On August the 19th we started an email campaign to highlight the startling results of the poll that showed that only 1 in 10 MPs understand that 97% of money is created by banks, we have encouraged all Positive Money supporters to email their MP and ask them to confirm that they are aware of these 3 facts:
- Around 97% of money in the UK consists of electronic bank deposits in people’s bank accounts
- That banks create these deposits when they make loans
- That when people repay loans, the money is destroyed and disappears from the economy
Around 1600 people have emailed their MP’s so far and many have already received the responses from their MP’s. Quite a big part of these responses were a variation on a standard party response.
For all their inaccuracies, it is good that these responses had to be made. Some people have gone the next step already by emailing back or arranging a meeting. It seems we can make a difference.
This is the first blog in a series about the standard MP responses. In today’s blog we’ll have a look at the standard response of Conservative MP’s. Check out this space for our next blogs on the standard responses of other major parties.
MP’s letter in italics:
First, I understand that Steve Baker, Caroline Lucas, and Michael Meacher are looking to get a debate on the issue of money creation in Parliament. However, it is for them to put their case to the backbench business committee who will decide if it gets put forward to be debated.
So if you are like me and have a Conservative MP, this is what they say. I am happy that Jeremy Hunt, William Hague and his colleagues are aware of the pending back bench debate. This means that we can ask them to go along. The intention of the debate is awareness raising and as this issue is so important there should be some enthusiasm for attending.
With respect to the wider debate about the ‘creation of money’, though banks maintain a fraction of deposits in cash reserves and lend out the remainder, I can assure you they also remain obliged to redeem all deposits on demand.
This description is inaccurate and the banks being obliged to redeem deposits on demand does not, in any way, address the power they are given to create money and also decide where that money can be spent. Mostly, banks lend for mortgages and speculation on the stock market. See this chart on where banks lend.
This system is fundamental to the availability of credit and plays a vital part in supporting the economy.
Like many policy makers, Conservatives assume that stopping banks from creating money will restrict the economy in a negative way. This is because in the current system, banks are the only source of new money to the economy. However, if the Bank of England were to create ‘sovereign money’ directly, this money could be spent into the economy, supporting businesses, jobs and real economic activity, but without rising levels of debt. More on this here:
I welcome the sweeping reforms the government has already made to both our financial regulatory system and to the structure of the banking system itself in recent years since the banking crisis.
It seems that nothing has changed in spite of these reforms, possibly because the reforms do not address the structural issues with the banking system.
This includes the creation of the Financial Policy Committee (FPC) that has been given the tools to see emerging risks, including the housing market, other capital ratios and make recommendations on loan to income ratios and loan to value ratios to maintain the stability of the financial system.
When the FPC sees the emerging risks, what will they do about them?
We need to keep asking questions of our representatives and we value your help emailing, writing, meeting and inviting your MPs to events. Please see if you can take them to the next step of understanding. Having a meeting is a good way to achieve this. Here is our briefing for meeting your MP.