Opinion and observation on a world gone crazy

Joe Gill, journalist and game inventor from Brighton, UK

Thursday, 5 July 2012

Beyond Barclays: How to make the banking system work for us



Every single politician in the West should watch this film by Positive Money. Infact, every person who has any interest in what has gone wrong for the last 30+ years, and especially in the last 10 - needs to see 97% Owned. This is not about corruption in the Libor rate. This is about a monopoly of money creation that has created an unsustainable debt bubble. Democratisation of the monetary system - a wild thought - is the solution.

Essentially it shows how since the 1970s, the banking system has been expanding the money supply through the creation of debt. The end result is the 2008 financial crisis and the stagnation of living standards of the majority in the West. By reforming the system so that banks can no longer monopolise the issuing of money, we can create an economy that works for the majority. At the moment 97% of the money supply is created by the banks through the issuing of debt to households and companies. The state underwrites the banks so subsidising them. They lend out this free money and make vast profits out of it. If their speculation goes wrong - as it did in 2008 - the politicians will bail them out for fear of collapsing the economy. This model, if the film is right, has no way of self-correcting. The deficit reducers are completely wrong about the way the economy works. Debt creation is unavoidable for growth in a bank-run economy. More 'saving' will just cause a depression. Even if the politicians and bankers can engineer another recovery, a further more extreme crash is around the corner. The financialised capitalist system of the West is doomed. The question is, can we do something about it, or are we helpless in the face of the endgame. Right now, I just don't know. It's clear that the politicians are not doing anything to take away the money creating powers of the banks.Bank liabilities rose from 40% of GDP for most of the 20th century until the1970s, to more than 200% today. In the 1970s and 80s there was a lot of consumer inflation and some wage inflation. Workers were blamed for causing inflation by demanding wage rises, but they were playing catch up with an inflationary cycle caused by the US war in Vietnam and the decision of Nixon in 1971 to come off the gold standard so the US could print money and fund its war. The oil price hikes of 1973 and 1979 - caused by war and revolution in the Middle East - added to the inflationary spiral. But by the 1990s, goods and wage price inflation had been largely tamed. Unions were restricted and mass unemployment prevented labour militancy while globalisation of production brought down the price of manufacturing goods. But the process of credit-money creation continued, feeding asset price bubbles in housing and equities. The equity bubble burst in 2000, but with low interest rates the housing bubble just kept on growing.

In the 1960s and early 1970s a single male wage could support a family. By 2000, two wages were needed to do this and pay housing costs including mortgage interest payments, or rent. Living standards in the US and Europe have stagnated while banking executive pay has spiralled by a staggering 5000% since 1980. Insiders in banking and big companies have gamed the system. By taking the monopoly of money creation away from banks we could begin a new age of prosperity where the gains of technological advance would be enjoyed by the majority rather than just the 1%. Bubbles could deflate and investment be diverted from speculation into real economic activity - goods and services.

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