Prosperity Can Only Come From Change

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Once it is understood how the economy is actually funded, it should come as no surprise to anybody that little or no progress is being made in the recovery from recession. It is the same story in America and Europe. All of the talk is of a global financial problem, which it is, but that is no reason why Britain cannot independently tackle the cause of the problems we face, leaving others to do as they see fit.  The solution to Britain’s financial problem is not solely dependent upon a global solution.

Britain’s economy is debt based which means that it constantly relies upon new debt to finance economic stability and to fund new growth. In the absence of sufficient new debt, the amount of money in circulation will continue falling and with it demand for goods and services.

The cause is due almost entirely to lower consumer spending, which can be expected to continue falling until banks are prepared to substantially increase their lending, or there are fundamental changes made to how the economy is funded. If the basic economy were to be funded debt free, then Britain’s economy would be turned around. The resulting increase in consumer spending from this one change would create demand and at the same time increase employment opportunities.

Each month loan repayments are made, together with accruing  interest charges which takes money out of circulation. As the debt consisted of ‘numbers’ money in the first place i.e. just numbers written on a bank account with no actual money involved, the repayments simply cancels out those numbers, without actually putting real money back into the hands of the banks.

The situation is blacker still when it is understood that we now collectively owe more money than we collectively have in all of our bank accounts, with the result that even the money needed to pay the loan interest has to come from borrowed money in the first instance. The difference between owed and money available to repay is a shortfall of between £300bn and £400bn. This is a situation that can only continue to worsen until the the present system of ‘numbers’ money is changed materially.

Those figures takes no account of the national debt which is quite separate from the commercial and private debt.

If the total amount owed to the banks etc. exceeds the total money available, then it means that if you have money in your bank account it will only be  because someone else owes that money. Money which has worked through the system and has found its way into your pocket.  Looked at another way, if I am an employer and I borrow from the bank to finance my business, and I use that money to pay the staff wages, then those who received the wages only have that money because I owe it.

As there is no possibility whatsoever of our getting out of debt, because there is insufficient money in existence to pay off all of the debt, the position can only progressively worsen, because of the constant addition of interest and other charges.

The final report from the Independent Commission on Banking didn’t even acknowledge this situation let alone consider how the problem is to be overcome.

The question on every ones lips should be “Why does the government continue to allow the banks’ to control the economy through their debt creation monopoly, which apart from notes and coins is the only way ‘new’ money is brought into circulation?”

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  • John Baker

    I understand this situation is totally suicidal and crazy. It is essential that we alter it but people should probably word it “money created interest free” or “without interest attached” rather than debt free. All virtual money systems of the type we use are a promise to pay, therefore an obligation or debt – the unfinished half of a deal, it is not technically possible to create virtual money debt free. This was much more obvious with older types of money such a tally sticks with the credit/debt halves clear in people’s minds. They understood it. People seem to have forgot now in modern times what money is and we take it for granted. Banks don’t ‘lend’ money technically (also misleading wording that confuses people) and people don’t ‘borrow’ it, they simply check circumstances, collect signatures and addresses, and then extend credit i.e. they publish promises which then begin to circulate. Because they frame this as ‘lending’ when it is actually not they justify this ridiculous position of charging interest because people believe it is some kind of favor. They are simply a certification/publishing house. Actually they should charge a one off admin fee and have this fee created as another promise between you and the bank, so then circulation can’t dry up. Money isn’t the root of evil, forgetting what money is and treating it as a thing and end in itself is rather than a tool of trade, is where it becomes evil. Obscuring the original promise with complex financial products makes it all easier to hide the mechanism behind its original creation and it gets even more unstable (bad promises). Someone actually needs to check these promises are real which is about the only useful thing that banks do already and I assume governments reluctant to change it. This is why at the moment the only way the public can create money for trade is to ‘borrow’ it. The interest attached is never created. So someone else must ‘borrow’ and the cycle continues towards heat death. This is absolutely insane. There are some systems piloted in modern times in countries where the economy has struggled (Uruguay for example) that make this process obvious again such as the commercial credit circuit (C3). In this system companies certify their invoices as debt promises and these units can then circulate as credit/debt symbols. Virtual money should return to what it actually is, rather than what is has been misrepresented as in modern times. Banks have mislead people and obscured what they actually do. That is the only problem and why they have become leaches on the productive economy. A medieval commoner would understand money better than most financial experts these days.

    • Stephen

      Thanks so much. Brilliantly clear explanation of what banks actually do…

      ‘They are simply a certification/publishing house. Actually they should charge a one off admin fee and have this fee created as another promise between you and the bank’

      …thus laying bare the confidence trick that is ‘interest on the loan’

      • John Baker

        Thanks. The more I try to understand what is going on behind the symbol we call money, the crazier it all gets. I find it fascinating.

        The very ability that allows humans to be so clever – creating abstract symbols to represent a process and then juggling these symbols with abstract thinking, is the very same ability that allows people to be fooled without realizing it. After a while we forget what the symbol really represents and start treating it as if it were a real thing in itself. We then open ourselves up to all sorts of illusions.

        As the zen proverb goes “Do not confuse the finger with the moon it points at”.

        I can’t see this insane situation changing very soon though unfortunately. Usually civilizations have to pretty much destroy themselves before people decide to rebuild again from scratch and fix this particular problem, because by the time people spot it and understand it, its too late and the tricksters have already gained way too much power to be stopped without a big fight. Once people have gained enough power, they rarely voluntarily give it up just because it is the right thing to do. It is as old as written history it seems.

        Once money becomes the end rather than the tool, we have basically turned the world into a casino. Most of these financial devices that people think are completely normal now are often simply a total abuse of ‘money’. Its not only money creation with interest that is an issue. For instance buying and selling stock rapidly when you have no interest in the actual venture represented by the stock. This just creates mayhem and artificial bubbles that only benefit people who don’t care about the underlying business at all. Rather than encouraging stable investment it actually works against the original device created. It stops being about productivity and any real economy and starts becoming gambling. People even then build complex justifications for this insanity by inventing concepts like the “free market” that must be worshiped as if it is some unchallengeable god rather than just a system we invented and then allowed to be become entrenched in our laws. We actually didn’t have to at all but most of us weren’t looking. I like most people didn’t even start questioning any of these things related to money until 2008. Bit late now, eh?!

        People shouldn’t say “money is the root of all evil” they should say “forgetting what money represents, is the root of all evil”.

  • RJ

    “The question on every ones lips should be “Why does the government continue to allow the banks’ to control the economy through their debt creation monopoly, which apart from notes and coins is the only way ‘new’ money is brought into circulation?”

    What about Govt debt from Govt deficits. Does this not also bring new money into circulation?

    So banks by approving negative credit bank balances (loans or overdrafts) brings new money (credit) into circulation.

    But Govt deficits and the resulting debt does likewise.

    So Govt can defeat the banks control over the economy by deficit spending. Very simple and is currently being done to a very small extent in the US.

    And re tallies (sticks etc). These were used in many countries (not just England) to record the credit (seller) and the resulting debt (buyer) when an exchange of goods services or assets took place. Today the banks do this without using tallies.

    • John Baker

      Yes banks do tallies but without the sticks. Also paper, clay was split in half and many other forms of ‘split’ virtual promise money. We even print stuff about trust and promises on paper money (however paper money is a promise by a government usually rather than individual). That is why they are able to mislead the public and essentially charge a completely unfair and ridiculous fee schedule that is impossible to pay. My point was that they can only do this because people get confused by an abstraction, a symbol without understanding what is really going on. In fact the word symbol itself originates from a two sided split promise/contract/obligation/tally in both european languages and in chinese. Money is probably the oldest symbol going, and why it came to be used for something more generic.

      Basically, if they didn’t charge interest on creation of these symbols, banks would be rendered harmless and even useful organisations once again. It doesn’t even matter who creates these symbols as long as it relates to a real person, action, stuff behind the symbol (requires checking/certification) and the fee is reasonable and created also. When interest is applied anywhere by anyone, the system will explode, because profit is expected irrespective of the circumstance of the venture being funded. i.e. you extend credit to a farmer but expect a constant return irrespective of the circumstances/weather/harvest etc. This is why peasants often ended up losing ownership of their own land to creditors and having to rent it back from them after a few bad harvests. Interest is constant over time, whereas business, need and circumstance vary.

      This problem has recurred and been solved so many times by humans over thousands of years of recorded history over and over again (financial and legal records are written down very precisely). It seems to me that the real problem is humans are easily fooled by abstractions and quickly forget what the symbol actually represents. People then can be taken advantage of very easily. How many people actually realise that banks do not ‘lend’ these symbols at all but simply certify them? If they did I suspect they would be much more proactive as they have been at times in the past. Guardian readers do not pick up swords so readily as some ancient populations.

      So to summarise and answer your question about why government doesn’t sort this out:

      My guess is that they do not want to do this certification process themselves (they could through building a different infrastructure like C3) but understand also too that someone needs to do it. They do not like change as it means either a massive infrastructure change and public education effort or alternatively stopping the banks making unjustified profit from interest to which there will be a massive backlash from the banks. Banks can hold them to ransom at the moment and the government is scared. To change it is too uncomfortable and daunting either way they choose. They need a lot of balls to take this on that they do not have.

  • RJ



    I don’t have a problem with bank interest as long as banks do not charge excess interest and make huge profits.

    As I see things at present the only reason banks are making big profits is due to credit scarcity. The reason for this is as a population ages a lot more credit is needed for pension savings. So the demand for credit goes sky high especially if countries have compulsory retirement savings schemes.

    To increase credit debt must also increase.This can only come from Govt debt or non Govt debt.Once the bank credit is obtained it then moves from investor to pension fund and goes round and round (churns) chasing the best return.

    • John Baker

      So how does the money to pay the interest come into existence? and what justifies a compound profit relation to something as arbitrary as time for essentially a one off admin task? It doesn’t actually take much more work to create £1m than £1k. Its pretty much the same admin task and the principle was only created in the process. I find that a bit of a weird approach when you think about what money is. I still don’t see the point in hiding what money is from the public and pretending its lending when its not.

      If instead of structural change eliminating interest compound problems (I’m sure this will get a lot of resistance so can understand your position), you are mostly interested in practical ways within a dysfunctional system to get more liquidity and credit flowing quickly, then why not implement something like C3 nationally.

      The software for this virtual digital money system already exists and is open source (its a bit like tallies but with certified invoices which are also insured). This would act as a massive credit buffer for SME businesseses without relying on bank loans. Banks tend to favor big business and speculators and leave others to rot (because they can get more interest on bigger amounts). That seems like the fastest practical approach to me if you are not going to structurally change much and make money more open in general.

      • Nic the NZer

        You can’t fix a debt problem with more debt. The financial sector has plenty of money to lend but not enough suitable borrowers, there is already too much debt.

        Don’t worry you are in good company, this was Ben Bernanke’s solution to the financial crisis. To paraphrase the solution, bail out the banks so they can create more credit.

        • RJ

          One part of the positive money proposal is basically to replace Non Govt debt (a liability) with a Govt credit (that I support. It is the only way to reduce non Govt debt).

          And in the past cash and coins use to be coded to revenue (credit revenue) not credit liability Govt debt

          The problem at present is too much non Govt debt and too little bank credit.

          • Nic the NZer

            This is basically a technicality of the change over process RJ. As stated it prevents the banks (which compete with other businesses on the stock market, for example) from getting a massive cash wind-fall during the transition.

            As pointed out its interest-free credit, and basically because its interest free functions like money.

            If MMT is so wonderful, why has the crisis not abated since the U.S. deficit has been expanding? Or since they breached their debt ceiling? and why are they under pressure not to raise the debt ceiling?

          • RJ


            Because people are very confused about Govt debt

            Many think Govt debt is the same as Non Govt debt. When for a monetary sovereign country it is completely different

            Read this article

            Monetary Sovereignty.The key to understanding economics

            The only way to solve the current problem is more Govt debt and less non Govt debt. (Or for the Euro countries for the ECB to buy Govt debt as required as these countries are not monetary sovereign)

            Ignorance about Govt debt could crash the worlds economy. The solution though is very simple.

        • John Baker

          Was that meant as a reply to mine? If so I am not sure you understood. You haven’t answered the question about interest either. Maybe a mistake and you were replying to someone else.

          To summarise, though, just in case, all promise based money systems are debt based. You cannot create promise money as a non debt i.e. it always has credit/debt halfs and represents an obligation of the party to do or return something. In fact even the term itself originates from contracts, tallies etc and things with 2 halves.

          However, you can create a debt based money without interest. It is still debt though. I think all this calling for debt free money is just confusing people because it is logically not possible. Interest free debt money is logically possible.

          Debt based monies have a few requirements to function correctly, some of which banks already do. They also have certain weaknesses and a propensity to be misrepresented once everyone is used to the token and forget what it really represents. Banks do A LOT OF THIS and should be stopped in that regard alone. Whether they want to keep doing the good part after they are stopped from the bad part (misrepresenting promise certification as if it was lending and so justifying interest) is irrelevant as you could always replace this with a national service instead. It is not complicated and the software already exists. All that needs to be done is background check, credit worthiness i.e. the promise is realistic and achievable and sign a contract. Also, the money must disappear from supply if either the promise is broken or in proportion to having completed its cycle (to prevent pollution of the money supply i.e. based on nonsensical promises). Banks and financial instruments do the last part very badly and even purposely create complex ‘products’ that make this harder to verify.

          To me the only safe monetary system is one that makes absolutely explicit the two halfs of the creation process and one that eliminates interest on its creation. This danger happens to every civilisation that forgets what money is and starts to treat it as a thing and end in itself. i.e. they mistook the promise symbol for a commodity and so strip it of its underlying purpose. If you are going to do that then you may as well use a commodity money instead but these have even worse inherent problems in my view and less ideal than a functional promise based money.

          I wish people would stop talking about debt free money unless they they talking about commodities not promises.

          It really wouldn’t surprise me if banks misrepresenting money creation as lending with interest is also unlawful. My understanding is that any contract requiring the paying of interest is only lawful where the creditor is actually giving up something tangible of value for the period of contract. With banks this is not the case, they do not give up anything to create money but simply pretend they are (only possible due to people’s misunderstanding of what promises are). So they are probably even unlawful institutions as they stand. The only thing they give up is a little admin which is not an interest applicable situation. It is useful admin but not enough to justify interest.

          • RJ

            “However, you can create a debt based money without interest. It is still debt though. I think all this calling for debt free money is just confusing people because it is logically not possible. Interest free debt money is logically possible.”

            Agree 100%. And an excellent point

            Debt free money is not possible. Unless Govt debt is called something else. But I doubt if the accountants will allow this today.

            And Govt debt can be interest free. The choice rests entirely with the Govt

            In the US banking system there are currently around us$1 trillion (trillion not billion) of bank reserves earning under 1% interest. These reserves were generated from Govt deficits.

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