By Mike Newland.
There is no dispute about the fact that Britain – like many other countries – has accumulated very large levels of debt. There agreement ends.
Debt is invaluable – used sensibly. How can the farmer pay for his current needs when the crop in the field does not ripen for months? Most people moving into a new home would like carpets and other comforts now rather than bare boards until they can pay for them. Indeed, debt as a means of conducting an economy long preceded money.
Debt becomes a problem when people can’t repay it. That sounds so trite that it’s hardly worth saying but contains the essence of the difficulty. It’s often very difficult to know whether debt taken on is likely to be repayable – and at times when credit is easy optimistic forecasts about the future are all too credible. The person who borrows endlessly for holidays and cars against a background of his rising house price appears a prudent citizen if his income prospects seem reasonable.
Both government and the private sector within Britain have large levels of debt. In relation to national income the government looks more prudent than the private citizen. Quite a few voices now ask why people are worrying so much about the Government deficit – which is added to its debt of course – when the private sector is worse off.
The above seems to be a considerable misunderstanding of the track we are now on both in Britain and many other places. The official story since the 2010 election has been, of course, that growth in the economy and some tax increases and a little trimming of expenditure will close the gap. In the lingo, the structural deficit will be eliminated.
The Government will – by the 2015 election or a little later – have stabilised the amount it owes. That does not mean it won’t be borrowing at all. The amounts borrowed will still push up debt but by less than the increase in income because of renewed growth in the economy. What counts with debt is the ratio between what you owe and your income. Earn more and you can safely borrow more.
Unfortunately it’s hogwash. The private sector can cut back its spending and reduce its debt over a period. Not good for the economy in terms of immediate employment but doable. The Government can’t cut much – not while seeking re-election anyway.
What is considered a ‘cut’ in political terms has had an exceptional slant put upon it by the entire post-war period of unprecedented prosperity and state largesse. A ‘cut’ is now in the public’s mind a situation in which handouts don’t go up every year.
There is a wonderful expression within the Civil Service termed ‘parade of the bleeding stumps’. At any suggestion of cuts to a particular budget a ghastly prospect is conjured up as to the inevitable consequence. Legs will be cut off the suffering masses. Widows and orphans limp forward for the photo. The cut cannot be made!
Despite the fact that the Government is spending more or less the same as before the election the image it has is of making massive cuts. In fact, some say that this pretence is deliberately fostered and intended to pacify a bond market which fears it might not get its money back if borrowing goes on at the same rate.
The reality is that expenditure is not being increased – a ‘cut’ as far as callers to umpteen radio phone in programmes with that caring bias needed to keep an audience are concerned. There is an army of stumpers out there railing against a reduction in their welfare despite the fact that this side of expenditure has not been cut. But it is true that there are large cuts to some of the things government pays for like defence. The budget has been rearranged so that reductions in some areas will pay for increases elsewhere – notoriously in foreign aid provision. Increasing interest charges also impinge as the debt increases.
Anyone who has ever used a spreadsheet for the first time has been delighted by the magic of links between cells. Set up your projection of your income and expenditure say over the next few years with income growth fixed at a certain percentage a year. Change that percentage and watch the entire set of figures update when you press the button. Magic! You can prove almost anything to yourself about your prospects with a little judicious figure changing and – as salesmen like to say – in the comfort of your own home.
They do exactly the same in Whitehall. Over endless cups of tea and cigarettes (well perhaps not the cigarettes these day) they can come up with a plausible story about future government debt. It’s what they do down at the Office of Budget Responsibility.
Since 2010, the OBR has projected a neat glide path to a stabilised government debt before long. Just in time for the next election was the immediate calculation. Quel happy coincidence.
The Bank of International Settlements, on the other hand, published a remarkably frank paper in 2010 about the prospects for government debt across many countries (Cecchetti et al) and with a very different narrative.
A few countries (Germany, Italy for example) given reasonable estimates of future growth some cuts and a freezing of age related expenditures – increasing in most places – can halt the rises in their government debt to 200% or more of national income over the next decades and reduce it. Britain even on such a strict path is set for 300% by 2040.
In reality, such levels of debt cannot be reached without a breakdown in the system. They are purely theoretical except in rare cases like Japan with its highly cohesive community in which endlessly lending to government seems to be accepted as a substitute for taxation. Either the interest payments swallow up government or people refuse to lend.
Private debt a problem? Nothing like the problem of government debt in the UK.
The Government is stuck politically. Even with minor overall spending cuts, the voters are at their limit of tolerance. Gladstone said that the business of government was saving candle ends. Now it’s to bribe the entire population with their own money. 50% of expenditure is by government which taxes people then gives them cash back as well as more which has been borrowed. Let alone the army of interest groups directly on the payroll. Some say that’s an inevitable path democracies take until they collapse. The original vows about social provision for the lame soon give way to financial provision for likely voters. In fact the lame are often crushed in the rush.
What would be required to stabilise debt back to where it was before the crash at some 40% of national income?
There will now be a brief intermission while you take an aspirin.
According to the BIS paper, our government would have to spend on average over the next 20 years less than it took in amounting to 3.5% of national income. It’s currently borrowing towards 10% of national income. Instead of borrowing some £120 billion a year it would have to be saving say £50 billion a year.
Now we can reasonably assume some growth to ease matters. Even if its driven up for a while by a renewed property boom and we have a new crunch. But it does not seem likely to little old me or to the BIS or probably to you that such a switcheroo will be remotely acceptable to voters. Fifty billion quid left unspent on goodies by a cruel government?
The Taxpayers Alliance latest Bumper Book of Government Waste says that the entire current deficit of £120 billion could be removed without cutting front line services or defence. The largest item is overpayment of state employees. So the fix we are in is in principle resolvable if highly unpleasant to millions. But it’s pie in the sky without a political revolution and a government not at the service of particular interests and in the face of a public which does not really believe there is a serious difficulty.
The main reason the public does not grasp the position is that politicians have so often told them that there is an easy way out. In the immortal words of Mandy Rice-Davies concerning a much earlier government problem: “He would say that”. He and they both.
Labour’s latest wheeze is to go along with the Government tale. Yes the cuts have been necessary but that’s it. No more. In fact, once back in office it may be possible to start easing the pain (hint) but nothing can be promised.
Once in office it will be back to the magic of the spreadsheet. A little more optimism about the economy (don’t talk down our country with talents enriched) and it’s easy to see that there is leeway to ‘invest in our future and hard-working families‘.
I feel a politicalspeak wordcloud coming on….
The debt will go up and up until either the government prints money to pays its bills again (Quantitative Easing was partly a roundabout way of doing it) or creates a huge inflation to reduce what it owes. More taxes can’t fill the big hole. During four years of Labour government in the 1970s inflation totalled 100%. To paraphrase The Smiths: ‘Them was good days’. Well – if you owed money they were.
There are voices raised who say that the problem with government borrowing is not that it’s too high. Indeed it should be higher. The problem is how the money is spent. If government spent on investment in the economy then the returns as with most productive investment would pay for the outlay.
Investment is a much abused word in government speak. They talk about investing in housing. Housing is not an investment since it does not increase the productivity of the economy. Will a faster rail route to Birmingham increase productivity? Probably not.
Government let’s face it given a huge investment budget would likely spend it on things which attracted rapid votes or vanity projects. Genuine investment tends to have too long a gestation period for the political calendar. The voices raised in favour of this path tend to be leftish as one might expect. A touching faith in the wisdom and integrity of government!
It looks as though we are stuck on economic settings which can only lead to a huge and unpleasant reset at some time. The public will meantime be lulled by the prospect of sunlit uplands artificially engineered on a spreadsheet.
Do the politicians understand the real position? Of course they do. Each party hopes the music will stop on someone else’s watch.
2
It never used to be posible to get into such debt as we have today. Ordinary peoples’ debt, I mean. Banks would not lend money without collateral, there were no credit cards. My parents bought one item at a time (fridge), washing machine, etc.) on the ‘never never’ or hire purchase. They never borrowed money to have holidays, I never borrowed to have a holiday, or any other luxury. The trouble is that the banks & the government have debauched the people by encouraging them to recklessly take on debt as a way of life. I had a friend who told me of some friends she had who ‘lived on their overdraft’. She said it as though she thought it was something to be proud of.
In a book by Thomas Hardy called ‘Middlemarch’, the doctor got into debt because of the extravagance of his wife, & eventually they had all their furniture taken away.
I suppose that is what could happen to the country too, on a huge scale. I read somewhere that to get rid of the debt & balance the books, they would have to close1 in 5 schools, 1 in 8 hospitals, & sack thousands of civil servants. I have heard they are already closing libraries.
It is perhaps only when that sort of thing happens that people will be able to fully comprehend it. It all seems a bit hard to believe otherwise.Just figures on a computer screen……..
(Party Member ) If Britain abandoned getting involved in foreign wars that do not involve Britain’s National Interest , stopped paying out billions in foreign aid and no longer paid into the European Union , we would save a fortune !
It’s beyond belief that there are people who think that this country can run up enormous debts, public and private, living beyond its means for years, yet when the bill comes in and has to be paid, their standard of living will not be affected.
It’s worse when some of these same people are the very ones who created the enormous debt bubble in the first place.
Ed Balls must be in line for some sort of prize for undisputed chutzpah. The man has a hide like an elephant and world-class arrogance..
http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article
This a truly excellent article on what happened to the economy. Intelligent and accessible. The writers deserve a medal. Everyone should read this.
(Party Member) You are right there, Cassandra. On the subject of Britain’s finances. Nobody has contributed towards more disaster than Ed Balls. He, Gordon Brown and the rest of them have set Britain back fifty years! All periods of Labour Government have ended up in financial disaster. There should be trials really but, suffice to say, Labour should never be allowed near Britain’s finances again !
According to the papers, a quarter of recent growth in jobs is estate agents!
Another bubble ready for the election judged nicely so that interest rates don’t go up before it – if they can manage it.
The current edition of Moneyweek forecasts a coming housing price crash on the scale of what happened in Northern Ireland, where prices plunged by 50%.
This debt must be written off and the old parties ousted and the grubby mitts of Brussels and Strasbourg thrown out.
The trouble Adam is that if you write off debt someone loses and that in most cases means bank depositors, pension funds and so on. It means that those who had a share of cake promising to pay for it get it free while those who did not get into debt suffer.
It’s not airy fairy. If a bank lends a pound and does not get it back someone loses a pound. A lot of people refuse to accept that.
Politicians across Europe encouraged debt because it brought them votes. No doubt that the EU did as did Gordon Brown.
I can’t believe how few people seem to have grasped the fundamental reason for debt in our society. All this blaming each other for selfish profligacy, interspersed with preening about parental thrift in days of yore, is missing the point completely.
Listen, people, in our present system, debt is inevitable. The problem is not about living beyond means – quite the reverse in many cases – nor excessive personal consumption, although many do that I’m sure. The problem is the debt-money system. Almost every pound in circulation has to be borrowed into existence, no debt no money.
Governments, almost all governments in the world, have handed over the creation of their nation’s money supply to private organisations – banks in other words. Our money supply has become a vast Ponzi scheme, of which debt is an integral and inevitable part. Don’t attack those who borrow money to keep going – without them, there simply wouldn’t be any for anyone!
You can overdo anything, Albion, and it must be obvious that borrowing was wildly overdone.
I’m afraid that is nonsense. The present system requires an increasing amount of borrowing to sustain it. All our money (well 97%) is borrowed into circulation, but only the principal is lent by the banks. So, they lend out £10,000 and require £11,000 back (assuming, for ease of calculation, a 10% interest rate). So where do you suppose the extra £1000 comes from? That’s right, more borrowing – and so it goes on. It is the same for the Government as it is for private individuals – and it’s a racket that can, and should, be swept away.
An endlessly repeated and at first sight plausible myth like so much of the alternative money ideas circulating since the 1920s.
The fallacy in the argument is the assumption that those receiving interest never spend it. If that were the case borrowers indeed could not pay the interest since there would not be enough money – without borrowing and creating more.
But in the real world people spend their interest money so it goes back into circulation and can be used again. As so often with economic fallacies, the problem appears to arise because of a confusion between stocks and flows.
There is plenty to criticise in FRB banking but so often its critics hit fallacious targets. As with many cults, the adherents are often as unshakable in their beliefs as those in cargo cults or end of the world movements.
You miss the point entirely. First of all, only a small part of the interest payment is spent back into circulation (via bank expenses) – there is still a shortfall, and this is the reason for the ever increasing spiral of debt.
However, let’s leave that aside, for it is not the real issue. What are you saying, when you describe what is stated as a myth, that banks don’t create the money supply of the nation? In that case, perhaps you’d care to tell us how money is created, and by whom?
If you, foolishly, believe that banks don’t create money (out of fresh air) when they make loans, and that that is not the way that our money supply is created, then I’m very much looking forward to hearing your alternative explanation of how it is done. I’m also looking forward to giving what you say a rigorous cross-examination.
If, on the other hand, you accept that governments have handed over one of their most sacred duties – that of creating the money supply of the nation – to private institutions would you care to tell us why you think they have done this, when they could simply produce that money themselves and spend it into the economy – debt free?
J K Galbraith once made the following comment: ‘The process by which banks create money is so simple that the mind is repelled.’, I think he lived in the ‘real world’!
Until we address this real cause of debt, all other discussion about money and the economy is a pointless charade.
Those taken up with the ‘positive money’ idea will have us if they can endlessly going round in circles debating with them in order to get an essentially sub-religious agenda involving a phony ‘saviour’ for the economy on board small political parties or anywhere else by sheer tenacity. It’s much like communists who will never give up telling you that they too have an unrecognised ‘saviour’.
As soon as one idea is knocked down another pops up usually based on a misinterpretation of what one has said to keep things going or some other debating artifice to a similar end – ‘appeals to authority’, selective quotes etc. Like your suggestion that I think banks don’t expand the money supply. One can waste all one’s time endlessly answering to no avail. It’s like dealing with the Jehovah’s Witnesses who try to wear you down by endless door knocking.
We had this debate here some months ago. Nothing anyone could say to you would make the slightest difference. If you wish to believe you have ‘the answer’ then fine. Thank you for drawing this to our attention. I respect your faith.
What a very interesting ‘non-answer’. Interesting because it possibly reveals more about you than you may realise.
I don’t have to prove anything to you, the absurdity of the present system, which you clearly seek to defend, is self-evident. A system that sees some of the ‘richest’ and most productive countries in the world as the most heavily indebted. A system that enslaves and condemns millions of people to poverty by preventing them from enjoying the benefits of the goods and service that their societies are easily capable of providing – but which are prevented from doing so by lunatic ‘economics’. A system that has seen countries that are wanting for no material resources, no labour or skill shortages and no infrastructure deficiencies, but have been brought to a virtual standstill for the want of this thing called money – a commodity that should be entirely neutral, and which should merely assist the ‘real economy’, not control it.
You may wish to defend this, and attempt to put down those who point out the absurdity of it, but in the process you will convince no-one with their eyes and their mind open.
Albion’s comments are an exposition of the standard sales script employed by every proselytizing cult and religion to gain converts. You can hear variations on it in every high street in the capable hands of chuggers.
The script has four elements.
1. “Don’t you know that black babies are starving?”. One example of “Are you unaware of the terrible suffering concerning whatever?”. Only a very bad person would wish not to hear more obviously.
2. “Don’t you care about starving black babies”. Back foot you by suggesting that you are uncaring. If you cared you’d accept the version of reality and causation offered by the salesman. In this case failure to agree with Albion means you support slavery no less. Ouch!
3. The salesman has the answers – a holy book, organisation, church etc!!
4. The clincher! You must have some personal deficiency if you are so unconcerned about the matters the salesman is raising. Don’t you want to help? Your soul needs saving. The scientologists have seized this one by the horns offering ‘personality tests’ which will always show you to have a personal deficiency. The target is reduced to a nervous wreck as he realises his whole life is a mistake and that only the cult onhand can help. Hopefully.
What it all boils down to is that anyone disagreeing with Albion is stupid and uncaring. Well I am well aware Mr Albion of the general problems of the world. I simply don’t share your version of a solution. Recognising the problem is not the same as agreeing to the proffered solution.
I’ve heard the script before in many contexts over many years.
Now about those starving black babies. Anyone who fails to send me money to help them is a very bad person indeed. You must have bad wiring in your head. Yes indeed.
Mike Newland demonstrates the technique employed by every footballer in the world with two left feet, and no skill in either. Unable to play the ball, he tries to cripple the man. I’ll leave you to the sleight-of-hand tricks with which you try to bamboozle the gullible, Mr Newland. Clearly many here are convinced by you, I can only hope that they wake up one day.
If Albion would like to write an article explaining his new money system clearly and at not too great length I’m sure it would be of great interest. The bones of the system should not be too difficult to lay out at very reasonable length. Full reserve banking can explained in about three or four paragraphs for example.
We had a similar debate some months ago here when it was the BNP Ideas site and I made the same suggestion.
No need for me to write an article (and it is not MY new money system), there are plenty on the internet that explain alternatives to the present system. Anyone who is interested will find all the information they need here:
http://www.positivemoney.org/how-money-works/banking-101-video-course/
Here you will also find that Fractional Reserve Banking (FRB), that Mike Newland has referred to, is not the way things happen. In fact banks don’t even need deposits at all to create money.
Congratulations to Albion who has got his book plug on and under an assumed name. It’s never impressive when people tell you they have ‘the answer’ – anonymously.
I have ‘plugged’ no book of mine – for one thing I haven’t written any – just pointed people in the direction of where they can find accurate information. I find your response to this highly suspicious.
Mike. The government’s budget deficit for the year 2011 was around £120 billion. If the government had tried to run a balanced budget instead of borrowing, the results would have been catastrophic.
Quite simply , the governments revenue would have fallen by £120 billion. The government would have had to lay off hundreds of thousands of public sector workers. The social security budget would rise with the redundancies, so it would then have to cut services and lay off yet more workers to restrict its total outgoings to the balanced budget level. This gathering pool of unemployed workers and their families could not then act so effectively as consumers; demand across the economy would drop, and some private firms would shut down, causing more unemployment. So the government’s bill for social security would again rise, necessitating yet more public sector layoffs. Meanwhile, the ability of people and businesses to pay taxes would fall with the decline in sales and total incomes, again requiring cuts to be instituted. Demand would then fall even further, more businesses would close, causing more unemployment and a higher social security bill. Eventually the economy would just grind to a shuddering halt.
If the government tried to raise taxes to balance its budget, ultimately this would have the same effect on the economy as spending cuts. Initially it would be able to keep all its public sector workers, but either industry or consumers would be deprived of £120 billion through extra taxation; If industry were taxed to the tune of £120 billion, this would soon be passed on in prices with the same result as a total fall in incomes. Either way, the drop in consumer demand would lead rapidly to business closures, lower tax receipts and a rise in unemployment. The rate of taxation would have to rise to compensate for lost revenue and to sustain the unemployed, and thereby maintain a balanced budget. This would lead to a further drop in demand necessitating yet more taxation on a steadily declining number of businesses and employees. Ultimately, the same spiral of economic collapse would occur.
In a debt based economy, a budget deficit is an essential part of the money supply.
George Osborne is working towards a balanced budget by a more gradual approach, but this merely creates the same problems highlighted above in slow motion. He expects the private sector to take up the slack caused by public sector contraction, but that horse won’t run because contrary to Mike’s opinion private sector debt is much worse and is a bigger problem than even government debt.
Acknowledgements for the basis of this post to Michael Rowbotham “Grip of Death”.
Welcome back solturean – another fake name book plugger from the positive money school.
It always helps if you read an article before commenting. I said private sector debt was worse.
If the Government tried to close the deficit instantly there would indeed be a large downturn and it’s not. The point is that it is not going to close the deficit any time soon on the current glide path – but it’s pretending it will to kick the can down the road. Meanwhile the government debt goes up and up. That can’t happen ad infinitum.
The value of the Taxpayers Alliance analysis is that it indicates the scale on which expenditure could in principle be cut without bleeding stumps. Over a period obviously. Since it’s going to come to that anyway a rational planner will wish to think ahead.
The most likely current outcome is another huge crisis with government debt even higher than before and private debt back where it was in 2008. The political temptation to go down that road is huge. It buys a few years.
If banks don’t need deposits to create money, why is it then, that all the depositors in Cyprus had their money sequestered, sums of over e100,000 that is, were just taken out of their accounts. Not all of them were rich Russians, who I read, were given a tip off and got their money out through the Cypriot banks in London.
Then there is the Co-op, who gave small bond-holders a ‘haircut’, not too long ago.
If they don’t need deposits, why to they need to steal them?
Please explain…..
You are quite right Mo. Any real life banker would giggle at the idea of lending without taking money in. But you like living dangerously! Getting into a debate with the positive money squad is like opening the door to the Jehovah’s Witnesses. You can’t get rid of them. Expect a knock any time from a positive money salesman.
However, before the 1844 Banking Act banks could indeed lend without deposits by simply printing their own notes. Mad? Well it actually worked pretty well in Scotland earlier on which tells us that fractional bad full reserve good is a simplification.
The reason was that the Scottish ‘free banks’ were partnerships. The owners had unlimited liability and no central bank to prop them up, So they were mostly pretty careful.
It’s a complicated world.
The explanation is very lengthy – I’d get RSI typing it here! – but it’s all in the link I gave earlier. It’s all explained there using video and graphics, so much easier to follow. Please take a look.
Solutrean:
Grip of Death is an excellent book, everyone should read it – ISBN 978 1 897766 40 8. Not cheap, but worth every penny.
Here’s how it works Mo. You go into the bank for a loan. The bank regards you as a good risk so the loan officer gets you to sign the loan document for say £500. You now owe the bank £500. Just before you leave the bank you turn round and say to the loan officer “just a minute, where is my £500 loan”. He replies, “don’t worry, we have just opened up a new account for you and it contains £500. This money is created out of nothing (ex nihilo) by a few keystrokes on the banks computer and nobody has had their account reduced by this amount so £500 of brand new money has been created by this process. Bank loans create deposits, deposits do not create bank loans.
This the positive money standard sales to the punters script.
Yes the bank can make a loan available by a simple bookkeeping entry. What he’s not telling you Mo is the other half of the story. That when you spend the loan the bank has to pay out in cash unless the payee is from the same bank which is usually won’t be. That’s why the bank needs money deposited – unless it can print it and Peel stopped that with some exceptions. .
I ran over all this months ago during solutrean’s previous foray here. But like the Witnesses they never give up. As long as you are around talking to them their agenda is being advanced.
That’s it now.
I knew you would come back with this one Mike. Yes, the banks do need to have some reserves to settle between each other, but since you brought it up lets REALLY look at the complete picture. There are only five major banks in Britain (plus a few smaller ones) that have accounts with the B of E. This means that almost one in five customers will hold deposits at the same bank, therefore no reserves are required in respect to these transactions.
Also transactions between customers of different banks are ’netted out’. This simply means that transactions to and from these banks will almost cancel each other out so only a tiny fraction of reserves need change hands at the end of each day. That’s why its called ‘fractional reserve’. Prior to the crisis there was £80 of commercial bank money for every £1 of base money.(central bank reserves)
Your statement would only be true if you had said “when you spend the loan, the bank has only to pay out a tiny fraction of it as central bank reserves to another bank“.
What you have not grasped is that if a bank lent continuously more than it was taking in then the netting off at clearing would mean its reserves fell to nothing. It has to have deposits coming in to avoid that.
It really is a waste of time. You’ve read a book or two and half grasped it in a way which makes it seem there is a magic answer. We all like a bit of magic.
No Mike. I am not from the positive money school, I am from the nationalists school of monetary reformers. You know – the same school as John Tyndall and many others.
I suggest you read your article again. You said . “Private debt a problem? Nothing like the problem of government debt in the UK“ Should we believe what you say in the article or your denial of it?
The Taxpayers Alliance may indeed intend a gradualists approach to a balanced budget, but this was not made clear in your article. In any case, this approach will merely kill the economy a bit more slowly the sudden kill of a rapid balanced budget regime.
This was quite a lengthy article that said very little and certainly did not deliver a solution to the debt crisis. Why not come aboard Mike and admit that the only solution to excessive debt is, guess what? ———-Debt free money!
So the BDP is to be based on a ‘bible’ of what John Tyndall thought years ago. Ah the old ‘appeal to authority’ argument. Ah the old ‘many people think so it must be right’ line. You even misquote me!
You know all the debating tricks.
The reason I offered no answer to the debt problem is because there is no easy one. Either people pay their debts or they don’t. If they don’t someone loses one way or another even if money is printed to pay the debts for them. And the debts are increasingly unpayable. Hence the current suggestion of a debt jubilee and cancellation.
There are varieties of the money school offering miracles.
Now if you would like to lay out your system in an article we’d all be interested to hear it. I’m sure you’ll have no difficulty producing one and you can rightly say that lots of nationalists have subscribed in the past. Your colleague Albion was not able to do much. He claimed RSI health and safety risk. Far better than conducting your crusade by comments on my article.
Thank you for your interest.
I do not know much about economics, I freely admit . But what I do know is what common sense tells me, which is that there is no free lunch.
There is a price to be paid for everything and a limitless supply of fiat money comes with a price. The debt is not non-existent; it is merely concealed..
Continually inflate the economy with new money and it will at first take off.. But with continuous pumping up it will eventually enter thin atmosphere unthickened by real economic growth and pop. The more you pump it up the louder the bang.
The price will be paid by those who staked their resources on the fiction of a rising economy
There have been a number of schemes claiming to offer magic solutions going back centuries.
The latest, which has become a minor cult, is called the ‘Chicago Plan revisited’ and originated in the 1930s. The new version comes from a radical IMF paper so it deserves attention. You won’t be surprised to hear that it involves ‘printing money’ – glorious amounts of it. Well a sort of hybrid semi-money.
One of the authors is speaking in the UK in a few week’s time. More anon on that.
As you say issuing money without due regard to growth in the real productive economy will cause inflation. Speculation, mainly in the housing market by profit seeking and privately owned banks doubled the money supply by creating £1.2 trillion in the ten year period in the run up to the crash. The nationalist solution to this problem is to outlaw the practice of FRB and return the prerogative of monetary creation to the state. Government created debt and interest free money would be introduced in measured amounts to maintain the productive economy in a state of equilibrium. No more boom and bust cycles followed by tax-payer funded bailouts. The banks would then become true intermediaries of existing money rather than the creators of the money supply as debt. Money must become our servant rather than our master.
There is no ‘nationalist solution’. It’s not a religion with dogma.
Abolishing FRB is certainly one view voiced and has become very popular (unsurprisingly) since the banks went mad.
The snag in blaming the banks is that the government went along with what they were doing. Labour won elections as a result of it. The government system provided reserves as required. Knighthoods were dispensed.
So handing over control of the money supply to government is no guarantee. It can inflate instead of the banks doing it. Can you trust politicians not to? Well on the basis of experience no. But the latest reckless enterprise hosted by Labour was far worse than the norm.
That’s why some argue for not having a central bank at all since they are all political tools. No easy answers.
Wrong again Mike. If all the banks moved their lending forward in step as they usually do, then they would still have sufficient reserves to operate the clearing system. It was a little devious of you to refer to only one bank increasing its lending. Nice try.
I’ve given lots of time to answering your numerous points over six months and those of Albion recently.
This is a party political web site not an open debating forum for endless toing and froing with people who have such courage in their convictions of the great answer they possess that they post under noms de plume. It will simply bore our other guests. If you want that try the British Democratic Forum.
Time to move on.
Hello Mike.
I have followed your postings on economics and banking with interest.
It doesn’t surprise me one bit to see you say that there is no ‘nationalist solution’.
Overall you do seem very hostile to the core nationalist and BDP policy of replacing the present banker friendly and dishonest debt money system with an honest debt free money system. It looks to me as though your opposition to real monetary reform is based upon a preference for the ‘Austrian School’ of economic thinking. Am I wrong in my observation?
What I said Carl was that nationalism is not a religion with an official dogma. Well it should not be!
When people first study economics they often find a book or school they think has all the answers and get furious when others don’t. I worship at all the altars. The Austrians, monetarists and Marxists too have valuable insights. I’ve been at this subject a while.
The Austrians are mostly hot for abolishing FRB so mentioning them does not indicate opposition to monetary reform.
Politics is the art of the practical. Reforming the present system is far easier to do than getting the entire system changed to something else. Anyone can form a party with near impossible objectives and have its AGM in a phone box.
BDP policy is for government to control the money supply. Sound idea as long as it’s not used for political ends so you need independence as the manifesto says. The strongest way of doing that is a total change of system. But government can do the same in a more messy way by a lot of measures which used to be applied to the banks. But leave it to them they know what they are doing became the policy. We know what happened.
A huge opportunity has been missed in the aftermath of the crash. The banks are much the same as before after all the talk by the big parties about stopping too big to fail and so on. So I’d focus on that myself. Plenty of scope there – while one can also point out that it’s worth considering the really big possibility of full reserve banking.
International finance cannot be broken. It goes where the money goes.
That used to be here when Britain – England to be more precise – ruled the world. Then it moved to America whilst still keeping a place here in Britain called the City. A square mile of our so multicultural capital. Where ordinary laws of England do not apply. The smart amongst us know where they are heading next. Germany its called.
The City is actually the one area in inner London which is still mostly English or British. A lot of English/British people flock in and out of it from outer London and towns further away every day.
You can see them streaming across London Bridge – all white faces.
At 9 am they stream in and at 5pm pm they all stream back again, leaving their Capital city to its new inhabitants.