What’s The Problem
It is obvious that the current monetary system doesn’t work – the last two years have provided all the evidence we could hope for that something is structurally wrong with the design of our financial system.
The response to date, from governments, the media, and academia, has been to focus on the symptoms of the problem rather than than the real cause. They point to trade imbalances with China, greed on the part of bankers, irresponsible mortgage lenders, or lax regulation. This is much like pointing to a house built on sand and blaming its collapse on the weight of the people on the upper floor. The house would have collapsed anyway because it was fundamentally, structurally unsound. The current financial system is no different.
The ‘sand’ upon which our financial system is built is our money – pound sterling, US dollars, or the Euro. The problem arises from the fact that the power to create money has shifted from the state (representing the people) to a handful of privately-owned companies that are commonly known as banks.
This is not the place to explain how we reached this state of affairs – that is done elsewhere on this site. In this series of articles I want to focus on the solution – exactly what we need to do to get from the current, highly-defective financial system to one that benefits everyone, rather than harming the vast majority.
I will also give some insight into the ‘new world’ that will exist after the reform is implemented. It should become clear, as you read, that the only reason that politicians and law makers would have for objecting to this reform is either:
- failure to understand the reform (which would point to our failure to explain it properly)
- disbelief that the current situation actually exists (despite all the evidence in front of them)
- fear of risking their own political or professional reputation, or;
- lack of drive to stand up to the opposition
In short, the reform is common sense. All that stands between this paper and a new financial system is a sea of misunderstanding and ignorance.
Some Words of Warning
The monetary system is baffling. When somebody first discovers the fact that most money is now created as debt by a handful of profit-making banks, the natural response is usually:
- This can’t be true. You must have made some mistake.
- This sounds like a ridiculous system, but the government allows this situation to continue, so surely it’s can’t be a problem, or:
- What?!
It takes a lot of thinking and confusion to reach the point where the doubt has passed and where the arguments for monetary reform become blindingly obvious. If you are not at that point yet, rest assured that you will be soon.
In two decades from now, the flaws in the current system will be common knowledge, and historians will find it unbelievable that we kept this monetary system for as long as we did. However, until a couple of years ago, monetary reformers were laughed out of the room as Galileo would have been when he first suggested that the world was round. This should no longer be the case, as the events between 2007 and 2009 made it clear that something is very wrong with the system.
The proposal that follows is designed to fix the flaws. It is based on the excellent work done by James Robertson and Joseph Huber. I have not fundamentally changed their proposal – I have simply filled in some of the gaps and thought through some of the problems that would arise during the transition process. I have had a great deal of help from Jamie Walton of the American Monetary Institute and from Mike Black in the UK. Continue reading…