The Reform In Detail
The following is a proposal for reform that can be implement in the UK (or US, with some adaptations). The purpose of each part of the reform is outlined below.
The reform is based on the excellent work done by James Robertson and Joseph Huber in their book Creating New Money (follow the link to download the book for free). I have extended this work as much as possible to provide a blueprint that the government can use to pass an Act of Parliament. I have also outlined some safeguards and ‘transition mechanisms’ that can be used to ensure that the transition from the existing (inherently unstable) system to the new, stable system is as smooth as possible.
I am ‘filling in the details’ as quickly as I can with limited time and resources (and the invaluable help of Jamie Walton of the American Monetary Institute and Mike Black). However, once the UK government realises that this reform is a much cheaper, more logical, and highly beneficial solution than anything that they have thought of to date, it would make sense for them to devote a team from the Treasury to further research.
Part A: Restoring The Exclusive Right To Create Money Back To The State
Until commercial banks are prevented from creating money, financial stability is impossible. Part A outlines the changes to the banking system that will need to be made in order to stop the creation of money by the commercial banking sector. It clarifies how banks will make loans (the process which is at the root of the current problems) and defines simple requirements that will make the banking sector infinitely more stable than it currently is.
Read Part A: Restoring The Exclusive Right To Create Money Back To The State
Part B: Mechanisms For Creating New Money
Money should be created for the benefit of the public – not for the benefit of privately owned companies. This is not a left-wing idea – just simple common sense. Part 2 explains how money will be created under the reformed system, by the Bank of England according to decisions made by the Monetary Policy Committee. It also ensures that politicians will have no influence over how much money is created, to prevent pre-election manipulation of the economy. It puts in safeguards that make inflation less likely than under the current system.
Read Part B: Mechanisms For Creating New Money
Part C: The Transition Process
Under the current system, commercial banks have effectively had the right to ‘print’ money* for the last 500 years. Allowing them to keep the proceeds of this money creation would be like the police, upon raiding a counterfeiting gang, confiscating the printing press but leaving behind all the money that they had forged. It would concentrate massive economic power in the hands of one small sector of society.
Part 3 outlines how we prevent banks receiving this windfall profit (of around £1.8 trillion over 30 years) and put the money that they created back into the use of the public. There is no vindictiveness in this reform - commercial banks will not be made to suffer, and they will still be able to earn interest on all the loans that they made before the date of reform.They will however be denied a massive windfall profit (which would otherwise be at the expense of the nation).
Economists may argue that this section will negatively impact on the banks’ future profits. This argument is no different to arguing that police raids negatively impact the future profits of counterfeiting gangs.
Read Part C: The Transition Process
* Money being numbers in an accounting system – not actual notes.Part D: Mechanisms For Reducing Debt & Increasing Wealth
This part of the reform does allow the debt burden of the public to be ‘unwound’ and reduced – something which is nigh-on impossible under the current system. It also allows government debt to be gradually extinguished, freeing up £32-70 billion per annum to be spent on public services or tax reductions.
Read Part D: Mechanisms For Reducing Debt & Increasing Wealth
I’ just forwarded your email to another network of money-reformers with the comment that it might help raise awareness of the problem for ordinary punters.
However, I also commented that a root-and-branch critique of the money system is needed. i.e. A bottom-up refusal to use it, and a switch back to the abundance of the gift economy, which still prevails today in some rural parts of the country I live in.
As such, I consider the multi-trillion dollar bailout thefts as steps in the right direction, since they are all steps towards the end of money as we know it. A system that cannot feed people is a system without supporters.
Robin, thanks for your comment. I don’t have a problem with the money system, and I’m not in favour of creating a non-monetary alternative. Most of our current economic problems are not due to lack of resources (we have all the food, land and technology we need to provide for everyone) but due to the distorting effect of the current monetary system. When we allow 97% of our money supply to be created by commercial banks as a debt, it creates the illusion that we’ve been ‘living beyond our means’.
So it is not money itself that is defective – just money that is created by commercial banks.
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Hi Ben,
How are you going to convince or overcome the supporters and winners of the current monetary system (which have a great and established lobbying power and intend to stay in power) to employ your program?
Thanks,
Marco
Hi Marco,
In the end the winners of the current monetary system will have no say in the matter. The only way to get this reform implemented is to ensure that the public demand for it is so great that politicians find it in their own interest to implement the reform. In the same way that they are confident enough now to take a stand on banker’s bonuses (because they know it that the voters are angry about it), they will be willing to push through this reform once there is public demand for it.
So, the challenge now is to make as many people as possible aware of the problems. Once the public understand that this monetary system is the main reason why it is a) so expensive to buy a house, b) so difficult to avoid the risk of being made redundant, and c) so difficult for any small business to be successful, then they should be as angry about this as they are currently about bankers bonuses.
The only reason why there is no great public outcry now is that probably less than 1 in 500 people actually understand what is going on. For that reason, my focus in the near future is going to be spreading the word as much as possible.
Yes, I agree in principle that banks should be nationalized, or better still the money supply. However, I doubt whether this will happen, and my project offers an alternative in which the private sector banking could still continue if needs be!!
Click my name to find out more about TRANSFINANCIAL ECONOMICS.
Robert, just to clarify – I am not in any way proposing that banks should be nationalised. In fact, government should avoid getting into banking at all. (Issuing the nation’s money supply is a separate issue). Also, under my proposals the private banking sector will continue as normal. The only difference is that they would be unable to create money – the state alone would have the power to do that.
A better way to handle the recent crisis would have been for the government to create and then lend to the banks all the money that they needed to cover their short-term losses. The banks would have had to repay these loans out of future earnings, and no bank would need to be nationalised. Instead, they have funded the bailouts by borrowing money that they have the legal right to create in the first place.
Hi Ben,
“…they have funded the bailouts by borrowing money…” borrowing money from whom – what are the financial institutions that have lent the money to governments to pay for bailouts? Are trans-national bankers at the very top of the tree, and if they are, what is their connection with the high street banks that are bailed out with their loans? Do trans-national banks also create the money they lend to governments?
Hi Martin,
The majority of government debt is actually sold to pension funds or asset management funds, rather than banks. In normal times, around 40% goes to pension funds, 30% to foreign entities, and only around 3% of government debt is held by banks. Naturally this may be changing quite quickly at the moment due to changes in the financial sector
It is likely that the government only managed to borrow this money (ie. swap their bond certificates for ‘money’ from the private sector) thanks to the fact that the stock market was very unpredictable at the time – when the markets are unstable, the more conservative investment funds (eg. pensions) will try to shift some of their funds out of ‘risky’ stocks and into much safer government bonds.
The authority on these issues is the UK Debt Management Office – the arm of government that ‘manages’ the UK’s national debt:
http://www.dmo.gov.uk
Will your monetary reform proposal, eliminate ALL credit-issuing institutions from contributing to the currency?
Hi Hossein,
It will prevent any institution other than the Bank of England creating the national currency. I’m not a lawyer, but we do have a trained legislation lawyer working on the legal draft of the reform, and the rules seem pretty water-tight. After the reform, the money supply will only increase when the Monetary Policy Committee decides that it needs to increase (rather than increasing every time somebody takes out a loan or the nation goes further into debt).
(Just to avoid confusion, this reform doesn’t prevent anyone creating an alternative currency scheme or LETS, but no-one other than the Bank of England will be able to create pounds sterling, in physical or ‘electronic’ form).
‘It also ensures that politicians will have no influence over how much money is created, to prevent pre-election manipulation of the economy.’
This is the only bit I disagree about the proposals. I would rather elected politicians that can be voted out had control over the money supply, than unelected officials at the Bank of England.
i think this is a great idea BUT i also think the powers that be are so so so deep rooted in ALL of the systems we use and rely on like news papers tv radio it is going to hard to get the space needed to get this information out to enough real people to actually make a difference i am in no way saying it can not be done but i think unlike your self i think the government have not let the present situation arise unnoticed but more than likely planned it so as to have a means of control of us the people i mean think about this
if us the people were all happy bunnies with low inflation low interest rates good wages low tax great schools good police service speedy good and quality health care US the PEOPLE would have very little of OUR the peoples present worry’s and or concerns and i believe that would free our minds to wander on to the things the Government and the financial institutions DO NOT want US the PEOPLE to either know of much less think about as THEY the Government still now like they ALWAYS have FEAR the most POWERFUL force that could ever exist and what is that well it is US the PEOPLE i do not mean to go on too much here and now but hay ho ask your self some more questions as if your reading this you are at the least curious well why are WE the PEOPLE not allowed to have a protest march or gathering any where near Parliament or the buildings that matter without permission and if granted a on average a 30 min time slot and the powers that be want to know how many people are estimated to attend and what will be on banners and placks well come on they want and need to control in order to maintain the present ways THEY the GOVERNMENT allow US the PEOPLE to live or in my view not live but to JUST exist and the chances of any real change is highly unlikely as even blatant things like the difference between legal and lawful are ALWAYS over looked by and in our legal system its such a pity US the PEOPLE in general believe WE do NOT have a bill of rights well we do it is in common law the ones in the magnacarta The Magna Carta was a charter that reduce the English King’s powers over his subjects. It was the beginning of common law and constitutional law. It placed the people over government and was the backbone of the Bill of Rights. Now you can shoot your deer with your rifle and not worry about the government breaking into your house without a court order to retrieve it .The Magna Carta was written in Latin in 1215. It protected rights of people, both free and slaves, an eventually become the basis for the writ of habeas corpus. The Magna Carta has been used as a template for other constitutional documents, such as the United States Constitution.
well in closing today as i have things i just need to do i hope WE or US the PEOPLE get things that are better for US the PEOPLE and NOT the powers that be in this time we call the present
yours sincerely
Dane Smith