorance. It is all too common. It is quite understandable. Indeed, the great difficulty of the Money Reform Party and of the money reform movement lies not with convincing people of the justice and desirability of the country having a money supply consisting 100% of publicly-created legal tender, with banks limited to lending out deposits. That is what most people assume to be the case! The great difficulty lies in convincing them that it not so. Although, in truth, as the credit crunch and recession rumble on, the difficulty lessens by the month.

Needless to say, when the penny does drop and people do accept the facts of the current money system, their reaction is usually one of outrage. To secure their support for the sort of simple, honest and stable money supply advocated by the Money Reform Party, which coincides with what they had hitherto supposed existed, is then the easiest thing in the world.

To repeat, the great difficulty confronting money reform is getting people to understand and accept that what presently exists is what presently exists. Without that, our message of reform falls on deaf ears. Unfortunately, there are far too few of the likes of Mr Colvin, trumpeting the cause of debt-based money created by commercial banks, for awareness to have spread very far.

Hitherto, money reformers have found themselves regarded as cranks by two quite distinct groups of people for two quite distinct and mutually incompatible reasons. Economists, politicians and commentators like Mr Colvin condemn us as cranks for suggesting abolishing credit creation by commercial banks, whilst many ordinary, less 'financially-literate', members of the public condemn us as cranks for suggesting that such a credit creation process could actually possibly exist in the first place.

Please, Mr Colvin, get out onto the streets of Britain, or at least onto the pages of the Guardian newspaper itself, with your message of how the nation's money supply comes into being, it will save me a fortune in future election expenses.

We need nationalised money, not nationalised banks

2009-03-01T02:36:00.000-08:00

The recent loss of £24 billion by RBS, together with the £11 billion loss declared by HBOS, almost wiping out the profits of its parent company, LloydsTSB, has brought the idea of total nationalisation of most or all of the British commercial banking sector once more into the arena of political commentary.

The reason why so many British banks (like many others around the world) have had to go cap in hand to government to buy up some, or all, of their shares, is that UK banks, like those of all the major industrial countries, are bound by the Basel Capital Accord which, since 1988, has determined how much a bank can lend.

Many people are under the misguided apprehension that banks lend out their savers' deposits and therefore they can only lend out as much as their savers have deposited. This has not been the way that most commercial banks have operated for more than three hundred years.

Banks used to operate under a concept called 'fractional reserve banking', which effectively meant that banks only needed to have in their vaults a fraction of the money that they lent out. When money meant gold or silver, then banks created loans to many multiples of their holdings of bullion. Since legal tender came to mean bank-notes, then a bank could create credit to the the value of many times its stock of 'real' money.

The Basel Capital Accord (known as Basel II since 2004) has taken this money creation process one step further. A bank's lending is now determined by a set ratio of its capital value on the stock market. The minimum capital ratio is 8%. Meaning that for each £8 of its capital value, a bank can create £100 of new credit.

What this means, of course, is that as a bank's share price rises so its capacity to create more credit rises and conversely, when its share price falls, so its lending capacity also falls. The banks that took up the offer of extra capital from HM Government did so because their falling share price meant that they were in danger of breaching their agreed capital ratios.

The whole basis of the Basel Capital Accord is further proof that bankers have simply lost touch with reality. Its fundamental weakness is that is a pro-cyclical or positive feed-back system. It creates dangerous excesses for the banks operating under its rules, both in good times and bad. It is a wholly flawed concept which has contributed greatly to the global credit crunch.

We do not need to base banks' lending capacity upon capital ratios, nor upon a fractional reserve. Instead, for simplicity, stability, honesty and sustainability, we need a 100% reserve banking system, which operates in the manner that most people think that banks do operate, by lending out such money as they have, and not by creating credit based on money they have not got.

The commercial banks currently create our money supply as an initially matching asset and liability on their books. These assets and liabilities do not remain matching for long, of course, as the interest charged on assets (loans) soon outstrips the interest paid on liabilities (deposits). Out of nothing, a commercial bank can create for itself a myriad of profitable income streams against a very much lower level of costs.

This arrangement currently constitutes 97% of the UK money supply. If the commercial banks were limited to lending out only such legal tender as they have on their books, our nation's money supply would shrink to 3% of its present size. More money would be needed to fill the gap.

The 3% of the money supply that consists of bank notes issued by the Bank of England would have to be expanded to 100% to meet the need for money within the banking system. The profit from the money creation process would then go to the public purse. This would give us a nationalised money supply.

With a money supply entirely and directly controlled by a single public agency, inflation could be eliminated from the economy through the simple process of creating no more money at any given moment than is required to maintain inflation at 0% (or between +0.5% and -0.5%).

A nationalised money supply should constitute one of the basic services provided by government in even the most free-market orientated of societies. Few, if any, would advocate that Britain should be defended by privatised armed services, or that our streets be protected by privatised police-forces, or our courts run by a privately-owned judiciary, or that every road and street in the land should be privately-owned with no public rights of way. A publicly-provided money supply is as essential as these services.

By requiring banks to operate in the manner that most people actually believe they do – lending out only so much legal tender as they hold in their vaults – bank regulation could be made very simple and very possible. The capacity for banks to lend would not depend upon the rise and fall of the stock market, but upon their customers' capacity to save.

This would be counter-cyclical. If people spent more and saved less, so increasing the demand for goods and services, thereby 'overheating' the economy and creating inflationary pressures, so the capacity for borrowing would diminish, automatically curbing such pressures.

In such an environment, banks could not get themselves into the mess that they recently have, requiring government bail-out plans. They could be left to get on and operate as privately-owned commercial businesses, just like building societies, credit unions and like most of the rest of the economy. They would no longer be massively profitable, as they would no longer create the money supply, but then why should they be massively profitable, when such profitability occurs at the expense of the productive part of the economy?

For a genuine free-market, both in the financial and the productive sectors of the economy, free from the cumbersome bureaucracy of excessive regulation, a nationalised money supply is a must.

We need Money Reform, not Quantitative Easing

2009-02-15T06:40:00.000-08:00

With the Bank of England base rate fallen now to 1%, the Bank and the Government are fast running out of ways of stimulating lending in order to get more money into the economy.

This has been recognised for some time, indeed, if base rate reductions were going to work at all, they would have worked when the rate was 2% or 1.5%. So it is that the frightful phrase 'quantitative easing' has entered the vocabulary of economic commentators.

This has been explained by some as 'printing money', but in fact it might not involve any increase on the Royal Mint's normal annual increase of one to two billion pounds-worth of extra legal tender. Instead, it might just involve the Bank of England issuing bonds in exchange for some of the commercial banks' rather more dubious assets – their toxic sludge.

With some nice AAA rated Bank of England bonds as assets on their books rather than the loans and mortgages of their more insolvent customers, so the theory goes, the commercial banks will be more willing to lend to each other and so facilitate their lending to their retail customers. There is a widespread belief that the commercial banks are currently unwilling to lend.

This is not quite the full picture. In truth, the commercial banks are more than willing to lend, but only to people and businesses with good-credit ratings and little risk of default. This is nothing more than we should expect of our banks. They should only lend to good risks. Indeed, the phrase 'to bank on it' rather implies that a total lack of risk should be the foundation of banking practices. The commercial banks have been roundly, and rightly, condemned for lending to risky borrowers over recent decades.

Unfortunately, both in this country and around the world, the supply of credit-worthy, low-risk borrowers has almost totally run dry. Never mind about an oil shortage crippling the economy at some point in the future, a world-wide shortage of solvent, prudent and obedient borrowers is crippling our economy now.

So quantitative easing in the form of Bank of England bonds is unlikely to get things going. It will doubtless be tried, as the powers-that-be run through their diminishing range of options, but it will fail. So the next step could indeed be the rolling of the printing presses.

This will get the economy functioning again, but the cost will be high. The cost will be high levels of inflation with all the insecurity and industrial action that we experienced during the 1970s and 80s.

The cause of this inflation will not be the extra bank notes themselves, but the fact that for every £1 of legal tender issued, the commercial banks will be able to conjure into existence £30 of bank credit. In other words, with the banking system unchecked, the commercial banks will be able to cause massive inflation through their current standard banking practices.

The current money supply serves to illustrate this. The total amount of sterling legal tender in circulation within the economy (including Scottish and Northern Irish notes) is about £50 billion pounds. However, the total UK money supply (M4), as reckoned by most economists and the Bank of England's own statistics, is in the region of £1,700 billion, over 30 times as much.

Without the capacity of the commercial banks to create credit, our money supply, along with prices, wages and savings deposits would be 3% of what they presently are. In other words, we would not have had the inflation of the past 40 years.

The Money Reform Party advocates that our money supply should be created solely by a public agency as legal tender and that commercial banks should be limited to lending only the legal tender in their possession. This is called 100% reserve banking to distinguish it from fractional reserve banking. (Although, for the 10 countries of the Basel Capital Accord, fractional reserve banking has been replaced by capital ratios.)

To cover all the existing debts, this would indeed involve creating a lot more legal tender, although it might only need be in the form of billion-pound bank notes, or it could probably be done electronically. This extra money would not flow into the wider economy, because only so much would be created as would have to be borrowed by the commercial banks to cover their existing loans. So it could not be used for further lending. Thus a cap and control would be placed on the money supply. There would be no risk of inflation.

Indeed, it is the view of the Money Reform Party that the public agency that is charged with creating and issuing the nation's money supply should be charged with maintaining inflation at 0%. Inflation is a necessary feature of a money supply consisting of bank credit, hence the current Government target of 2% and not 0%. It would not be necessary with a debt-free money supply, and only a 0% inflation rate is fair to both savers and borrowers.

The economy would be revived not through increasing the money supply, but through stripping out hundreds of billions of pounds worth of debt, both public and private, together with increasing Government spending, notably through investment in environmental protection measures, and reductions in taxation on low and medium incomes.

This is totally different to quantitative easing which is designed to keep the debt-based system largely in place and is deliberately intended to increase inflation. A low level of inflation is regarded as an essential aspect of a dynamic economy by conventional monetary theorists.

The current, debt-based money supply has been described as a form of slavery, debt-slavery. Quantitative easing is akin to a slave owner who, having flogged his slave nearly to death, decides to lay off the lash for a while to enable his property to recover sufficiently to be set to work again. Money reform is akin to abolishing slavery and giving each former slave a trade with which to support themselves in freedom and prosperity.

Both of these actions are intended to ease the lot of the slave, but their difference is quantitative.

Base rates are a broken lever

2009-02-10T12:23:00.000-08:00

The Bank of England's reduction of its base lending rate to 1% is proof of the utter irrelevance of the economic theories under which it and the prevailing academic consensus is working. By reducing the base rate to 1%, it is announcing that a rate of 1.5% will not work.

1.5% was itself a record low. If reducing the base rate was going to work at all, then 1.5% should have been quite low enough. It was less than half the current level of inflation and meant that anyone with a tracker mortgage set at 1% above base would have been paid to borrow, in real terms.

The drop to 1% is akin to the tragi-comic situation whereby a character discovers that a particular control for a runaway machine no longer works but, instead of reassessing the situation in order to establish control by some other means, continues to pull on the broken lever in the vain hope that somehow it might spontaneously repair itself.

Thus it is that the Governor of the Bank of England, the members of the Monetary Policy Committee, the Prime Minister, the Government's Treasury team, most economic commentators and everyone else who takes base rate reductions as a serious solution to the present economic crisis can number themselves amongst a cast of notables that includes Dick Dastardly, Wile E. Coyote and the Keystone Cops.

To understand why this is, let us consider the theory behind the raising and lowering of interest rates.

Very simply, the theory is that when base rates are low, people borrow more and because people borrow to spend, so more spending takes place and the money moves around the economy faster. When saving rates are low, there is less incentive to save, because savings rates are low.
The implication of this is that there is only so much money within the economy, and people are either spending it or saving it. They cannot do both. What is not addressed is the question, if people are saving less and borrowing more, from whom are the borrowers borrowing?

The unspoken truth, of course, is that borrowers do not borrow from savers. Their borrowings are entirely new money created as debt by the clearing banks.

Even so, the lowering of interest rates at the retail level should stimulate economic activity, because through increased borrowing, more new money is created, enabling businesses to sell more, employees to earn more, people to spend more, and so on. It has always worked like this before.
The trouble is that we have never before had the levels of debt within the economy that we have now. People with tracker mortgages, who are finding themselves with hundreds of pounds extra money to spend each month are not spending it. They are using it to pay off even more of their mortgages, worried that in a few month's time, they might be unemployed.

Everyone with even the slightest amount of fiscal awareness, obviously excluding Dick Dastardly et al, listed above, is doing the supremely sensible thing for themselves and their families of paying off their mortgages and other debts, and building up their savings, no matter how low the interest rate they might earn, against the possibility of their own domestic financial difficulties.

This sensible course of action is disastrous for the economy. What is good for individuals is bad for the economy. What is good for the economy, indeed, what is essential for the economy is for individuals to borrow massively, even against their own long term best interests. This is a perversity within our current monetary system that rarely gets mentioned.

This peculiar and perturbing fact is due to our high dependence upon debt to provide the money supply. Without large numbers of solvent borrowers taking out mortgages for homes, loans to start businesses or credit cards to consume, our money supply would almost totally disappear.

This explains the Government's obsession with getting banks lending, 'to get credit flowing once again'. The trouble is that for the banks to lend, someone else has to borrow. The Government itself is doing its bit, but Government borrowing has fallen over recent decades as a proportion of overall national borrowing, and there is a political limit on future increases, especially if the Conservatives win the next election. They have so vilified Government borrowing, that whilst they might find it expedient to increase it slightly themselves should they come to power, they cannot do so by much without becoming a laughing stock.

So the burden of borrowing the increasing amounts necessary, a need that rises exponentially year-on-year, to fund both day-to-day economic activities and the high level of residual interest on past borrowing, will fall on the private sector, both households and businesses.

The question is how much increased borrowing are we, as a nation, collectively able and willing to undertake?

Even with base rates at 1%, with mortgages fallen to an all time low, the desire to borrow (and ability to repay) is modest. Even if people were not worried about possible unemployment or other insecurities, their borrowing might be expected to decline, for the very simple fact is that there is a limit to the amount that anyone can borrow.

Micro-economic factors feature rarely, if at all, in the macro theorising of most monetary economists, but real people, unlike lines on graphs have their limits.

With average unsecured debt for households that have such debt standing at £21,000 and average outstanding mortgages for the 11.7 million households who have mortgages standing at £104,000, there is a very real possibility that we have maxed out on debt. We have gorged ourselves and can borrow no more. There must be a limit somewhere.

If the limit has been reached, then cheap loans will not aid us. In that case, if we adhere to the economic orthodoxy that us got us into this mess, the only solution is to take the pain of our indigestion for the next decade or so as our level of indebtedness declines through house-repossessions, bankruptcies and high levels of unemployment.

With the current Bank of England base rate at the lowest point it has ever been in the Bank's 315 year history, firstly as a private company, then since 1946 as an agency of the state, we are clearly living in historic times. Few man-made processes last forever. We might well have reached the end of the Era of Debt.

There is, of course, an alternative to a money supply consisting of debt. We could quite easily switch to a debt-free money supply of the sort that currently exists in the minds of most ordinary people, who are baffled by the concept of money as debt. It does not make sense. Indeed, it does not, and we can expect to see the end of it during the next decade.

Welcome to the Money Reform Party Blog.

2007-06-19T11:52:00.000-07:00

The Money Reform Party exists to educate the British people and their politicians about the money system and to campaign against the creation of the money supply by the private banks.

Please visit our website for more information - http://www.moneyreformparty.org.uk/