Taxes & Public Spending

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When banks are allowed to create a nation’s money supply, we all end up paying higher taxes. This is because the proceeds from creating new money go to the banks rather than the taxpayer, and because taxpayers end up paying the cost of financial crises caused by the banks.

1. The Proceeds from Creating Money

The Bank of England still prints paper money (e.g. £10 notes). Because it only costs a few pence to print a £10 note, the government makes a profit on every single bank note that it prints. Between 2000 and 2009, this profit on newly-created money added up to £18 billion – enough to pay the salaries of around 90,000 nurses over that time.

But the Bank of England only creates the paper money, and leaves it to banks to create the electronic money that we also use every day. When banks create money, they – not the government or the taxpayer – get the benefits of creating that money.

From 2002 to 2009, banks increased the amount of money in the UK by £1 trillion through lending (with every new loan creating new money). Because this money was created by banks, it’s the banks that get the benefit from it (in this case, the interest received on £1 trillion of additional loans).

If the government had created this money instead of the banks, taxpayers would have been able to pay up to £1 trillion less taxes: approximately £33,000 for every person who pays income tax over just 7 years.[1]

Money creation: 2000 – 2009 inclusive

Money Supply 2000 - 2009

2. Interest on the National Debt

Because the profits from creating money currently go to the banks instead of to the government, the government has to borrow much larger amounts of money to make up for this lost income.

As taxpayers, we have to pay the interest on all this money that the government has borrowed. We currently spend more in interest on the national debt (£51 billion annually) than we spend  on either defence, the police or on transport (including the road system). This interest costs works out at £1,700 per income-tax payer per year.[2]

DebtInterestVsExpenditure

The more money that is spent on interest on government debt, the less money there is to spend on public services, and the higher taxes will be without getting anything extra in return.

3. Deficit: the Cost of Crises and Recessions

When the financial crisis hit in 2008, hundreds of thousands of people lost their jobs, people stopped spending and businesses’ sales fell. All of this meant that the government collected significantly lower amounts of tax, due to fewer people working, and lower profits by businesses.

At the same time, more people went onto unemployment benefit, which meant that the government’s costs went up significantly. The gap between the money coming in (tax revenue) and the money going out (expenditure) rocketed from £30bn right up to £180bn. This gap is the ‘deficit’, and had to be covered by borrowing money.

Without a banking system that creates money every time it makes a loan, we wouldn’t have these crises and wouldn’t need to use taxpayers’ money to rescue banks.

Learn more about how the national debt works here >>>

Sources

1. HMRC states that there were 30 million income tax payers in 2012-2013.

2. Of course, this interest cost will be covered across all taxes, so some of the cost will be incorporated into taxes paid by companies that you shop with, etc.

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  • John Schofield

    A good summary of the problem.

    But why only 11,370 supporters?
    Why is the message so difficult to sell?

    • Muhammad

      because most of the people did not realize about this crazy monetary system. it is not about how difficult to fix it, but how we educate people about it!

      • Rollo10

        Exactly; Henry Ford;

        It is well enough that people of the
        nation do not understand our banking and monetary system, for if they
        did, I believe there would be a revolution before tomorrow morning.

  • Daithí

    Hi,
    Can you please explain the part 2) a little more please; I’m still a little confused.

    *You mentioned that the government makes profit when it prints out [let’s say] £1’000’000 for the production cost of £10’000. Let’s say that the gain goes into the Treasury, that implies that The Central Bank of England is owned by the government and not privately, as people claim to be owned by the Rothchilds —pardon my ignorance, I am very unknowledgeable about the monetary system.

    * In the 2) part you mention ” the government has to borrow much larger amounts of money to make up for this lost income.” —here it is where I am confused. Borrow from whom since the CBoE is owned by the government itself and they can print out more money? And by doing so they are creating it and not borrowing. Thanks

    • NathanRJessup2001
      • Daithí

        Thanks

    • fourthletter

      For a start why is it called the Bank of England, when it is in charge of currency for England,Wales,Scotland and Northern Ireland?

    • Rollo10

      They ‘borrow’ from the future income, our children and Grand-children.
      This is what confused me over the IMF loan in 1975(?) Why did we borrow when we could have printed?
      This turned out to be people like Soros, manipulating the market as he did in the late 80’s. And much similar to what Fed Res are doing now on the China stock exchange.

  • Leo Bijl

    Educating people is the only way out of our insane Banking system that has the power. The power to rule the ignorant people. Ignorance is a choice. (“it is easier to fool people than to convince them that they are being fooled – mark twain”) Just spread the word by educating people.

  • vpcys

    UK has three basic classes of people.
    1. Rich tapeworms – which happily sucking wealth, obviously the greatest supporters of this system. Don’t even think trying to ask them not to sucks (blood). They might sue you and suck millions from you.

    2. Cattle – working nuts out trying to pay bills, no time to bother or even trying to understand what’s going on. One way to control them, KEEP THEM BUSY!

    3. Parasites – living well and happily on the safety net, what else could be better than enjoying benefits without a single drop of sweat? Complaint??
    NO, we are very happy as a CITIZEN and have nothing to complain!
    Well, it could be merrier if the government could pay us a little bit more!

    • Mike

      I think you missed a class. The self-employed person who has worked their nuts off and can now choose his/her own hours and realises that you don’t actually NEED much to live on. They have more free time to understand what’s going on.

      Wouldn’t it be great if more of your “cattle” were in that category? But no, people want to chase that 30k, 40k, 50k executive position working on someone else’s time.

      • richard322

        Right on!

    • Rollo10

      I came across a site that listed all the ‘tax payers’ i.e. How many in each group, how many didn’t pay and such. I decided to spend a bit of time and worked out, by deducting allowances and whatever, how much each group paid. The total income was circa £650bn, which is the amount that has been produced for expenditure these last 5 years.
      Where are the other taxes and Income?
      VAT, NI, Corporate, Rates, also where is the budget outlining the rest of our GDP?
      We have a GDP of £1.9tn, yet only a Budget for £650bn?
      Notice Tories first Budget, they sacked 500,000 public sector workers, yet the Income tax jumped £8bn? Then notice how it performs in relation to events.

  • Tim Thomson
  • careful_reader

    “Because this money was created by banks, it’s the banks that get the
    benefit from it (in this case, the interest received on £1 trillion of
    additional loans).”

    The banks also get the £1 trillion – not just the interest !!!

    • Jvat

      No, I don’t think that is true. When the loan has been settled, then this Electronic Money is cancelled out. They can’t have the cake and eat it too.

      • suquman

        If banks are allowed to use a multiplier of eg ten they can lend £10 for every £1 the bank holds as a deposit or asset. In that case, if you deposit £10k (at eg 3%, receiving £300 in interest pa) in a building society or bank and take a mortgage from them for £100k (at eg 7%, paying £7k interest) you are financing your own mortgage, but will still be paying them £6,700 per year. Your £10k deposit becomes a debit on the banks balance sheet, because they owe you your deposit. But the £100k mortgage becomes an asset, which of cause will be shrinking as you pay the mortgage down/they receive the real money. But the loan/mortgage only cancels out because the mortgage has been activated as an asset on the day the bank paid out and therefore it becomes a loss for the bank should you default.

        • GWHodgson

          “as you pay the mortgage down/they receive the real money”

          No, the time sequence is back-to-front. The bank receives the “real” money (if by that is meant central bank reserves) when somebody pays the borrower and the bank credits the borrower’s account. Only then is the borrower in a position to pay the mortgage down, at which point both mortgage asset and deposit account liability to the borrower fall. But the bank received the “real” money from another bank, and in the process that other bank lost a deposit liability (to the person paying the borrower). So the amount of central bank money hasn’t changed overall, but the amount of deposit money overall has fallen, along with mortgage assets.

        • Ricardo Afonso

          The bank will only register a loss if your house value is less than 90% of the mortgage loan (as they have your 10k deposit as collateral). Hence house prices can’t simply drop more than 10% (or whatever the fractional reserve banking ratio is).

    • Sky Wanderer

      “The banks also get the £1 trillion – not just the interest !!!”

      Exactly! For Heaven’s sake, when the loan gets repaid to the bank, the bank receives the whole amount of money it had created!
      The entire world-economy is flushed down the drain via one giant organised global crime called “monetary system”, and we are dwelling on details.

  • pavel

    “The Bank of England still prints paper money (e.g. £10 notes). Because it only costs a few pence to print a £10 note, the government makes a profit on every single bank note that it prints”…

    Partly true, but put it in this way, it is very misleading…it sounds like a classical conspiracy theory…

    A better definition:

    “…Seigniorage derived from notes is more indirect, being the difference between interest earned on securities acquired in exchange for bank notes and the costs of producing and distributing those…”
    And again, this following link can be very useful to understand how the seignorage works: http://www.bankofcanada.ca/wp-content/uploads/2010/11/seigniorage.pdf

    In addition, I’ve just finished reading the explanation about seigniorage in your book (where the money come from? pg. 73 kindle version) and, as I pointed out before, it is partly incorrect. (profit: face values minus costs of printing and distribution > wrong!)

    I thought that PositiveMoney would be more accurate about the definition of seigniorage…
    Now I’ve got some doubts about the accuracy of this organization…

    • GWHodgson

      This is a complicated issue. It’s true that banknotes are not sold like newspapers, but exchanged for income-bearing securities equivalent to the face value of the notes issued. But these generate income every year that the notes or their replacements are in issue. The production and distribution costs for new notes are paid for out of this income from the whole of the notes in issue and the remainder is paid over each year in seignorage. So the equivalent for the newsagent would be to invest the sales proceeds each day and use the income from the investment to meet his running costs and pay his salary.

  • Danny

    The government wants to keep people in debt because if we are in debt we are less powerful and working like slaves to pay the government basically
    ‘People work hard just to get all of their salary taxed’
    My advice..? Move to the Middle East, sell every single asset you have in the uk and MOVE. the Middle East has no tax on income, fuel prices are some of the lowest in the world and in places like qwayt or however you spell it newly married couples get 50k per couple to start thier lifes together.

    • Rollo10

      Which is probably why the US keep bombing the shit out of it!

    • Ron

      Bit dramatic the British govt. aren’t orchestrating a feudalist society of peasants and business-owning fat cats, why on earth would you expect a better quality of life in the Middle East. The MIDDLE EAST

  • ash

    under no2 ‘interest on national debt’, where is the benefits bar chart (housing benefit/tax credits etc), there is a pensions one (74bn) but benefits spending is the biggest outlay for the uk, more than all income tax collected. the banks need reform but it’s not all their fault we have a national debt of approx. £1.4trillion+, they do pay alot of tax’s after all. gov’t spending (and population increases/immigration) were all out of control before 2008 under labour and still are. are house price rises just the banks fault? what about rapid population growth, lack of house building, help to buy, low interest rates etc. also if the government stopped housing benefit for under 25’s e.g more people on benefits would stay with their parents easing pressure on rents and buy to let growth. if we left the eu and got immigration down from over 250k per year to c.50k per year there would be less demand for houses. if we had not paid benefits including housing benefit to new eu migrants from 3rd world countries we would have a lower benefits bill and less demand for housing. the government could have done alot to influence house prices, but they encourage demand and the banks profit from disastrous short term policy making.

    • Rollo10

      “but benefits spending is the biggest outlay for the uk,”

      That would be IN WORK Benefits! The actual unemployed Benefits are something like £3bn. The total benefits bill is circa £157bn, of which £92bn is Pensions, [the chart above is an old one] as Debt Interest in now over £52bn, or £1bn a week. Housing is £13bn and we spend over £5bn to children not in the country? And no-one knows why Pensions are classed as ‘Benefits’, when they have been contributed to?

      Our Trade is just 7% of GDP, down from 28% in 1997, it currently stands at £-28bn for the last quarter, we rely on Immigrants who borrow for our GDP, because we have 19m who can’t get a loan [Economically In-Active] which is why we advertise in the EU and house prices are artificially inflated by not building! Labour in their last 10 yrs, built just 320,000 homes, instead of the 150,000 per yr that was needed, especially since they knew so many were coming! See how it works yet?

  • Edward

    I am trying to research what I am posting, so was happy to see you had a source. When I looked at the source however, I was not quite so happy.

    2. Of course, this interest cost will be covered across all taxes, so some of the cost will be incorporated into taxes paid by companies that
    you shop with, etc.

    That looks much more like a note than a reference. Where did these facts and figures come from!?

    Thankyouplease

  • mipple

    Gotta watch this, The Monet Masters, an excellent video… it make the system very clear

    https://www.youtube.com/watch?v=iDtBSiI13fE

  • maniali425@gmail.com

    Hi Every one,
    Well i would like to share something. This system has been started by Rothschild family in late 1770 they started borrowing money to local people. I am not mentioning their faith here as it will be harsh as not every one is same however this is their profession and it is the most common profession or practice for this particular faith and they are the best in this business. From their they started lending money to companies or businesses of that time. Rothschild found it really profitable business and started lending money to french government. Sorry Rothschild family started from France but you will not find too much details on this specially on internet very hard to discover facts.
    He had three sons to spread their business he sent one of his son to Holland i do not remember correctly though and one to England and one stayed with him to manage things back home.
    Cut the story short his son who came to England said in his statement that he came with £20,000 pounds and multiply that money 200 percent in 1 year by lending. That’s where story started he bribed Government and established bank of England even there were many campaigns against it.
    Well now All main banks in Europe Some in Asia and Federal Reserves claimed to be part of government but fact is they all owned by one family.
    So basically we all are owned by one family. Most of the wars are forced and funded by same family. You like it or not this is how it works.

  • Marco Saba

    “Between 2000 and 2009, this profit on newly-created money added up to £18 billion…”. This tells nothing IF we don’t know how much nominal value of banknotes where produced in the same lapse of time. You will find that this value is GREATLY in excess of the £18 billion above. Ha ha ha !

  • Marco Saba

    Bank of Italy: “When coins and banknotes are produced by the state it is the latter
    which, by spending them for example on goods and services, injects money
    into the economy and immediately realizes its equivalent value, net of
    production costs.”. I.e. seigniorage on capital creation.

  • Hail Odin

    Im surprised an Amercian billionaire hasn’t come along yet and bought the UK, we’ve sold everything else.

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