There is Another Alternative to the Cuts and Austerity

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For months and months now are the news full of stories of cuts and austerity. We are told that this is necessary and inevitable in order to reduce the debt.

But somehow very little is told about the reasons – Why are we all in debt? There is an astonishing lack of attention being directed at debt itself.

Every country in the world suffers from a massive and constantly increasing national debt. Britain has a national debt that is fast approaching Ł1 trillion. USA has a national debt now in excess of 15 trillion dollars! The overall picture is of a world suffering acute and ever worsening insolvency.

But this is really quite illogical and absurd… The question almost asks itself. If all the nations of the world are in debt, who are they in debt to? Rationally, where there is a debtor there should be someone else who is a creditor. If every nation is in debt, who, precisely, owes whom?

In addition to mounting national debts, the level of private debt shouldered by people and businesses is also esca­lating. (£ 2.7 trillion in UK). And the Americans, supposedly the richest citizens ever to walk the face of the planet, are the most heavily indebted people of the world.

Apart from the logical absurdity of all nations being simultaneously insolvent, such escalating debts are a complete contradiction of the real and obvious wealth of these nations.

Any realistic assessment of the situation must conclude that America, Britain and the many other developed nations possess fantastically wealthy economies. Such extensive personal debt is a complete misrepresentation of the true situation.

What is more, nations are becoming more, not less wealthy all the time, as further technological advances compound their already enormous ability to produce. But where is the financial reflection of this development? And why is there no natural feedback of this real wealth in a decreased pressure to work and to produce? The financial reflection of wealth does not exist; in fact the financial system registers the complete opposite of wealth. There is only increasing debt subjecting our economies and those who work in them to increasingly intense financial pressure and monetary poverty.

This situation is accepted because it is assumed that monetary statements are valid, and that a lack of money means a lack of something vital. But what is missing? If the lack of money were paralleled by a lack of manpower, raw mate­rials, desire or demand, that would at least be rational.

For any one person not to have enough money is rational, but for an entire economy constantly not to have enough money, and thereby prevented from doing what it is clearly capable of doing, is absurd.

Money is simply the medium we use to exchange goods and services. To keep trade and economic activity going, there has to be enough of this medium of exchange called money in existence to allow it all to take place.

When there is plenty, the economy booms. When there is a shortage, there is a slump.

In the Great Depression, people wanted to work, they wanted goods and services, all the raw materials for industry were available, yet national economies collapsed because there was far too little money in existence.

The only difference between growth and recession, is money supply.

Someone has to be responsible for making sure that there is enough money in existence to cover all the buying and selling that people want to engage in.

In Britain today, notes and coins now account for only 3% of our total money supply, (down from 50% in 1948). The remaining 97% of money is supplied as a debt by commercial banks. This pattern is repeated across the globe.

With bank created credit now at 97% of money supply, entire economies are run for the profit of financial institutions. This is the real power, rarely recognised or acknowledged, to which all of us including governments the world over are subject.

Our money, instead of being supplied debt-free as a means of exchange, now comes as a debt owed to bankers providing them with vast profits, power and control, as the rest of us struggle with an increasing burden of debt.

How much could prices fall and wages increase if businesses did not have to pay huge sums in interest payments which have to be added to the cost of goods and services they supply?

How much could taxes be reduced and spending on public services such as health and education be increased if we would stop borrowing money at interest from private banks?

Because we’ve allowed private banks to take control of creating digital money, we’ve lost out on literally nearly £2.1 trillion of potential government revenue to date. That’s £2.1 trillion that we’ve had to pay in taxes unnecessarily, and more than double the current national debt.

There are few alternatives how to avoid cuts and austerity, but perhaps the most sustainable one would be to get rid of the major flaw in our system. Do a systemic change rather than trying to regulate an inherently unstable and destructive system.

Condensed and updated from the excellent 1997 book Grip of Death by Michael Rowbotham.

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  • Simon

    What is more, nations are becoming more, not less wealthy all the time, as further technological advances compound their already enormous ability to produce. But where is the financial reflection of this development? And why is there no natural feedback of this real wealth in a decreased pressure to work and to produce?

    Good question. A modern combine harvester is 150 times more productive than using men and horses (which was the case 100 years ago) to harvest grain. Food prices therefore should be at least 100 times cheaper in terms of average income. Food is somewhat cheaper than 100 years ago, and a much greater variety is available. However the huge productivity gain is offset by the debt mountain, and all parts of the economy have to deal with it, so we are only working (or at least those of us in work) a few less hours per week than 60 years ago. The drive for efficiency is relentless, and should be a positive thing if used for the benefit of all (which is not the case). The debt has partly built up because real jobs and production have been lost to outsourcing and automation, so we have to subsidise people to not work, or do unnecessary things. Debt free money is one part in designing a new economic and social system for the 21st century.

  • Herman Mittelholzer

    We need a complete revaluation of how we assess a nation’s wealth, and we need to get away from the assumption that this should be based purely, as it is now, on how much debt a nation is capable of handling.

    I made some suggestions on the forum on how perhaps we could use a very old method in a new way, and would appreciate any feed-back.

    You will find it here:

    • Joao Granchinho

      “Another myth we are spoon-fed is that our economies are capable of indefinite growth. We judge that if our economy isn’t growing, that it is failing. However, this is clearly a ridiculous means of measurement, since a big reason that we are not seeing appreciative economic growth is that we are running out of headroom, because we are running out of resources.”
      -I agree Herman, this should be obvious to everyone. Also, you argue that we need a better index to replace GDP with which we should measure a country’s real wealth and development. Have you looked into the Genuine Progress Indicator (GPI)? It seems to be a good candidate to me.
      I have one question, when you propose:

      “Each bank would be required to borrow the money, interest free, from the central bank and would be free to compete and make a profit, however, it would only be able to do so on the basis that it had borrowed the money from the central bank, the central bank remaining the owner of the money, and the central bank, in turn being under the ownership of the political electorate that manage the country or trading block. (…)the central bank would be a publicly owned national or federal asset.”
      -You seem to say that a Gov’t entity would be given power over the money supply, as it should, but you don’t mention anything about credit extension (or the fractional reserve system). The Gov’t is responsible for the total money supply, if and only if we’re talking about a full reserve banking system. Where do you stand on this issue?

      • Herman Mittelholzer

        This is just a suggestion that places the central bank in public ownership. I don’t think the system will accept the loss of the central bank model, but this needs to be a publicly owned asset. The bank would not own the depositors money, but act as a central clearing house for full-reserve funds, plus provide access for government to directly spend money into the economy through the clearing banks.

        This would get rid of the government bond market, whereby the government puts up public assets as security so it can raise funds from the private banks, and then pays these banks interest on the digital money they print into existence, while the banks, use the asset value of the bond to balance their books.

        If money could be released direct into the economy, instead of through this circuitous route, then the money could be issued debt-free and interest-free to fund government spending.

        As with the PM proposal the job of the central bank would be to increase or decrease the amount of mont in circulation in order to control or eliminate inflation. Also, as with the PM proposal the central bank would be independent of government, and not under any political control, other than being able to determine how public funds are allocated for spending, provided it fell within the central banks budgetary constraints.

        The system could work either as a under full-reserve or dual linked-reserve banking. DLRB simply needing to have clearing links to the central bank’s fractional reserve.

        Meanwhile, thanks for the pointer. I will take a look at this GPI idea.

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  • Jay

    I have to pick an issue with this article and many of the comments – We must see the UK economy not in relation to itself, but in relation to the global economy and global trade flows.

    As Herman Mittelholzer points out, much of this has to do with the government (but also private bank) bond market.

    The reason the USA and UK – and other economies dependent on high consumption for growth, such as Spain and Greece – appear(ed) so wealthy is in part due to the purchase of their governments’ (and private banks’) bonds by banks in export orientated economies like China, Germany and Japan.

    Economies based on consumption-led growth (USA, UK et al) import more than they export. Whilst economies based on production-led growth (China, Germany et al) export more than they import. At the global level, the result is that ‘money’ flows from consumption-led to production-led economies (i.e. from the USA, UK et al to China, Germany et al).

    Being linear, this trend is finite. To overcome this, and ensure both consumption-led and production-led economies continued to grow, production-led economies to lent money back to consumption-led economies. The producers in production-led economies saved they profits in banks, which then used these savings to purchase the bonds of governments (and banks) in the consumption-led economies of the USA, UK et al. The purchases of these bonds increased the ‘money’ available for government spending (national debt) and household spending (private debt) through debt. Resulting in the refinancing of consumption-led economies ensuring that they could continue consuming products from production-led economies. And all was pleasant and delightful.

    In other words, the 97 per cent credit that banks are producing is actually debt they themselves are taking on. In itself, this wasn’t a problem pre-2008, as the banks in consumption-led economies were able to pass the debt on with interest to us. Basically, banks were cream-skimming debt, not creating the debt.

    Conclusion. This is the not the fault of banks. Banks were/are doing exactly what we know banks do. Instead, our options for change are

    1) we as consumers must change our consumption habits, or more likely

    2) government must intervene (an increasingly taboo word over the last three decades) to
    i) regulate domestic debt (as Hermann has pointed out), and/or
    ii) reverse the 1980s abandonment of manufacturing.

    Austerity is not the way, but bashing bankers is short sighted. It amounts to little more than shooting oneself in the pinky. Instead, the UK and Europe more widely ought to pay close attention to how Hollande’s policies develop in France. The focus must be on growth, at least of the labour market, which it should be hoped will come through ‘green’ growth (another topic, for another day).

  • Herman Mittelholzer

    Hi Jay

    You have said a lot of very sensible things here, but the structure tends to fall part when you say that the [Banks were/are doing exactly what we know banks do.]

    This is not the case or any real justification. Banks were never supposed to be able to create money themselves, but were a charged-for service for transacting the money in circulation. Where the system went wrong is when banks became the creators of money, plus the ones who controlled the interest rates. This is where our current debt-driven money supply came from. – not banks doing their job, but banks doing there job irresponsibly.

    To change this I feel it is necessary to get away from the idea of countries using the bond market in order to borrow money from private banks, and then have to pay interest on assets that the people of the country own. It’s using the country’s assets as collateral against which to borrow money, sower is the logic in paying interest on something you already own.

    This places an unfair advantage with the banks that makes them too crucial to how the whole system operates. To allow them to fail would be to allow them to bring the whole system down, and will always require government intervention to support.

    There is another way, though, and that way is to simply outlaw the private creation of money by any other organisation other than the central bank. Money could be spent directly into the economy through the central bank with the money supply increased or decreased to control the currency value and inflation, rather than using the very blunt and irrational tool of interest rates.

    Private banks would be able to borrow money interest free from the central bank, for re-lending at a profit, but they would no longer be supported if they make bad investments, but allowed to fail in exactly the way that any other corporate entity would fail if it went bankrupt. Their customer’s money would be safe in a full reserve account at the central bank, and the bankrupt banks assets would be sequestrated and sold to compensate shareholders when disposed of.

    That is how things are designed to work under capitalism, and the problems we are seeing in the market are largely as a result of government intervention and tampering which, if left to operate in the way it was designed, would be able to largely regulate itself, and with the banks having no back-stop to protect them, they will be a lot less likely to indulge in creating and investing in ‘bubbles’ when they know they cannot offset the risks on the taxpayer.

    • Robert Hoogenboom

      The central bank is owned by the bankers, not the government. This is part of the hoax. Every nation on earth has a bankers-owned central bank except the so-called “axis of evil”. After various countries in the Middle East were invaded, the first thing done was to institute a bankers-owned central bank. So, NATIONALISE THE CENTRAL BANKS AND THEN ALLOW ONLY THE CENTRAL BANK TO CREATE MONEY.

  • Don

    Economic Definitions:

    What is:

                Public Debt:
                                   Money created out of thin air by Central Banks & some Commercial Banks by       increasing the money supply. (If all countries had the same P. Debt/person, all Public debts could be forgiven, providing inflation was under control)
               Private Debt:
                                   Money created by some of the Commercial Banks using a Ponzi scheme. Has to be repaid to the Comm Banks with interest. (Where Comm Banks makes Profits). See “The mystery of Banking” M N Rothbard.

              Ponzi Scheme:
                                      See Wikipeadia.

                                    Population increase (otherwise no economic growth)

              Gold & Silver:
                                    Return to the Gold Standard. (to stop all Ponzi Scheme’s)

              Euro Farce:  
                                    Rich countries (Germany) have unfair advantage as trading partners cannot devalue currency when required.

                                     Notes & coin issued by anyone with “no” monitory value printed, but printed with an amount representing a weight of Gold or Silver kept in a vault (This means that the value of the note or coin would change with the Market price of Gold or Silver.)

  • Mosheh Thezion

    I, as Caliph of god, have already solved for this problem of debt.
      See —   For how using real money can allow us to change global banking systems to serve us, instead of enslave us.

    These problems of global debt, can be easily solved if,… if.. we can motivate those global players to realize that they need to end the debt system before… before it collapses.
      I offer a simple way out… a way.. that can end all world poverty and make money doing it.

    The only solution, is to give those who run the planet and have all the gold, a better way to run the planet and I offer a good viable means to do so, which sets the people free and can employ the world and end poverty for good.

    I stand ready to debate anyone on earth, and so far, all of earth cannot argue.

     -Mosheh Eesho Muhammad Al-faraj Thezion

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