http://www.wikio.co.uk Sodium Haze: Monetary Reform - Labour's missed opportunity

Sunday, 19 June 2011

Monetary Reform - Labour's missed opportunity



Pollsters often pose questions to the public that require a dualistic response - who is to be blamed /praised - The Conservatives or The Labour Party? Not surprisingly questions phrased in this way gain a dualistic response.

Liberal Conspiracy ran its own poll at the start of 2011 to see who the public blamed for the financial crisis - but removed the steer to blame one of the political parties - the results were very interesting.

Conservative voters blamed the exiting Labour government in the main but perhaps surprisingly 25% still blamed the banks. 

70% of Labour voters blamed the banks. 55% of Lib Dem voters did. In fact on average the majority of voters of all parties blamed the banks.

The voters correctly blame the banks for the financial crisis and as Liberal Conspiracy editor Sunny Hundal  pointed out
 

...a significant percentage of voters lost trust with Labour on the economy – not because it didn’t have a “tough” (as Alistair Darling called his) deficit-cutting plan. Many lost trust in Labour’s handling of the economy because it didn’t regulate banks properly, and let them take the economy down.
They blame the banks for the financial crisis, but Labour for letting the crisis happen in the first place.
These people are a significant majority of the voters. How will Labour respond to them? That should be the main question for the party now.

Absolutely.

What Labour needs now is a policy maker of vision and courage - one that can see the astonishing opportunity that embracing Monetary Reform would represent.

The challenge for Labour is not to waste time on trying to provide better 'supervision' for banks - they are beyond reform in their existing state -  instead Labour should get to the root of the problem, Fractional Reserve Banking.

Fractional Reserve Banking is the means by which the vast majority (97.5%) of money in the UK is created. Contrary to popular belief, the government does not create the money which drives the economy, private UK banks do - as debt.

The 1844 Bank of England Act prohibits anyone but the Bank of England printing notes and coins and this is still true today. Wise was that parliament that realised that if they allowed private banks to print their own notes that it would distort the British markets in all kinds of areas, create economic instability and undermine democracy.

The act, doesn't cover money created digitally as loans, digital transfers of money or chip and pin technology - how could they have imagined such things back then?

Digital money has grown to make up over 98% of the money in circulation - so its clear that the UK money supply is by in fact provided by the private sector in this form.

The problems with having a cartel of private banks create a sovereign nations money supply are not limited to making the purposes of the 1844 act redundant.

Bank credit can be issued many times over on the basis of holding a mere fraction of the sum issued on deposit - hence the name Fractional Reserve Banking. So it was that prior to the financial crash of 2008/9 UK banks had on average just £12.50 for every £1,000 they had lent.

Martin Wolf of the Financial Times described the modern reality of money thus:

"The essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending..."

The house price bubble, boom n bust, the credit crunch, the recession, unemployment and financial instability all have the same root cause - money created as debt.

The inherent and venal inequities, instability, graft and pernicious conflicts of interest that characterise Fractional Reserve Banking are well known to many people.

The current danger of a pan-European financial crash is no surprise at all to the Monetary Reform movement who knew of the problems of bank credit long before Irving Fischer wrote his seminal book on the solution - "100% Money" back in 1935.

The present series of bank bailouts, debt crises and financial disasters rightly provoke public anger and fear - but they also present Labour with a once in a generation opportunity to reform the banking system so that it works in the public interest and not against it.

How about a Labour manifesto that promised the following for the next election:

* A stable banking system

* An end to the estimated £30 billion hidden subsidy awarded to the banking industry every year.

* A realistic chance to start paying down the national debt

* A genuine end to 'boom n bust' economics

* A hefty tax cut.

* Money directed to projects of social and economic benefit - not to things that turn a fast buck for banks

* No more bank bail outs

* An end to banks using depositors money to gamble in the 'casino economy' of financial markets.

* No need for deposit insurance

All this and more would be achieved quite easily if the political will could be found to tackle the banks and our insane system of money supply.

Detailed proposals put forward to the Independent Commission on Banking by a group from the New Economics Foundation and the campaigners Positive Money could make everything listed above a reality quite easily - indeed their proposals are elegantly straightforward when matched against the chaotic muddle of the current system.

To reform our money supply may seem radical - but in fact its the opposite of radical, because the continuance of the current system looks increasingly impossible and vastly expensive.

If only the Labour leadership could see the potential that Monetary Reform represents.

It would have support from across the political spectrum, be socially just, solve economic problems including the national debt and would represent all that is good and right about the tradition and ethos of the party. As Liberal Conspiracy rightly said back on January 31st:

Labour cannot win back trust on the economy with voters until it admits (repeatedly) that it failed to regulate banks and financial institutions properly, and lays out a bold plan to prevent that happening in the future
Well the solution is out there - just waiting to be picked up - what on earth is Ed Milliband waiting for?

The time for Monetary Reform has come - the party which embraces it first will gain association to social and economic advantages that will serve them well politically for generations...

...and the party that doesn't will gain renown as the people who abandoned the nation to the banks and the IMF.

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