Before we step into the detail it will help to get the ‘big picture’ overview of the reform. There are 4 steps to the reform:
Step 1: Stop Commercial Banks Creating Money
The current problems stem from the process of money creation, at the hands of commercial banks. The solution is very simply, to prevent privately-owned companies from creating money. The way this is done is remarkably simple.
Step 2: Find A Better Way To Create Money
Under the current system, commercial banks have been increasing the money supply by around 10% each year. Naturally the banks benefit hugely from the creation of this money while the public are left with a debt burden that also increases by 10% per year.
Post-reform, the state (through an independent agency such as the Bank of England) will take sole responsibility for creating new money. This money will be used for the benefit of the public (as will be discussed later), rather than the benefit of a small group of companies (ie. the banks).
Step 3: Ensure a Smooth Transition Between the Old and New Systems
It is important that the reform is done carefully to minimise any disruption in financial markets and to avoid any unexpected economic side-effects. While bankers might not elicit a lot of sympathy right now, the truth is the real losers from chaos in the financial markets are current pensioners and everyone who is paying into a pension plan, so the proposal is designed to avoid any ‘shocks’ to the financial markets in order to protect the public.
Step 4: Reduce Our Debts
The current ‘high-debt’ lifestyle is an illusion caused by the current monetary system. When 97% of money only comes into existence as a result of loan-making by commercial banks, it is hardly surprising that the vast majority of us have a negative net wealth (we owe more than we own).
Without doubt, some people did mismanage their personal finances and borrow irresponsibly, but on the whole, the debt-trap that we have fallen into was unavoidable. Current house prices are in no way natural – they are a result of a monetary system that has allowed the banking sector to inflate house prices by 200% in only 10 years. The current monetary system is gradually lessening our standard of living by soaking up an ever increasing proportion of our income on debt repayments.
There are steps proposed in the reform that will help the government to clear its own debt. This, in conjunction with other aspects of the reform, will ensure that over time, the level of debt will shrink to a fraction of its current level. There is no ‘debt forgiveness’, and every lender will receive back what they lent out, but through a combination of a benign economy, and money created ‘debt-free’ by the state, it will be increasingly easy for individuals and companies to extricate themselves from the current debt trap. Continue Reading…