Three Home Truths

There are, I believe three economic home truths, all of which are being ignored by the present coalition government.

The first is that you cannot cure a debt problem by repaying old debts with new debt.

Of every £100 in circulation, less than £3 physically exists in the form of notes and coins. The remaining about £97 being made up of debt created by the commercial banks through the creation of digital/electronic money, or as I like to refer to it  ‘numbers money’. Numbers money being the numbers a bank adds to a customer’s bank account to increase the balance by the amount borrowed. Those numbers are then available to be withdrawn from the account and spent purchasing goods and or services, as required. No actual money is transferred from anywhere, it is just numbers. Money created out of thin air.

Britain’s economy being debt based, relies almost entirely upon the numbers debt creation, as do most other economies around the world. The more debt the greater the perceived prosperity.

With the addition of bank interest and other costs, which often also have to be borrowed, the position over the years has finally reached a point where the total indebtedness to the commercial banks exceeds the total money in all our collective business and private bank accounts. The businesses and citizens of Britain owe to the banks between £300 – £400 billion more than they actually have. Put simply, for every £1 we have, the banks are owed about £1.17p. It also means that if you have money in your bank account, somebody else owes that money to a bank or other financial institution.

With the constant addition of interest and other charges, this shortfall can only increase year on year, meaning that as a nation, we are permanently and increasingly  in the debt of the commercial banks.  That does not take into account the national debt which is something quite apart.

The level of debt can of course be reduced within the limits of the money available, but as money is taken out of circulation through debt repayments so does the level of spending within the economy fall, putting businesses and jobs at risk.

Which brings us to the second truth.

You cannot overcome a recession by  cutting the level of spending in the economy.

A recession is caused as a direct result of falling consumer spending. A debt based economy is a vicious circle doomed to periodic failure. To succeed it has to be constantly fed with new debt and every debt requires repayment which has the effect of mortgaging for years to come money that the consumer would otherwise have had available to spend on goods and or services.  Once debt reaches a level that can no longer be sustained, spending drops and there you have the birth of a new recession.

Increased taxation only serves to accelerate the problem as does cuts in public spending.

The third home truth is that businesses need profits for growth.

When governments suck out  business profits  through excessive taxation, growing a business becomes difficult if not impossible with many budding businesses struggling to survive. Only with growth can businesses create new jobs.

Robbed of their profits, businesses are oft-times driven into debt in order to finance growth, or just to survive.  Alternatively businesses are often forced to increase their prices in order to maintain a necessary level of profits and there you have the seeds of inflation.

The government has set out a programme to cut the numbers of the long term unemployed, to reduce the numbers claiming total disability allowances and because of the pensions problem,  increase the number of working years to retirement.

With an economy that can only ‘thrive’ on debt, debt that can never be repaid and businesses whose growth is being stunted through high taxation, will somebody please say where all of the new jobs are coming from?

In October 2010 the Governor of the Bank of England said:

“Of the many ways of organising banking, the worst is what we have today.”

The Remedy

Until such time as the government removes from the banks their control over the  nation’s money supply, by restricting them to only lending money that they do have, Britain’s economy can only continue to go from bad to worse.

In the same way as the B of E now provides the notes and coins in circulation, so to would it also drip feed into the government’s bank account, sufficient money necessary to maintain a balanced economy at all times. Unlike the banks, this money would be debt free and without cost The essential difference being that the supply of money would be controlled, unlike the banks who are now largely unregulated.

Such a change would show a saving of about £4,000 for each elector and  allow reductions in taxation, to mention just one of many other benefits that would be possible.