Financial crisis latest comments
Our case is built on these postulates:
If anyone has any questions about these points, just make a comment at the foot of this page. You can learn how to edit pages [here.] The postulates should be amended or added to only after consensus is reached in the discussion.
1. The amount of money in the world is increasing year on year. The growth in the global money supply has a doubling rate of 6-12 years.
it follows from this that:
- the system is unsustainable (since doubling series become exponential)
- money is being created somewhere
2. Since the power of Government to create money is limited to coins and notes, about 3% of the total, it follows that private loan institutions (banks &c) put 97% of the new money into the system.
3. They do this by making loans (creating debt) which must be paid back with compound interest. Added to this is a multiplier due to the fact that banks can lend out much more money than they actually physically hold (Fractional Reserve Banking)
4. Private lending institutions have been granted the ability to provide loans which are supported only by the assumption that
- not many of their borrowers will default at the same time
- not many of their creditors will want to withdraw their money at the same time
These are not safe assumptions, as the 2007-8 present financial crisis caused by the “credit crunch” has demonstrated. The privatised, interest-bearing loan method of creating money leaves the economy open to periodic crashes, which bring with them poverty, inequity, social tension, crime and carry the risk of war.
5. Debt has disadvantages.
- It constitutes a power relationship that increases economic divergence between rich and poor. "Third World debt is a case in point.
- The debt based system of creating money is essentially a bubble structure based on a vacuum - a negative value.
- The necessity of paying back loans and interest is **one of the drivers of economic growth,** since a business that has interest and loans to pay off must produce more goods than a business that has no such obligations.
*World debt has got completely out of hand.
6. Economic growth is destroying the ecosphere.
7. Therefore we must not only bring the financial services industry under better control, but must also find a better way than privately issued, interest-bearing debt to bring enough money into circulation to keep the economy healthy. Such a new currency, which will become a necessity in the event of a total financial and economic meltdown, should be based on Gaian values of a healthy economy and society.
8. Therefore it is incumbent on the Green Party economics community to :
- clearly understand the process by which money is created,
- to help the Party and our electorate to understand the process,
- to help the voting public to understand this process, and
- to generate alternative policies regarding the creation of money, including consideration of the option that the Government should take back to itself upon itself the role of creating at least some of the new money for the protection of the environment and therefore the benefit of the people it represents.
NOTE: Although finance is the starting point and the master in orthodox economics, it is the servant of the economy in the framework of Green Economics.
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SJ: not sure this is true[anout notes and coins. The BoE print the money and there will be an account at the BoE with a negative balance representing the £40bn note & coins in circulation. Also if the government borrows money (currently £500bn) is causes the creation of the money through its borrowing. Is creation a bad word to use?
RL: Yes, creation is a bad word. This whole topic is so shot through with emotion that we must find new, clean words. "Creation" also carries religious connotations.
Since the 3% notes and coins is all that is left of seignorage, now that the banksters have baconsliced the govts share, I think it holds that govt issues 3%.