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A NEW CONSTITUTION To End the Excessive Power of Prime Ministers |
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CIVIC REPUBLICAN MANIFESTO 2008 For Great Britain VIRTUE FREEDOM ASPIRATION WEALTH PEACE |
DEBT FREE MONEY
To End the Misery of Debt Based Money |
PENTASKEL (Celtic version) |
REDISCOVERING BRITISH CLASSICAL REPUBLICANISM |
 MARY WOLLSTONECRAFT Women's Rights Writer BRITISH REPUBLICAN |
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"People who are super-rich threaten the stability of the republic" Aristotle, (circa 350 BCE) |
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The sections can be read in any order but it is best to start with the three INTRODUCTION sections.(Grayed out pages have not yet been posted) --------------------
Economic Enfranchisement Non-aggressive Foreign Relations
Authority to Create Constitution Lower House Upper House Judiciary Supreme Court Public Services Monetary Policy Regions and Federation (to be completed)
Meritocracy Civil Society Crime and Penal reform Vice Cultural and Intellectual Life Church Disestablished Virtue and Happiness Young Generation
Monetary Policy (to be completed) Existing MPC and FSA Banking Money Flow Currency Industry
First British Republic History of Republicanism
Problems of Current System Advantage Votes Electoral System
National Flag Federal Flag
Republican Theory General History of Republicanism in Britain First Republic Period in Britain British Constitution Economics Enlightenment
The Need for a Republican Party
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We are a rich country. But we can afford nothing
How many times have we heard this sentiment from politicians of all parties in the Kingdom? The glaring contradiction it contains they seem quite able to live with.
We are a rich country. But we cannot afford a properly funded health service. But we cannot afford the best schools for all our children. But we cannot afford to house everybody properly But we cannot afford an adequate national rail network But we cannot afford to properly fund our armed services But we are a rich country.
We are a rich country. But we cannot afford to pay for the higher education of our young people But we cannot afford to support homegrown manufacturing. But we cannot afford to help significantly to relieve developing world debt. But we cannot afford to pay our farmers But we cannot afford to bring children out of poverty But we are a rich country.
We are a rich country. But we cannot afford to support our old age pensioners But we cannot afford essential medications for the chronically ill But we cannot afford playing fields for our young But we cannot afford to build an adequate road network. But we cannot afford a well maintained tube network for the capital. But we are a rich country.
We are a rich country. But we cannot afford to maintain nursing facilities for the mentally ill. But we cannot afford a European standard road and pavement infrastructure But we cannot afford enough prisons But we cannot afford to eat well and healthily But we cannot afford a more relaxed quality of life for our people We are a rich country. That can afford nothing.
But we ARE a rich country. With advanced technology and relative peace we should, every one of us, be able to enjoy an excellent, fulfilling, relatively stress-free quality of life and know that our children and our children’s children should be able to do the same.
But how many people in the Kingdom are able to say that?
There is something drastically and fundamentally wrong with a society that is so bathed in riches and potential riches but that delivers, by and large, such a poor quality of life for so many of its people.
Where everything has to be rationed, done on the cheap or made available only to the rich. And where everybody is stressed, time-poor and anxious. And where economic life is only made tolerable by the distractions of more consumer goods, more foreign holidays, more home entertainment or the delusion that we have assets with real beneficial rising value.
But you may say, think how much better off we are now than fifty years ago. Yes, indeed, think about it. Really think about it.
Where we are better off, it is only thanks to technology. Not thanks to economics or politics. Take out better medication, cheap foreign holidays, TV, computers, cars and so on, and where is the improvement? And there are many areas: education, rail travel, food quality, pollution, travel to work, stress levels, for example, where we arguably have less not more. Where we are better of it is in spite of politics and economics not because of them.
Are we happier and more hopeful for the future than fifty years ago? It is doubtful. And you cannot argue that any worsening is due to greater threats to defense or security we may have now because of global terrorism or whatever.
Fifty years ago the Cold War was ever present in people’s minds whereby the possibility of instant nuclear obliteration was assumed to be real. This feeling could be quite terrifying as anyone old enough to remember the Cuban missile crisis of 1962 will confirm. From the point of security we are arguable better off now. If we feel worse it is due to other factors.
The political parties of the Kingdom will give you their solutions. More taxation. Less taxation. More spending. Less spending. Tax the rich. Tax the poor. Subsidise this. Cut that. Create more targets. Reorganise for the third time in a decade. Sell it off. Blame the teachers. Blame single mothers. More choice. More regulation. Open up the market. Retrain. Refinance. Invent a slogan. Drop a slogan. Remake the figures. Reorganise for the fourth time in a decade. Build more roads. Build less roads. Promote gambling. Work harder. Ban this. Create a quango to encourage that. Criticise the opposition. Blame immigration. Wage war. Call for more moral initiatives. Reward your friends. Take a bribe. Fiddle with the constitution. Reorganise for the sixth time in a decade. Split a government department. Merge two others. Give them a bit more power. Takes theirs away. Then call an election so we can start all over again. The result? We can still afford nothing.
The inability of our society to deliver a good life in economic and stress terms for all its people, the young, those of working age and the elderly, in the face of an abundance of manifest riches, has a major root cause. Because the politics of the Kingdom does not permit itself to address that root cause, no real lasting progress is ever made.
To be clear about the nature of the necessary changes, no true Republican Party would ever seek to depart from the principle of a mixed economy, i.e. a mixture of private enterprise subject to market forces and public services. The measures needed are not associated with and have never been associated with specifically left or right but have found adherents and detractors across the non-extreme political spectrum.
The fundamental fault with our economy like market economies worldwide is that we have debt based money. This means that as the amount of money in use (usually called the “money supply”) expands so does the amount of debt, and as the amount of debt increases so as a community we all become poorer and more stressed. You know this simple fact from your own financial life. When did you ever think you were well off because your had big debts?
Personal debt in the Kingdom has now passed a staggering 1300 billion pounds. And what is the response of economists and politicians? The debt is symptomatic of people’s confidence in the economy !!!
And yet every individual struggling under the weight of their personal debt knows the truth. We have debt not because we like it but because we can’t avoid it. We need the debt to survive and maintain a reasonable lifestyle and try to plan for our future and the future of our children.
But it is a drain on our emotional lives. It takes away something from our joy in living. This was well understood in ancient and mediaeval times where usury (charging interest on loans) was either frowned on or banned. It was thought that to take interest payment on a loan was to rob a person of something of their soul. Even if now we might not use such language, we can all recognize the sentiment.
What is the response of the banks to the level of debt? To devise ever cleverer mechanisms, or “products” as they call them, to allow us to get more into debt. If this involves customers’ falsifying personal income information, so be it. It is the customer primarily who will risk gaol if this is discovered. What about the risk to the banks? There is none, it is only win-win for the banks, as understanding the workings of debt based money makes clear.
If it is all so evident, why have not the necessary reforms been made? It is not because they are not understood, for any reasonable economist understands where the problem lies. The problem is that too many people think they have a vested interest in maintaining the present system. But that is only because they haven’t fully opened themselves up to the range of solutions. This is not a blame game where there will be heroes and villains, winners and losers. We all have the chance for a better life if only we will take it.
And what has this to do with Republicanism? To get rid of debt based money will require a solid constitutional framework behind it. This is out of the question under the present lax constitutional arrangements.
Monetary reform can only be accomplished if it is backed up with constitutional arrangements that would guarantee longevity of the changes. This can only exist within a Republican constitution that exerts its own conservative flywheel effect*, free of the whims of successive power hungry ministers.
The current constitutional arrangements do not favour a sweeping measure that would benefit all citizens not just narrow interest groups. The current constitutional arrangements are designed to stifle the sea change in attitude that is necessary.
So how does our debt based money work? Perhaps pretty much how you always thought it might work but didn’t dare to think anything so unjust could be permitted. It is not exactly complicated in principle although the repercussions are immense, chronic and getting worse all the time.
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First of all, some very basic figures. The amount of money in the economy is 1550 billion (the figures here are for 2006). Now money consists of all the coins and notes in circulation plus the sum of all the bank accounts in the country. As we know, you don’t need coins and notes to buy much these days, cheques or credit cards will do as well. So this “number money” is necessary in calculating the amount of money.
But what proportion of this 1550 billion is in notes and coins, what we might still think of as “real money”? It is, in fact, a tiny 2.8%, about 41 billion.
To get some perspective on these figures we need to compare them with a previous time, so let’s look at the equivalent situation for 1963. Then the total amount of money was 14 billion and the proportion of notes and coins was 21% about 3 billion. Quite a difference, but, OK, a lot has changed since 1963, the period just before Harold Wilson’s “white heat of technology” was initiated.
It is not too difficult to imagine how 3 billion of tangible, solid money in 1963 becomes 41 billion in 2006. The government manufactures the notes and coins at the Kingdom’s Royal Mint and then simply spends them in the economy. Yes, we would all like to be able to do that, but if you or I do it, it is called “counterfeiting”, if the government does it is called “increasing the money supply”. But of course, you and I benefit from the government’s action as we get lower taxes. So who is to complain?
Well, these days no one much of any influence complains about increasing the money supply but in the old days (i.e. pre 1985 or thereabouts) it was considered to be inflationary. The theory went that if there is more money around chasing the same amount of goods and services it stands to reason that the price figure we see for purchases will tend to be higher. If each pound buys less, it is worth less.
What about the other part of the increase in the amount of money in the economy, the “number money” that never turns up anywhere as stuff you can get hold of? The figures show now there must be a bit less than 97% of 1550 billion of this kind of money, i.e. 1509 billion as against 79% of 21 billion in 1963, i.e. about 17 billion. So how did 17 billion become 1509 billion? Eh, hmm, not exactly a small increase.
The answer to this question may surprise you: Renaissance Wizardry. We tend to associate the Italian Renaissance with great painters, scientists and thinkers such as Leonardo, Galileo, Raphael and Machiavelli. But it was also the era that rediscovered and became fascinated by the Alchemists of the Ancient and Islamic worlds and their preoccupation with how to make gold out of base metal. This enquiry proved fruitless except to the benefit of a few suspect operators. But an equally powerful conjuring trick was to prove much more effective in creating value out of nothing. For the Renaissance successfully invented the miracle of modern banking.
Well, the principle of modern banking is not that clever. What is clever is convincing people to go along with it and accept it as reality when they know all along that it is an illusion. We need to see how this works.
Leonardo, let’s say, has done well selling some paintings (even if his ideas on manned flight have yet to take off), and so he has more hard cash under his bed than he would wish to have. In Renaissance times, the cash was made of precious metals and so was particularly vulnerable. So he deposits 1000 lira, let us say, of his cash in a bank for safekeeping. Raphael in the meantime has found his paintings too avant-garde and has yet to have them recognized and so needs some extra money to invest in his studio.
He goes along to the bank and they agree to help him. After all they have just had Leonardo’s 1000 lira worth of precious metals cash deposited in their safe. However, it seems a shame to simply hand Raphael the cash as he would them have the same security problem that Leonardo had. The bank is used to this problem and found a solution. Instead of issuing the hard cash it gives its borrowers a “promise to pay” voucher or note. This presents no problem to the borrower as the bank’s notes are widely accepted in the locality by traders and so really are “as good as cash”.
How did the bank achieve such respectability and confidence for its notes to be given such credence? Well, for one thing it is very well connected in high places. And for another it has dressed itself up with the most imposing solid looking edifices on prime locations that look like they could not possibly go away or the businesses they contain collapse. All its managers and employers are impeccably turned out - as conjurers and wizards always are. They have to be to allow people to suspend belief.
But now here comes the really clever bit that perhaps only the genius of the Italian Renaissance could have thought up. Along comes a struggling scientist who at the moment just cannot get his ideas accepted due to resistance from the church but who is sure of a great future. His name is Galileo and he too needs 1000 lira. Of course, if we were going to loan him cash the bank would be out of funds. But there is no problem. Just give Galileo another note.
But, hey, now there are two notes of 1000 lira being backed up just one amount of 1000 lira in cash. Doesn’t that sound a bit dodgy? Dodgy? But you’ve seen those posh buildings and expensive suits. Surely nothing dodgy there. Welcome to the world of modern banking !
Before long (you’ve guessed it) some more, in fact a total of about twenty, budding Renaissance geniuses have come into the bank and are pleased to have one of the bank’s notes for 1000 liras and everybody starts to feel quite flush, and the bank on the basis of 1000 lira of deposits has loaned 20,000 lira.
But, wait a moment; with the bank setting all this up, what can it be getting out of the effort it is putting in. Well, reports coming back from the other side about people burning in hell who had committed usury (collecting interest on loans) had been drying up recently and so in keeping with the new rational spirit, the banks had been charging hefty interest to all of the cash short geniuses. They had thrown in a few charges filched straight from the accounts without the owners’ permission (sounds familiar?) and the cost of all those expensive buildings was starting to look quite manageable.
In fact what the bank had been doing was worse than usury because it wasn’t even its own money it was lending. The money belonged to … Well, 1000 lira belonged to Leonardo, that’s for sure, but the other 19000 lira? Where did that come from? Well, holy renaissance masterpiece! It looks like the bank actually created it. Created money just by passing a few pieces of paper to and fro? That was certainly a lot less effort than all those long hours in a smelly laboratory trying to make gold out of base metal. The banking business was the real alchemy the new renaissance get-richers had been looking for.
They knew that the new era of the Renaissance was a really creative era and this proved it. Money for nothing, out of nothing.
But, oh, dear! There just had to be a snag. All those bank notes they had issued were “promises to pay” don’t forget and from time to time one of the borrowers pops into the bank to exchange a few of their bank notes for real coinage as one of their suppliers has heard some ugly rumours about the bank. In spite of the bank’s imposing buildings built in the newly fashionable revived classical style some people had been suggesting that its financial base was perhaps not quite as Zippy De Doo Dah as everyone had been lead to believe.
Before long the rumours have spread everywhere and Leonardo is starting to think he would have done better to leave the money under the bed, so he pops along to the bank to take his money out again. But the bank doesn’t have it. It goes bust and Leonardo is out of pocket and there is financial havoc in the community.
* * *
So there you have in a nutshell the workings of modern banking. But we, of course, need not worry that the same problems will arise with a current bank as happened in Leonardo’s time. Thanks to current orthodox economics we know that in recent times we have learnt how to protect ourselves from the danger of having a “run” on the bank in the way our Renaissance example did.
The way to do this is to regulate the banks so that the amount they loan at any one time is restricted compared what they have deposited. In fact, they must be sure to have 10% on deposit of what they lend out. Experience has shown that the likelihood of sufficient people demanding to be paid back their deposits at any one time is so low as to make the bank a dependable financial institution.
Further, under present banking practice, the government would not want to risk devaluing the currency creating inflation and so it would certainly not give carte blanche to the banks to create money at will. With modern information technology the central banks keep a close eye on the private banks so firmly regulating the financial operation of the economy.
This account of present day banking would be all fine except for one problem. It’s complete poppycock.
Up until the 1980’s the pretense that the banks never loaned more than ten times their deposits was allowed to persist and even now the idea lingers around like a fading smoke ring after a long departed smoker. However, since the deregulation of the 1980’s economists and bankers know full well that the banks create money with little real restraint.*
In the nineties this ability was increased even more with the fashion for making loans "off balance sheet". This is to say, the bank who made the loan in the first place sold it on to another financial institution in the form of a "security" and so the ratio between the bank's deposits and loan became further obscured.
But that link between money supply and inflation that was such a worry until relatively recently. What happened to that? We will need to come back to that but for the moment let us return to the story of banking.
We saw that between 1963 and 2006 the banks (the building societies can be regarded as banks for the purposes of this argument) created 1509 billions of money in the economy. We saw how our Renaissance bank create 19000 lira in its economy, not exactly an equivalent sum, but the principle is the same, right? Well not really.
But what has changed? Have there been advances in technology or streamlining of bank practices that has enabled this amazing generation of money? No. Such factors have nothing to do with it. The real changes have occurred in (you’ve guessed it) advances in wizardry.
Let’s look at how this new wizardry works in relation to a very common sort of borrowing – taking out a mortgage on a house. (We could use the example of a loan for a business, it would make no difference.)
Let’s say you qualify for a mortgage of £100,000 for the house you want to buy. Now, when the time comes to complete the purchase you have no doubt that the bank or building society (it makes no difference to the argument) will have the money. They always do. But where exactly do they get it from?
If we know nothing about how banking works we may assume they have the money because of deposits they have received from savers. But, of course, that’s wrong. If we know a little more about the subject we may assume they are applying the “ten times” rule whereby they are regulated to lend up to (i.e. create) ten times the total amount of deposits they have. If we know a little more still we may know that such a restraint has long been removed on the bank’s activities. So where does the money come from?
Aha! This is the advanced wizardry already referred to. Well, the bank could wave a magic wand or recite some spells. In fact, they (urrh) just write out a cheque from their own (yes, the bank’s) account. But what if they didn’t have the money in the account? Ah, I see you’re not getting it. They just write out a cheque and create, yes, create, the money - from nothing, from zero, from precisely zilch. That sounds like counterfeiting? And that is exactly what it is.
But, why can they do that and I can’t. That’s easy to explain. They are a bank and you are not. A bank can do that. It’s official. OK?
But let’s follow this along. Having created the money (from nothing, they didn’t have to go out and earn it like you and me) they can then charge you arrangement fees (you didn’t think all that ultra-clever wizardry would come for nothing, did you?) and, of course, interest for as long as the loan is outstanding. That sounds like a pretty good deal for the bank, but it gets even better. For the bank, naturally, not for you.
Let’s go right to the end of the loan period. You have busted a gut working for twenty five years and finally, yes, finally, you have paid the last installment. The bank compliments you on being such a good customer and kindly offers you a further loan of £X thousand but you’ve had enough and are happy (to put it mildly) to clear the debt and begin a new non-indebted life.
That’s you out. But what happens next at the bank now is crucially important for understanding how money is created in our economy and why the process of its creation is so poisonous for our economic life.
What you may have assumed happens is that the bank’s own account as far as your transaction is concerned is back to zero. After all, didn’t they send you that final statement showing your account at zero? That’s right. YOUR account, not the bank’s. The bank has received all the interest you have paid and, sure enough, they have had some expenses to pay. (You noticed the refit at your branch recently even though they only had one four years ago. Oh, what? They closed your branch! Sorry to hear that. Well, OK, their expenses weren’t so bad after all.)
But we are not considering the bank’s day-to-day trading here. What is important is what happened to the original £100,000, yes, the £100,000 they conjured out of nothing and made you pay all the interest over twenty five years on. Doesn’t that just go back where it came from? Like, nowhere. Well, actually, no. It’s perfectly normal banking practice to add that to the bank’s capital. Honest, it’s all quite legal.
But doesn’t that sound like a massive win-win-win for the bank? Ah, now you’re getting it! And have you ever felt a tinge of distress when a bank has declared its end of year accounts and there is a rather sad sounding figure of £X billion write off declared on “bad debts”. Gosh, fancy losing all that money. Well, cheer up. They didn’t have that money in the first place. They created it … out of nothing. Wow! Wizardry!
The unfairness of this practice is manifest, but what is of the most concern here is not the ability of the banks to make profits hand over fist with very little risk, but the overall effect this has on the nation’s prosperity. The purpose here is certainly not just to have a go at the banks for unfair practices, however that might be merited in some cases. In any case they are only doing what the government encourages them to do. What is really at issue here is that all, or as near to all as makes no difference, the money in the economy is created through debt.
This simple fact has profound a repercussion for citizens and businesses alike. It makes us all cash poor. This is why we have to borrow. This is why there is such an ever increasing colossal amount of private debt from individuals and businesses alike. The government’s assertion that we have all the debt because we have so much confidence in the future would be laughable if it were not so downright insulting.
We need now to follow a bit further the course of that £100,000 that the bank created out of nothing, took your hard earned wages off you to service the debt and repay the capital, and then when you had finally repaid the capital marked up their own account as having £100,000 extra in it. They didn’t of course just leave it in their account doing nothing, they (I see you are already there) yes, they lent it out to the next house buyer, or business in need of cash, or whoever, so generating more interest and profit.
Now let’s go back to those figures illustrating the change in money in the economy between 1963 and 2006. We saw how the 3 billion of notes and coins became 41 billion over the period by government spending in the economy. But by now it should be clear how the 17 billion of money in bank accounts became 1550 billion over the same period. It all happened through lending by the banks in exactly the way described either to individuals for mortgages or to businesses.
The extra 38 billion of notes and coins has no debt on the behalf of anyone attached to it. On the other hand the extra 1533 billion of number-money in bank accounts all has debt attached to it. Now, whatever the prevailing interest rate high or low, that represents a massive amount of interest to be paid by individuals or businesses every year. You would think that everyone would be permanently skint. But that is exactly what we mostly are are.
How many times have you heard: but the debt is manageable? Interest rates are low at the moment and although bankruptcies are on the increase they are still historically low. Yes, OK, everybody is struggling along for the present and certainly people, who have been wise enough to cash in their chips with rising assets prices (of which more in a minute), may have made a bomb, but overall, we, as individuals or businesses, are struggling. If we weren’t then the debt would not be increasing by 10% or more every year.
Now this phenomenal increase causes many current economists few sleepless nights. But it should, for it demonstrates a central fact of our economic life at the moment that nobody who holds any of the financial reins in our economy will publicly admit. The situation is not (and here it is appropriate to use one of the government’s favorite buzz words) sustainable. We simply cannot go on as we are increasing debt. You don’t need to be an economic super brain to see that.
This increasing debt is entirely a result of successive governments deciding to increase the money supply through debt and virtually none through credit (i.e. with no debt attached to it). And governments have been doing it for years. And governments all over the world (except in the developing world) are doing the same thing.
The major result of debt based money, that is everywhere, that we almost don’t notice, or, at least, take it for granted, is that society is money poor. There simply isn’t enough money available to pay for things and this happens on the personal level, the business level and, of course, the government level. If any person, business or government department wants to have enough money for its spending it has to borrow. So we have more debt and the vicious spiral, familiar to many who have personally got themselves into financial trouble, continues.
It is not that we are not a rich society, there is wealth, great wealth, around. It is just that we can’t afford anything because of all the debt created by the method of supplying money to the economy.
So, why doesn’t the government do something about it? There are a number of ways of creating debt free money and these are familiar enough, even if a bit out of fashion in economic circles. The government could tax less (don’t we pay enough?), spend more on infrastructure (it’s hardly like we don’t need it), give more money to the pensioners (it’s hardly like they don’t need it), spend more on almost anything of the things currently we are told we cannot afford, and there are other mechanisms that could be evaluated.
Well, there are many reasons for not doing this but there is only one reason ever given. It would produce inflation. With more money introduced into the economy, money would devalue, buy less. There you are: Inflation. This would undermine the present situation where inflation, although perhaps running a percent or so above target, is still low and so, compared to the past, we don’t really have an inflation problem.
NO INFLATION PROBLEM!! We have a massive inflation problem. House prices have inflated by a factor of three in the last ten years! Now, we are going to need a simple bit of economics that no one in a position of power will simply spell out. But first, let’s state a bit of old-fashioned classical economics that is used to claim that there is a simple causal link between money supply and inflation.
It goes like this. If there is an increase in money supply, there will be inflation unless the growth in the economy (however that is defined) keeps in line with the inflation. If you have 10% more money chasing the same amount of goods and services you have inflation. If, on the other hand, you have 10% more money chasing 10% more goods and services then, everything is ticketyboo. No inflation.
We need to be clear that when orthodox economists talk about inflation they mean shopping basket inflation. Asset price inflation, such as house price inflation is either ignored or somehow seen as benign against shopping basket inflation which is malign.
Sometimes, there appears to be a trade off between shopping basket and asset price inflation. In the last decade there is not too much shopping basket inflation, which is the headline inflation the government and the Bank of England are always worried about, but there has been huge house price inflation and it is certainly true that the latter would not have been possible if there had been high shopping basket inflation.
This balancing between two types of extreme inflation also seemed to be apparent in Thatcher’s 1980’s, when in 1987 shopping basket inflation was low. The money supply had taken off following bank deregulation (not to mention splurging the North Sea oil revenues and proceeds from selling off state industries). Consequence, asset price inflation, in this case a surge in house prices. But then the cold shower arrived. Shopping basket inflation shot ahead. Consequence, asset price inflation went into reverse.
Now this brings us back to the important point about house price inflation and people who have made, or think they have made, capital gains out of it. All of the increases in house prices, once they are cashed in, must produce more debt based money and so more debt to go with it. But this debt is not abstract. Someone somewhere will be paying the interest, paying the charges, worrying about their capacity to continue paying way into the future and so on. True, one lucky person may have made a killing and having spent many evenings watching “Property Ladder in the Sun” is now nowhere to be seen. But this sort of windfall for a few, mainly older, people is hardly a way to guarantee wealth for all. After they have gone the debt will remain for the young to pick up.
Overall there is more debt in the society. And as we have seen from the way money creation works, it will not go away - ever. Never. Someone will be carrying it.
But aren’t house price increases a good thing. Once you’re on the ladder and all that… And isn’t it just a reflection of demand. Not enough houses for everyone.
There clearly is an immediate house shortage in some areas. The south-east, for instance. But the phenomenal increase in house prices cannot be explained by housing shortage. We will surely find as we did in the late 1980’s that if a house price crash occurs, the excessive housing demand somehow disappears overnight.
The real reason for the house price rise comes back to the banks and the creation of debt based money. We should never forget how profitable this system is to the banks in the way they counterfeit money, then charge interest on it and then add it to their capital when it has been paid off. And all strictly legal under government rules, just because they call themselves banks.
Now, with such an ace way of making money such as this, some might take it easy and put their feet up and just watch the money role in. Well, in the so-called competitive market there is no way that is going to happen. The banks want to expand their base and counterfeit (sorry, issue) more money and have more people in debt paying interest and more people in more debt paying more interest.
But how can they lend more money. What would persuade citizens to participate in this rip off? With low shopping basket inflation there is an obvious answer. Put the prices of houses up, so everybody will have to borrow more and so increase the banks’ profits. But the banks are banks not estate agents. How can they just “put house prices up”? It is the simplest thing in the world. Just make more money available. Just be ready to counterfeit more money. With the availability of more and more money (economists call it “liquidity”) prices just go up and up.
But what if no one comes forward to borrow? Won’t that result in a natural drop in money supply and so allow asset prices to fall? Well, if YOU don’t’ borrow, stupid!, the banks will persuade someone else to by offering still better deals to entice people so ensuring that the asset price inflation upon which they depend to (a) increase their business and (b) maintain the security of existing loans.
What about getting the valuer to value the property accordingly? How is that going to work? Maybe we are forgetting something: he or she is appointed by the bank. Paid for the buyer (well, of course). But appointed by the bank. It is only in the valuers’ interest to do exactly what the bank wants: justify a bigger loan. This is not to say their valuations are not “correct”. Given the distortions in the market engineered by the banks, in a crazy, madcap way, yes they may be “correct”. The problem is to define “correct” when the whole situation is unreal.
So what exactly is the price of a house these days a reflection of? It is more and more about just one thing. The banks’ desire to create more money to make more profit. At one time it might have been legitimate to talk of a relationship between house prices and other factors such as the borrower’s earnings. The link between ability to pay and size of loan is something the banks have little time for now except as a pretence. And the government or the Bank of England don’t want to face up to this anomaly and destroy the illusion of prosperity created by rising house prices.
The consequence of losing the link between size of loan and earnings, or any other economic factor, has allowed the housing market to let rip whereas traditionally such a link was some kind of restraint. But doesn’t this put the banks at risk of losing the money they have loaned if the borrower defaults at some point? This is where a hollow laugh is the only response.
You don’t get too uptight about losing money you have counterfeited in the first place. (Remember those sad provisions for bad debt in the bank’s accounts.) In any case, presumably you had a few years of collecting interest from the unfortunate citizen or family who had to borrow the money to have somewhere to live. And, presumably they put a deposit up at the start which when the house is repossessed and sold off you will keep. Not to mention the residual equity left in the house’s value.
Quite simply the bank can’t loose. Only the citizen can. And in a way that may well devastate his or her whole life, and the life of his or her family. The underlying personal desperate tragedies of families losing their homes scarcely merits mention in the media. … “but we cannot afford” …
Because the bank can’t lose even if the loan goes belly up, if the housing market goes belly up and even if the whole economy goes belly up, practically all restraint on their lending is removed. They want to lend as much to everybody as they can almost regardless of circumstances.
To have a so-called “market” motivated in this way by companies that have no vested interest in the security of asset prices or the security of their customers is a travesty of a modern economy and indicative of the depth to which the politics of the Kingdom (and other western nations) has sunk and the extent of its true regard for its subjects.
It all derives from giving the banks the right to counterfeit money. Counterfeiting has normally been considered a criminal activity. The banks, just like criminals, operate without conscience or culpability for the misery they create. They are indifferent to “losses” because they can’t loose. This is not a market economy, it is a criminal economy. Except the crime is legal.
There is no way that an incoming Republican Party government could perpetuate this system. A system that shackles its citizens with ever increasing debt making them effectively debt slaves to legalized criminality.
The Republican Party believes that market forces are an essential impetus to economy activity. But the way the banks operate has nothing to do with market forces. It outrageously distorts the operation of any market.
With all this in mind, let us return to that argument that by the government spending more money into the economy, as an alternative to debt creation by banks, the result would be inflation.
As if there is no inflation now! We have seen the reality of the present system of money supply is not no inflation, but massive inflation, except it is in asset prices rather than in the shopping basket. For the present. That situation could be reversed very rapidly with a few changes, particular in global factors over which we have no immediate control.
Increasing the money in the economy might just have had an inflationary effect on shopping basket or asset price inflation at certain historical times in certain countries. But at other times and countries it had no such effect. There are too many other factors to put into the equation to assert a standard simplistic connection between the money supply and inflation.
But under the monetary reform, in any case, there will NOT be an increase in money in the economy for the issue of debt based money by the private banks will effectively be eliminated and replaced by credit based money issued by the government.
Republican policy will be directed towards balancing shopping basket inflation with asset price inflation. It is not that asset price inflation is bad in principle. Asset prices are, or should be, a real reflection of a prosperous economy and a prosperous economy can only exist if shopping basket inflation is not out of control And we all reasonably aspire to having a capital base to our financial lives as well as a day to day, year upon year, solvency
As a sound Republican constitution is put in place, this must include bank reform. The right of the banks to create, issue, counterfeit (choose whichever word you prefer) money with little restraint, will be eliminated under the Constitution. The methods by which banks loan money will be tightly regulated and supervised. Gordon Brown’s ineffectual, Financial Services Authority, will be replaced with a real committed regulatory body.
With these changes in place the money in the economy will not increase in an uncalculated, unrestrained way as at present. As credit based money flows into the economy the issue of debt based money will be dramatically reduced. To put it starkly the government (i.e. us) will counterfeit money not the banks.
A very important difference between the creation of debt free and debt based money is that the former is spent directly into the active, production side of the economy with a relatively small proportion going directly into asset purchases whereas with the latter a large proportion tends to go directly into asset purchases so distorting the value that assets should properly hold in relation to the amount of production.
As the amount of debt in the economy is gradually reduced (gradually, for existing agreements and contracts will have to be honoured) and the burden will start to lift so industries will become more profitable and citizens better off. And the specter of inflation will lift for this results in great degree from all the debt.
As this process continues a greater and greater number of citizens will be brought into financial enfranchisement. They will have for the first time a proper stake in society. Because of this, their political enfranchisement (which under the Republican Constitution will, in any case, be far superior) will mean something to them. So the whole economic, political and social life will change for the better.
But is this all too good to be true? Well, the existing situation is too bad to be true. But true it is. The fact that the real possibility of being better off, does exist is thanks at bottom to modern technology. But we need good government as well.
The fact that we are denied the full fruits of modern technology is because we have bad politics and bad economics. Only a new Republican Constitution that enshrines a new monetary system within it for good can correct this situation.
We are a rich country. We WILL afford it.
© Peter Kellow 2007 www.republicanparty.org.uk
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*See P25 The Grip Of Death by Michael Rowbotham published 1997.And up to date figures for April 2008 show HBoS holds just 6% capital against debt "assets". The figure for Barclays is a measly 5.1%. (Moneyweek 2 May 2008. p.4). Exactly how much of this "capital" represents solid "non-toxic" capital assets is a question many would want to ask. The banks themselves are unlikely to know.
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