Welcome to the Money Reform website
If you have ever wondered why the world is in the state it is in; why the environment is being destroyed, why the first world has so much and yet is in debt, the third world has so little and is also in debt. Then this site is for you.
How many times have we been told that this school, or that hospital can't be built unless we raise taxes? Or you perhaps you can't afford to take a cut in wage, to take the job you really want, because you have a mortgage and rising debts that you took out, to get money in order to support yourself and your family. Isn't it odd that we buy products that during their manufacture have destroyed forests, polluted seas and contaminated the air we breathe because we can't afford to pay for the better alternative.
Money is at the heart of all our lives. It is time to understand what money is and how it works.
The things you will read, will appal you. You have been deceived for a long time.
Please read the information on this site. It is imperative that we understand the true cause of our world's problems so that we can solve them.
By understanding how money really works you will be joining a growing movement of socially and environmentally conscious people who want to make a positive difference to our world and our own financial well being.
The Money Reform Party has been set up to address these problems
Now is the time.
Is the Governor of the Bank of England a secret money reformer?
One of the questions frequently asked of money reformers is the likelihood of their objective ever coming to fruition.
We live in an age of cynicism. With bankers expecting to cream off fat bonuses whilst their customers struggle to avoid bankruptcy, and with politicians of all the major parties failing to inspire with a noble vision of the future and pocketing ill-gotten 'expenses' whilst the economy crumbles, perhaps such cynicism is entirely justified. 'The great and the good' of our society and economy, 'they' who run things, have proved to have feet of clay.
Thus it is that when money reformers attempt to spread the word for their policy, explaining the fundamental faults inherent with the debt/money upon which our economy currently depends, and further expounding the myriad benefits that will flow from reform – the lifting of the debt burden from society at all levels, an easing of the cost of living for old and young, rich and poor, and a move towards a fairer, more stable and more sustainable future – it is easy for cynics to sneer and declare that 'they' will never let it happen.
Who 'they' are is rarely explained. 'They' remain largely unidentified, but 'they' are the people who run things. For many people, perhaps most, 'they' are corrupt politicians, greedy bankers, stifling bureaucrats, cost-cutting businessmen, myopic journalists, and maybe, even, the complacent 'haves' and the ignorant 'have-nots' of the rest of us.
Almost undoubtedly, amongst this number, the Governor of the Bank of England is likely to be accorded a prominent position, yet perhaps such a judgement is misplaced. The present Governor, Mr Mervyn King, set out his views of the banking systems of Britain and America in a speech given in October 2010, the text of which is repeated below.
This speech was given in terms that would be familiar and acceptable to an academic and business audience, with many laborious references to history, and to long dead economists (about which, at least, Keynes was right) and their theories, but there is much within it to suggest that Mr King is not at all antipathetic towards the aims of the money reform movement.
He rather dismisses the recent increase in capital requirement of Basel III as entirely inadequate. He refers favourably to the prevention of fractional reserve banking and calls the current system of banking (and presumably of money creation, as they are inseparable processes) the worst possible.
From a background where once the raising of an eyebrow was used to convey the deepest concern over a bank's practices, this is strong stuff. Read the speech yourself and decide.
Read Positive Money's submission to the Independent Commission on Banking
Positive Money, nef (the new economics foundation), and Professor Richard Werner of the University of Southampton, have just made a joint submission to the ICB (Independent Commission on Banking). The Commission will be reporting back in September 2011, and the government should - in the absence of lobbyists - be prepared to accept and implement their proposals.
What Have We Recommended?
We've recommended the implementation of full-reserve banking for the UK, with power over the issue of the nation's money supply kept out of the hands of both vote-seeking politicians and profit-seeking banks. It is a proposal that could be implemented quickly (comfortably within 12 months) and that would have huge benefits for the economy as a whole. It may not be perfect, but it would be many times better than any banking system that we have had in the last 500 years. Download the submission below and let us know what you think.
Download the ICB Submission here (PDF, 1.1mb)
A Chance to End Debt as the Basis of the UK Money Supply
On 20th October 2010, the Government announced its Comprehensive Spending Review. It wishes to reduce its high level of debt. The National Debt now stands at over £900 billion.
Their desire is understandable. Debt is expensive. It costs money to be in debt, even for the Government, which is charged the lowest interest rates available commercially.
Unfortunately, there is a fundamental problem with the Government's plans. Almost the entire UK money supply consists of someone else's debt, whether that someone else is a private household, a business or the Government.
Total UK Money Supply and Debt
The total UK money supply (according to the Bank of England's Monetary and Financial Statistics) is £2,200 billion. Of this total, a mere £57 billion is in the form of notes and coins, and a whopping £1000 billion consists of what the commercial banks owe to each other – interbank debt.
This money supply is supported by nearly £1,500 billion of household debt - mostly mortgages, about £500 billion of corporate debt, over £900 billion of government debt - the National Debt, and, of course, £1000 billion of interbank debt.
If one removes the interbank debt from both sides of the equation, then the money available to the productive part of the UK economy - £1,200 billion - is supported by nearly £3,000 billion of private and public debt.
Paying off debt
Over the next four years, there will be cuts in public spending of £81 billion and an increase in taxes by £29 billion. This will amount to a reduction in the UK money supply of £110 billion, which is a significant proportion of the sum in circulation.
When a debt to a bank is paid off, that much money disappears from the money supply. For example, suppose you owe your bank £1000, in say a separate loan account, and suppose you earn or otherwise receive £1000 which you put into another account - a current account or a savings account, say. You still owe your bank £1000, but now also your bank owes you £1000. With money in a bank account, all you really have is an IOU from the bank for the sum involved. Effectively, you are each holding IOUs issued by the other.
If you decide to use your £1000 to pay off your debt, you are effectively just returning the two IOUs to their issuers. You would no longer have a debt, but the £1000 owed to you by the bank and which, hitherto, formed part of the UK's £2,200 billion money supply would cease to exist, because the bank would no longer owe it to you.
So if the Government pays off £110 billion of its £900 billion debt, it will reduce the UK money supply by £110 billion, out of an effective stock held by the productive economy of £1,200 billion, but that is not all.
The £3000 billion or so collectively owed by households, corporations and the Government (and owed mostly to the banks) has to be serviced. That is to say, interest must be paid and a slice of the principal should also be paid off each year. Assume an interest rate of 5% and £150 billion of interest has to be paid each year. Assume an average lifetime of the above debts of !5 years, and £200 billion of principal has to be found each year.
In both cases, the payment of interest and of principal, the withdrawal of these sums from bank accounts to pay the banks will result in a further reduction in the money supply, unless compensating new sums are borrowed into existence.
In a nutshell, about £350 billion of new borrowing is needed each year to pay off old loans whilst keeping enough money in existence to enable the economy to function, and this figure needs to grow exponentially year on year as the debt rises inexorably. Whilst for the economy to grow, the growth of the money supply will have to be even greater.
What scope for private borrowing?
If the Government is not going to borrow this money into existence, then it will be up to the private sector. Over the past two years, private sector borrowing has flat-lined, declining slightly if anything, borrowing barely enough to cover the repayment of past principal. Only the massive Government borrowing of the past two years has kept enough new money coming into the economy to prevent a worse recession than we have so far experienced.
For much of this period (19 months to date), base lending rates have been at the record low rate at 0.5%. They can hardly go any lower, yet private sector borrowing shows no signs of increasing. There is a reason for this. Of those able and willing to borrow, most are already borrowed up to the hilt. Few people and few businesses are in a position to borrow the hundreds of billions of pounds that are needed simply to prevent a deeper recession, never mind grow the economy.
The Government might think that it is driving down a slip road onto the motorway, but the sad reality is that it has driven ever more deeply into the cul-de-sac that was waiting for us all.
The Financial Services (Regulation of Deposits and Lending) Bill
Riding to the rescue, to save us all from the impasse in which we find ourselves, come a couple of back-bench Conservative MPs, Douglas Carswell and Steve Baker with their above named bill.
The Bill proposes ending the privilege currently held by the retail banks whereby they may create credit based solely on their borrowers' debts. In the future, bank lending will be limited to the amount deposited with them by their savers (as many people wrongly suppose to be the case at the moment).
This will prevent the further expansion of the money supply over and above the amount created by the Bank of England. It will therefore permit the Bank of England to move towards increasing the amount of positive, debt-free money within the economy without fear of inflation.
As the Bank of England is a government agency, this money will be available for the Government to pay off its debts without the need for public spending cuts, tax increases, reducing the nation's money supply or for more households or businesses to go ever more deeply into debt.
Despite it being a private member's bill, this piece of legislation could prove to be the most important ever passed during anyone's lifetime. We need to give it as much support and publicity as possible.
You can contact your MP and ask him or her to support this bill by writing to them at 'House of Commons, London, SW1A 0AA' or by emailing them or telephoning them. For contact details see www.theyworkforyou.com
An Extract from HANSARD
15 Sep 2010 : Column 903
Financial Services (Regulation of Deposits and Lending)
Motion for leave to bring in a Bill (Standing Order No. 23 )
Mr Douglas Carswell (Clacton) (Con): I beg to move,
That leave be given to bring in a Bill to prohibit banks and building societies lending on the basis of demand deposits without the permission of the account holder; and for connected purposes.
Who owns the money in your bank account? That small question has profound implications. According to a survey by Ipsos MORI, more than 70% of people in the UK believe that when they deposit money with the bank, it is theirs-but it is not. Money deposited in a bank account is, as established under case law going back more than 200 years, legally the property of the bank, rather than the account holder. Were any hon. Members to deposit £100 at their bank this afternoon or, rather improbably, if the Independent Parliamentary Standards Authority was to manage to do so on any Member's behalf, the bank would then be free to lend on approximately £97 of it. Even under the new capital ratio requirements, the bank could lend on more than 90% of what one deposited. Indeed, bank A could then lend on £97 of the initial £100 deposit to another bank-bank B-which could then lend on 97% of the value. The lending would go round and round until, as we saw at the height of the credit boom, for every £1 deposited banks would have piled up more than £40-worth of accumulated credit of one form or another.
Banks enjoy a form of legal privilege extended to no other area of business that I am aware of-it is a form of legal privilege. I am sure that some hon. Members, in full compliance with IPSA rules, may have rented a flat, and they do not need me, or indeed IPSA, to explain that having done so they are, in general, not allowed to sub-let it to someone else. Anyone who tried to do that would find that their landlord would most likely eject them. So why are banks allowed to sub-let people's money many times over without their consent?
My Bill would give account holders legal ownership of their deposits, unless they indicated otherwise when opening the account. In other words, there would henceforth be two categories of bank account: deposit-taking accounts for investment purposes, and deposit-taking accounts for storage purposes. Banks would remain at liberty to lend on money deposited in the investment accounts, but not on money deposited in the storage accounts. As such, the idea is not a million miles away from the idea of 100% gilt-backed storage accounts proposed by other hon. Members and the Governor of the Bank of England.
My Bill is not just a consumer-protection measure; it also aims to remove a curious legal exemption for banks that has profound implications on the whole economy. Precisely because they are able to treat one's deposit as an investment in a giant credit pyramid, banks are able to conjure up credit. In most industries, when demand rises businesses produce more in response. The legal privilege extended to banks prevents that basic market mechanism from working, with disastrous consequences.
As I shall explain, if the market mechanism worked as it should, once demand for credit started to increase in an economy, banks would raise the price of credit-interest rates-in order to encourage more savings. More folk would save as a result, as rates rose. That would allow banks to extend credit in proportion to savings. Were banks like any other business, they would find that when demand for what they supply lets rip, they would be constrained in their ability to supply credit by the pricing mechanism. That is, alas, not the case with our system of fractional reserve banking. Able to treat people's money as their own, banks can carry on lending against it, without necessarily raising the price of credit. The pricing mechanism does not rein in the growth in credit as it should. Unrestrained by the pricing mechanism, we therefore get credit bubbles. To satisfy runaway demand for credit, banks produce great candy-floss piles of the stuff. The sugar rush feels great for a while, but that sugar-rush credit creates an expansion in capacity in the economy that is not backed by real savings. It is not justified in terms of someone else's deferred consumption, so the credit boom creates unsustainable over-consumption.
Policy makers, not least in this Chamber, regardless of who has been in office, have had to face the unenviable choice between letting the edifice of crony capitalism come crashing down, with calamitous consequences for the rest of us, or printing more real money to shore up this Ponzi scheme-and the people who built it-and in doing so devalue our currency to keep the pyramid afloat.
Since the credit crunch hit us, an endless succession of economists, most of whom did not see it coming, have popped up on our TV screens to explain its causes with great authority. Most have tended to see the lack of credit as the problem, rather than as a symptom. Perhaps we should instead begin to listen to those economists who saw the credit glut that preceded the crash as the problem. The Cobden Centre, the Ludwig von Mises Institute and Huerta de Soto all grasped that the overproduction of bogus candy-floss credit before the crunch gave rise to it. It is time to take seriously their ideas on honest money and sound banking.
The Keynesian-monetarist economists might recoil in horror at the idea, because their orthodoxy holds that without these legal privileges for banks, there would be insufficient credit. They say that the oil that keeps the engine of capitalism working would dry up and the machine would grind to a halt, but that is not so. Under my Bill, credit would still exist but it would be credit backed by savings. In other words, it would be credit that could fuel an expansion in economic capacity that was commensurate with savings or deferred consumption. It would be, to use the cliché of our day, sustainable.
Ministers have spoken of their lofty ambition to rebalance the economy from one based on consumption to one founded on producing things. A good place to begin might be to allow a law that permits storage bank accounts that do not permit banks to mass-produce phoney credit in a way that ultimately favours consumers and debtors over those who create wealth. With honest money, instead of being the nation of indebted consumers that we have become, Britons might become again the producers and savers we once were.
With a choice between the new storage accounts and investment accounts, no longer would private individuals find themselves co-opted as unwilling-and indeed unaware-investors in madcap deals through credit instruments that few even of the banks' own boards seem to understand.
Question put and agreed to.
That Mr Douglas Carswell and Steve Baker present the Bill.
Mr Douglas Carswell accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 19 November and to be printed (Bill 71).
The Proposed Bank of England Act
This is a reform that could prevent a future financial crisis, clear
the national debt, and restart the economy.
It cures the sickness in our economy and financial system by tackling the root cause of the problem, rather than just the symptoms.
It would make the 'inevitable' cuts in public services completely unnecessary, reduce the tax burden by up to 30% and allow us to clear the national debt. It takes control over the UK's money supply out of the hands of the commercial banking sector and restores it to the state, where it can be used to benefit the economy, rather than providing a £200 billion annual subsidy to the banking sector.
For more information see http://www.bankofenglandact.co.uk
"Banking was conceived in iniquity and was born in sin."
Sir Josiah Stamp, President of the Bank of England in the 1920s, the second richest man in Britain.
Grip of Death
A Study of Modern Money, Debt Slavery and Destructive Economics (Paperback)
by Michael Rowbotham