Money As Debt
22 Aug 2007
In a DVD reviewed here by Anne Belsey of the Money Reform Party the problems of a debt-based money supply are explored their history is defined and the possible consequences outlined.
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DVD reviewed by Anne Belsey of the Money Reform Party
For most people, money is just one more resource, like water, land or fresh air. Few people, whether they are ecologists or environmental campaigners on one hand, or even economists or accountants an another, give much thought as to how it comes to exist. Like land and water, its existence is taken for granted and, as individuals, our only concern is usually just trying to maximise the benefit that we can derive from the small share that comes our way, whilst perhaps bemoaning the fact that others seem to have acquired more than their fair share.
In truth, money is entirely man-made. Again, this is likely to concern few. Most are aware that the Bank of England prints notes and issues coins and that, for most people, is the money creation process in its entirety. Once again, the distribution of this money might be regarded as a tad unfair, but that, surely, is the fault of an unfair social and economic system. It cannot be anything to do with how money is created, can it?
The Bank of England produces notes and coins, the profit (or seigniorage) of which process goes into HM Treasury, which it puts towards government spending. This amounts to about £1.5 billion of new money created as notes and coins each year. The amount of notes and coins in circulation currently stands at about £50 billion. For the technically minded, this stock of money is called ‘M0′.
However, the totality of the UK’s money supply, usually called ‘M4′, is about £1,500 billion. In other words, the notes and coins issued by the publicly-owned Bank of England form only about 3% of the total stock of UK money. The remaining 97% is not in the form of cash, and is not backed by cash or by bullion or by any substantive commodity.
It comes into being when someone borrows from a ‘High St’ lending bank. The bank advances the borrower an amount of credit. This credit may be turned into cash, but usually very little ever is. Instead it is usually paid into another bank account with the same bank or with a different bank with whom the first bank has a mutual ‘clearing’ arrangement. By mutually cancelling the claims that the lending banks have against each other, each lending bank is able to create and lend an unlimited amount of credit to its borrowers, totally without regard to the amount of ‘real money’ it might have available. The ‘lending’ banks then charge interest against the borrowers of such credit, even though this ‘money’ has been summoned into existence out of thin air.
All this bank credit circulates around from one bank account to another and so has effectively become the UK’s money supply, just as it has for all the major economies around the world. This bank credit money supply is ‘backed’ by nothing more than the debts of the borrowers. Without there being large numbers of people heavily in debt, the economy would collapse.
The problem of a debt-based money supply is compounded by the charging of interest on the debt. This increases the debt without increasing the money supply. Repaying a debt consisting of principal and interest out of a sum of money made up of only the principal is, of course, a mathematical impossibility. With only 3% of the UK money supply created debt-free, the UK is unable to meet the interest on the 97% of the money supply created as debt, which is why the UK, its families, its businesses and its government are all getting ever deeper into debt.
Anyone who has ever run a ‘zero-sum’ LETSystem, like myself, will clearly see how, in order to create a money supply, it is necessary for some people to have ‘less than zero’ in their accounts (although LETSystems do this openly and do not charge interest), but for most people the whole process will doubtless be quite baffling and disconcertingly contrary to ‘common sense’. The world is fortunate, therefore, that a Canadian animator, Paul Grignon, has created an excellent explanation of the weird and convoluted money creation process in his lively and entertaining DVD ‘Money As Debt’.
In order to survive, humanity needs to rein in its impact upon the Earth. It can only hope to do this through the unanimity of the peoples of the world. This is the basis of ‘Convergence & Contraction’, but contraction of the world’s economy is not possible with a debt-based money supply. With debts growing through reliance upon debt-based money, there are only two means of avoiding economic collapse.
The first of these is to continue to issue ever more debt-based money to repay the interest due on previously issued debt-based money. This requires continuing economic growth, which requires more borrowing to fund more spending, involving more consumption, requiring the destruction and pollution of more of the Earth. This is the monetary and economic system advocated by all the major political parties in the United Kingdom including, it is regrettable to say, the Green Party.
The second means entails the replacement of debt-based money by debt-free money, spent into circulation by a public agency. This is advocated by the DVD ‘Money As Debt’, by the UK’s own Money Reform Party and by other money reform organisations around the world.
Such a programme would enable inflation to be controlled at 0%; it would enable house prices to be made affordable for ordinary people; it would enable taxes to be reduced; it would encourage greater individual financial prudence; and, most beneficial of all, it would enable the economy to function without the requirement for the increased consumption of resources.
Without increasing taxation, it would give public agencies the funds to put large-scale environmental protection measures into place; and it would enable families to live well on smaller incomes, allowing more parents to be full-time carers and home-makers, enjoying an improved quality of life within an overall social and economic framework that encouraged co-operation rather competition.
Free copies of ‘Money As Debt’ are available from the Money Reform Party, contact firstname.lastname@example.org or phone 01227 751724.
Alternatively you might prefer to assist meeting the cost of sending out copies to state secondary schools. For each £1 received, the Money Reform Party will send a DVD to a school of your choice.
To find out more about the problems caused by our present debt-based money system, check out the following websites:
Books to read include:
The Grip of Death, by Michael Rowbotham
The Money Bomb, by James Gibb Stuart
Creating New Money, by Joseph Huber and James Robertson
Seven Steps to Justice, by Rodney Shakespeare and Peter Challen
Monetary Reform – Making It Happen, by James Robertson and John Bunzl
Generation Debt, by Anya Kamenetz
Other DVDs to watch include:
The Money Masters
From Freedom to Fascism
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