Newsletter No. 29 - April 2010
The full Newsletter can also be viewed at
1. THE UK ELECTION ... a possible opportunity to stop the bankers creating the money supply?
In my January Newsletter (No 28) I reported a widespread sense that none of our mainstream political parties is capable of responding effectively to the range of national and international challenges we now face, and that the outcome of the election could be a "hung Parliament". That outcome seems much more likely now.
Prime Minister Gordon Brown (Labour) and David Cameron (Conservative) are trying to respond to the dramatic success of Liberal Democrat leader Nick Clegg in the first televised debate between the three main party leaders on 15 April.
After the second debate on 22 April the Liberal Democrats continue to threaten the other two parties, even if it is still thought doubtful that they could lead the new government themselves after the election on 6 May.
Brown may continue to try to keep open the possibility of a Labour/Liberal Democrat coalition in spite of the growing unease at the prospect within the Labour Party and Clegg's well publicised personal dislike for him. At least for a few more days Cameron may continue to attack both Labour and Liberal Democrats aggressively, and to press the case against a "hung Parliament" - which sounds conveniently worse than a "balanced Parliament"! - and to go for an outright Conservative victory. Everything is, as they say, still up for grabs.
What all this could mean for particular policy areas isn't yet at all clear. For example, the bankers are still attracting a lot of well-merited public anger, as illustrated in Item 2. Would there be a way to get monetary reform on to the political agenda during the election campaigning of the next ten days or during post-election negotiations to settle the form of the next government?
I believe there could be a way, as follows. A long shot, yes - but not impossible.
If any one of the three main party leaders issued a statement broadly on the following lines, the other two would be unable to ignore it.
"The need to explore every serious proposal for stopping the recurrence of banking failures that cause economic and social crises is becoming increasingly clear.
One such proposal is for a monetary reform that will restore to a public agency the function of creating the public money supply in the public interest, and remove the privilege of creating it from the commercial banks.
It is claimed that that could not only help to prevent future disastrous booms and busts, but also to ease the burden of paying off the very high levels of public debt which will otherwise cramp our economic recovery for many years.
So after the election my party is prepared to participate in a cross-party study of the arguments for and against that reform and its feasibility.
At this stage no commitment need be made by any party to act on the conclusions that the cross-party study might reach."
The practical question is, Which of the three leaders would be most likely to issue such a statement?
Perhaps not Clegg. Having succeeded in making the Liberal Democrats a serious contender for office, he might fear that voluntarily floating this idea would enable his opponents to question his credibility.
Probably not Cameron. The Conservative Party and its supporters tend to represent the section of the electorate which directly benefits from high profitability in the banking sector. If he voluntarily floated the idea he would risk losing support.
Of the three leaders Brown would have most reason to risk taking the lead. On 14 April he apologised for not regulating the banks more tightly while he was Chancellor of the Exchequer from 1997 to 2007, and said he could now "be relied on to make sure the banks act in the national interest so you'll see more measures to do that".
Moreover, the idea of monetary reform would appeal directly to trade union voters, most other long-term Labour supporters, and other voters who want to see the bankers put in their place. So, in extremis, Brown might risk floating it as part of a last-ditch effort to consolidate his leadership of the Labour Party and stay Prime Minister after 6 May.
Will someone draw Gordon Brown's personal attention to that? I hope so.
Meanwhile, back to the grass-roots, where the following two candidates in the General Election deserve support from people in their constituencies.
Anne Belsey is standing for the Money Reform Party - www.moneyreformparty.org.uk - in Canterbury and Whitstable. She says that because the constituency "is rock solid Conservative, voters will be able to vote for money reform happy in the knowledge that they will not be 'letting in' the major party that they dislike the most - which will either be the one that will win easily or the one that has no chance of winning! A vote for Anne will be a clear and unambiguous show of support for money reform".
Rev Dick Rodgers is standing for the Common Good Party - www.thecommongood.info - in Birmingham Northfield. Among the policies he supports in his manifesto is to "Stop bankers creating money out of nothing".
2. BANKING BACKGROUND TO THE PRESENT UK ELECTION
Goldman Sachs is a bank on which US and UK governments have relied heavily for banking and financial guidance - http://political-cleanup.org/?p=394.
It has also been called "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money", though it's boss claims that is "doing God's work"! It is now being investigated by America’s Securities and Exchange Commission (SEC) and Britain's Financial Services Authority (FSA) for fraud and deliberate deception of clients. See www.guardian.co.uk/business/2010/apr/19/goldman-sachs-sec-inquiries,
The International Monetary Fund (IMF) has now put forward proposals for two new taxes on banks for discussion at the G20's April meeting. The first is a "financial stability contribution" (FSC) to cover the costs of future financial and economic rescue packages; the second is a Financial Activity Tax (FAT) based on a bank's profits and what it pays its employees. The process of international negotiation on complicated details - for example, precisely how to define banks' profits and pay - is bound to drag on before anything actually happens.
Meanwhile on - 19 April Ross Clark had a centre-page article in The Times - not a radical paper! - titled "For all the frothing, nothing has been done about the banks. The financiers gamble knowing that the taxpayer will always bail them out".
As he said:
"There has been plenty of talk about cutting banks down to size and separating retail banking from investment banking, but no action whatsoever. Only the Lib Dems and UKIP hold out any promise of separating retail from commercial banking in their manifestos".
In principle, it is certainly desirable for the functions of retail banking and investment to be separated as they were under the former US Glass-Steagall Act, and for more smaller banks to serve their customers more efficiently in a more competitive banking sector in which no banks have to be featherbedded because they are "too big to fail".
But neither of those two proposals actually gets to the root of why the world suffers from recurring financial crises. The root cause is that our governments have made us totally dependent on commercial banks of all sizes for creating the national money supply (with the minor exception of banknotes and coins). The banks have been given the privilege of creating it as debt and putting it into circulation by lending it to be invested and spent in ways that are most profitable to themselves.
Withdrawing that privilege from the banks would automatically bring about those desirable structural changes in banking. In many other more important ways it would result in greater economic efficiency, social justice and ecological sustainability than allowing the banks to create the money supply as now.
Prof Richard Werner (Director, Centre for Banking, Finance and Sustainable Development, Southampton University) is one of the growing number of academic economists to correct the hitherto dominant view among their colleagues. (See Item 3(2) below.) He gave a recent interview to Charles Bazlinton on 14 April - see http://the-free-lunch.blogspot.com/2010/04/uk-economy-richard-werners-diagnosis.html - in which he said:
"Money creation and allocation are largely undertaken by the private sector, namely the commercial banks, through their extension of what are called 'bank loans'. What led us into the crisis is the persistent abuse of this public privilege to create and allocate the money supply by these private profit-oriented operators for the benefit of unproductive speculators. The parties will have to get to grips with this issue, ideally by banning all bank credit extended for financial transactions and speculation, or, by taking this public privilege away from the banks, rendering the creation and allocation of the money supply a public monopoly again. Unfortunately, none of the three party leaders or their Treasury appointees seems sufficiently aware of or interested in this problem, thus we cannot expect the type of policies that will deliver stable, sustainable and equitable growth from them."
3. MONETARY REFORM PLUS WIDER MONEY SYSTEM REFORM
This ground-breaking paper from the Science and Technology Policy Research Unit at Sussex University suggests, in the context of climate change, that sustainability is incompatible with a debt-based monetary system. This should be understood and acted on by anyone in a position of environmental responsibility.
Steve Sorrell questions the conventional wisdom underlying climate policy and argues that long-standing and fundamental questions about energy, growth and sustainability need to be reopened. He discusses the following five linked propositions:
1. The rebound effects from energy efficiency improvements are significant and limit the potential for decoupling energy consumption from economic growth.
2. The contribution of energy to productivity improvements and economic growth has been greatly underestimated.
3. The pursuit of improved efficiency needs to be complemented by an ethic of ‘sufficiency’.
4. Sustainability is incompatible with continued economic growth in rich countries.
5. A zero-growth economy is incompatible with a debt-based monetary system.
As he says, these propositions run counter to conventional wisdom and highlight either blind spots or taboo subjects that deserve closer scrutiny. While the focus of his paper is energy use and carbon emissions, the conclusions are equally relevant to (and informed by) broader resource and environmental constraints.
His masterly summary of why a zero-growth economy is incompatible with a debt-based monetary system should persuade anyone seriously concerned with environmental sustainability to stop ignoring the case for monetary reform.
Thanks also to Steve for drawing my attention to a recent article in "Ecological Economics" by Philip Lawn of Flinders University, Australia on "Facilitating the transition to a steady-state economy: Some macroeconomic fundamentals". It explains how a central government can use its unique spending and taxation powers in a disciplined and policy-effective manner, yet in a manner that is being largely overlooked. For details, click here.
(2) I have mentioned Charles Bazlinton's blog in Item 2 above - www.the-free-lunch.blogspot.com. It is a prime source of up-to-date reporting on proposals for money system reform. Recent items include many others on Richard Werner and also the following.
(b) 9 April. Phillippe Legrain, "Tax land or carbon emissions, but not hard work", Financial Times, 9 April. "Land appreciates not through landowners' striving, but that of others".
(c) 22 April. Charles himself suggests that a way to meet the "fairness" aspirations of the three main party manifestos will be by giving a non-means-tested benefit to every citizen - a Citizen's Royalty (or Citizens' Income). He points out that there are sources of redistributable wealth for this Royalty that are now going to bankers and landowners in huge amounts.
It is a must-read account of how - in spite of Fred's repeated advice over the years - governments have failed to tax the value of land and so have failed to avoid the inevitable periodic recurrence of property booms and slumps that he predicted. His work is now increasingly attracting mainstream attention. He foresees a future world of "chaos, with uncertainty piled on confusion" if "the old model based on capitalism continues to colour the minds of the people in power".
I agree with Charles Bazlinton's Amazon review that this book is "a goldmine of enlightenment". Please read it. I have only one additional comment: that Fred tends to underestimate the importance of monetary reform. It is the combination of the failure to tax land values with giving banks the privilege of creating money for investment in land and property that leads to spiralling booms in land values followed by disastrous busts in house prices and disastrous shortages of money ("credit crunches").
Fred is one of the prominent speakers at the important international conference now taking place in London on " Why is so much wealth in the hands of so few?". Click here for details. Fred's new blog is at www.fredharrison.com.
(4) Limited Purpose Banking is an important proposal from Prof Laurence J. Kotlikoff of Boston University in his recent book "Jimmy Stewart is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking" - details here. Closely related to cutting the banks down to size and separating retail banking from investment banking (Item 2 above), it represents a significant step towards monetary reform. Read the enthusiastic Foreword by Jeffrey Sachs on the Ethical Markets website here.
(5) Darius Guppy, in "Our World Balances on a Sea of Debt"(Daily Telegraph, 21 February 2010) clearly explains the need for "a root and branch re-evaluation of that most curious of cultural inventions – money - how it is created, how it circulates within an economy and how it can best be used to serve the interests of the community itself ".
His next-door neighbour in prison in 1994 was there for counterfeiting Dutch Guilders to such a high standard that he had fooled the banks themselves. Sentencing him his judge had said that usurping the role of the state in that way was a parasitical activity.
Guppy's convincing and lucid exposition explains very clearly how we have come to allow the commercial banks and the wider financial sector to engage in activities that usurp the public function of money creation, essentially similar to the counterfeiting activities of his neighbour in prison. I recommend it without reservation to people who want to understand what has gone wrong, and I am grateful to Alistair McConnachie for drawing my attention to it.
(Readers should not be put off by the fact that Guppy himself was in prison in 1994 for fraud of a different kind - for details, click here.)
He concludes that "the analyses of the current economic crisis and the sticky-plaster remedies advanced by politicians, financial journalists and the financial industry itself in order to counter that crisis are woefully inadequate because they fail to grasp what is in fact a simple and devastatingly effective swindle, a swindle largely invisible because it has become so deeply embedded in our culture". "Some original and radical thinking, the type of thinking one encounters nowhere in any of the political parties," is needed.
(6) Dave Patterson,"What Happened?!?",January 2010 (www.rudemacedon.ca/what-happened.html).
Although this long, radically outspoken indictment of "the money supply scam" is addressed primarily to Canadian readers, it is much more widely relevant. I warmly recommend its wealth of insights and useful references to readers everywhere.
Dave asks: "Why is something as fundamental and centrally important to everything in our society as where our money comes from never talked about in school, or in the media, or during election campaigns?". His answer: "It is covered with a huge amount of obfuscation in order to prevent people from understanding the essential scam of allowing private interests to create a national money supply, which is in essence not complicated at all".
4. SOME ITEMS ON ETHICS AND RELIGION
(1) Ekklesia, a "religion and society think-tank at the cutting edge of culture, spirituality and politics" is treating this general election as the "Ethics Election" - click here for more information. For its report that an independent website showing how people pick a political party based on policy alone found that most people go for Greens with Liberal Democrats in second place, click here.
(2) A new book by Robert Van de Weyer, "Against Usury: Resolving the economic and ecological crisis" - www.spckpublishing.co.uk/shop/against-usury - is recommended by Peter Challen. Sounds good but I have not yet been able to read it myself.
(3) The Ecumenical Council for Corporate Responsibility - www.eccr.org.uk - is a church-based coalition working for economic justice, environmental stewardship, and corporate and investor responsibility. It has recently joined nearly 200 other organisations in the Better Banking Campaign, which is calling for fundamental reform of the banking system - www.betterbanking.org.uk.
27th April 2010