Peel away all the layers and at the very heart Britain has problems that are far deeper than are spoken about. Taxation, Employment and Consumer Spending all are inextricably linked and the controlling factor is Consumer spending.
If Britain is to come out of this recession, then the money supply must be increased, thereby providing the necessary impetus to boost consumer spending. When replying to a letter addressed to the Governor of the Bank of England (July, 2010) asking if he agreed that increasing the money supply was the obvious way to tackle the recession, Sir Mervyn King replied “I certainly agree with this.” Instead because of increased taxation and cuts in public spending the money supply has actually fallen. The demand for goods and services has dropped, which together with cuts in public spending has increased the number of unemployed.
This bring us to the matter of Taxation. For many years the Government has failed to gather sufficient taxes to fund its programmes. It was consistently borrowing even before the 2008 financial crash and still continues to borrow. In his 2011 Autumn Statement to the House of Commons, Mr Osborne, The Chancellor of the Exchequer stated that future borrowing would be at an even higher level than in past months. He also indicated that it would take another six years before meaningful annual economic growth returned.
The simple fact is that until there is economic growth, unemployment figures will continue rising with a corresponding increase in the cost of Government funding for the unemployed. How is that additional cost to be paid for? Currently there are only two ways, more taxation or more borrowing.
Now add to this mixture one more ingredient and you have the whole sorry tale.
Because Britain’s economy is debt based, the only way new money can immediately be brought into the economy is through increased debt. In reply to a recent letter (Oct. 2011) in which I suggested that new debt was not an acceptable answer, Sir Mervyn King replied “I fully agree with you.”
How can the Government overcome this vexing situation? For this we need to look back to the late 1940’s. At that time, few of the population had a bank account. The credit card had not been invented and day to day purchases were paid for with cash. Because of this, banks were required to hold a substantial proportion of the money supply as cash. Real money, money the banks purchased from the Bank of England at full value. Over the years as the use of cash has fallen out of favour, so the ratio of cash to debt has widened to a point where today less than 3% of the money supply exists as cash, the rest being debt created digital money. Money that did not previously exist. That is why over the years we have suffered one recession after another, each more severe as the gap between real money and debt has widened, dragging our economy towards the desperate state we now find ourselves in.
The solution should be obvious. Changes are essential to bring new debt free money back into the money supply, reducing the now almost total dependency on digitally created debt.