A better world is possible - Global Commons Institute

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Copyright Bruce Nixon 2010. All rights reserved. This electronic copy is provided free for personal, non-commercial use only. www.brucenixon.com Underlying the present global economic system are debt, debt money, out of control financial markets, perverse taxation and massive tax avoidance that puts up the burden of personal taxation. It systematically transfers wealth to the rich. Debt money, money created by debt, has been at the centre of the collapse of the financial system, leading a deepening recession. Our leaders were, once again, stuck in an old mindset when they need to be in a new paradigm. Governments actually created MORE DEBT to get us out of the debt crisis! They left an even greater legacy of debt and increased taxation and cuts in public expenditure at a time when expenditure on a green new deal is needed. Part 1 - The debt money system What the money system is What it does Positive ways forward What the money system is. The key notion to understand is that less than 5% of money is issued by government or central banks in the form of banknotes, notes and coins. The remaining 95% is debt money created “out of thin air” by banks writing it into their customers’ accounts as profit-making loans, thus making large profits for themselves. It is estimated that UK commercial banks make over £20bn a year in interest from creating this bank-account money, whereas public revenue from the issue of banknotes and coins is less than £3bn a year. It is astonishing that banks are given, free of charge, by Government and Parliament, the privilege of engaging in this vast money making business and they then charge us and Government huge amounts of interest. They also engage in vast tax avoidance and evasion. When things go badly wrong, they are bailed out by more borrowing and by the taxpayer! Debt is at the root of the system. Debt is an, if not the, underlying issue in the system. It raises the cost of almost everything. The need to pay back the loans and pay interest fuels unsustainable economic activity and the constant call for rapid economic growth. Borrowing fuels excessive, unsustainable consumption, needlessly puts up the cost of public infrastructure investment, creates a large burden of debt and hardship – for both the relatively well off middle classes and poor people and poor countries. For example, Jamaica spends some 60% of its GDP servicing debt. What it does A number of astute people are realising that the money system is damaging and that there are alternatives. James Robertson and Hazel Henderson are amongst key figures. The New Economics Foundation (nef), the US American Monetary Institute, the Christian Council for Monetary Justice and the Tax Justice Network are amongst organisations arguing for a fundamental change in the monetary system. American Presidents, Thomas Jefferson and Abraham Lincoln opposed the creation of money by commercial banks. "I believe that banking institutions are more dangerous to our liberties than standing armies." Thomas Jefferson, US President 1801-9 Here is a summary of the adverse outcomes of the current monetary system: A perverse money system systematically transfers wealth from poor people and countries to rich ones 132
Copyright Bruce Nixon 2010. All rights reserved. This electronic copy is provided free for personal, non-commercial use only. www.brucenixon.com the money-must-grow imperative compels people to make money in socially and environmentally damaging ways diverts economic effort and enterprise towards making money out of money, the rising values of existing assets, and away from productive activities that provide valuable goods and services exerts a systematic bias in favour of the people, organisations and nations who should be managing it on behalf of us all erodes the credibility of political democracy after 200 years of progress is a major source of opposition to globalisation in its present form, and thereby a threat to world peace and security. Adapted from: James Robertson’s article, quoted above As a means of raising money for public purposes such as investment in infrastructure – roads, tramways, the Underground and railways for example - and new hospitals, schools, colleges and universities, money created by debt is inevitably more expensive. New Labour’s approach to funding was to channel costly private investment finance into public infrastructure and services thus avoiding the figures appearing in the government budget but costing the taxpayer far more. “Whoever puts new money into circulation profits from its value minus the cost of producing it, and also decides who will have first use of the money for what purposes. If almost all the money in circulation starts as debt which has to pay interest and eventually has to be repaid in full, additions to the money supply will automatically be accompanied by increased indebtedness in society, and money transactions will cost more than if all money circulated debt-free” James Robertson. A different way of creating money It is ironic that even more debt is being created to provide stimulus packages and hence combat the global recession. This additional debt, created to provide stimulus packages and combat the global recession, would be completely unnecessary if national reserve banks, not commercial banks, created the required funds. In the case of the UK for example, it has been estimated that additional public revenue of about £45bn a year could be collected if the Bank of England took over responsibility for creating new money. This of course is heresy. Total restructuring of the banking system is needed to make this possible. Clearly there are enormous vested interests at stake. However, it is interesting to note that the UK Bank of England has already started doing this, using the euphemism, “quantitative easing” to start pumping £75bn into the economy. As James Robertson points out, in a democratic society one would expect the national bank and the government not commercial banks to be in charge of the money supply. Money should be seen as a common resource, not the preserve of commercial banks. This is how such a change would work: 1. Commercial banks are prohibited from creating new money. 2. National central reserve banks, as agencies of state, in our case the Bank of England, take over responsibility for creating all new money free of interest. This would also include supplying the major component of public money that consists of bank-account money mainly held and transmitted electronically. 3. The national reserve bank gives the money as debt-free public revenue to the government, to spend into circulation to achieve national objectives agreed by Parliament. This process of restricting money creation to what is required to achieve agreed national objectives, would prevent political abuse through heavy spending in the run up to elections. 133
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