22 Jan 2011

New banking crisis on the way and new Green leaflet

Robert Peston, BBC presenter on everything to do with finance, actually used the words 'fractional reserve banking' on national television! Well that was the message I got in an email. It is so hard to get to grips with our banking system that I thought I must see this - especially after the inspiring and shocking talk this week on Tax Havens in Stroud.....infact it is a worrying piece that confiorms many fears that the banks are becoming too big to save...

Photo: Bank of England

Well that link in a moment and more on the coming crisis - but also have in this blog the text from our new local Green party leaflet on money. The BBC program is well worth watching - see it BBC Iplayer until Tuesday 25th January here.

"Of all the ways of organising banking, the worst is the one we have today" Mervyn King, Governor of the Bank of England

Fractional Reserve Banking?

So this fractional reserve banking is basically the system that the banks used to create £1.2 trillion of 'funny money' over the last ten years. It's the system that, according to the Bank of England, is so unstable that taxpayers have to prop it up with a subsidy worth £100bn a year. It has also buried ordinary people under a mountain of debt - and caused the crisis we're all paying for now. It's so poorly understood that in all the millions of words of coverage of the financial crisis, not more than about 5 mainstream journalists actually figured out the root cause.

The excellent group, 'Positive Money' writes: "Note the contributions from Toby Baxendale, chairman of the Cobden Centre. And ignore Paul Tucker's suggestion that we need fractional reserve banking to allow people to borrow for the long term - that's a naive misunderstanding for the second in command at the Bank of England.

Greens new leaflet: Money: What is going on?

The Government is making huge cuts that will damage our economy, but there is no attempt to address the cause of the crisis: the money and banking system.

· The governor of the Bank of England has said that the way our banks operate could not be worse[1];
· Money is actually made by banks ‘lending’ it into circulation – this process used to be backed by significant bank deposits, but this was weakened by de-regulation by Conservative and Labour Governments
· Making money by bank lending has led to an explosion of debt, so that all European countries have deficits;
· Using the creation of debt to drive the economy results in the treadmill of the endless need for growth, inequality and environmental damage.

We need to take the debt out of the system, by taking political control over our money system - creating money as investment rather than as debt.

There is an alternative!

The Alternative:

Public and co-operative banks

1. We should maintain our stake in the ‘nationalised’ banks and run these in the public interest
2. The public banks should be used to invest in things that benefit us all in the longer term like public transport infrastructure and renewable energy projects rather than short term consumer spending and projects that make risky short-term profits at the expense of people or the environment
3. Local community banks, which both borrowers and lenders understand and feel part-of, should enable people to save and borrow money from each other within a community
4. Speculative and risky investments should be separated from the ‘high street’ services that we need for our day-to-day banking

What you can do now:

5. Switch your bank account to a co-operative or mutual, e.g. the Nationwide or the Co-operative Bank;
6. Build up community resilience through using our local independent shops, the farmers market, Stroudco, joining the local community farm, Stroud Community Agriculture and our local re-use scheme stroudfreegle;
7. Invest your money in local community assets, e.g. through Stroud Common Wealth or Stroud Valleys Credit Union
8. Support our local currency: the Stroud Pound
9. Find out more about how the money system works: http://www.positivemoney.org.uk.

This crisis started with the money and banking system and will get worse unless there are significant structural changes to that system

For more information about the Green Party see: www.greenparty.org.uk or www.stroudgreenparty.org.uk For information about or to join the local Green Party contact John Marjoram, 8 Castle Street, Stroud. 01453-757874 [1] Speech on October 25th at The Economist’s Buttonwood gathering in New York.

The coming crisis

Well that was the leaflet - Positive Money also have a useful summary of where we are in terms of money - See here both the bad and good news. They start with the bad news - and it is bad - they say "there is no question that the economic situation is going to get worse - probably much worse. Other countries (especially Spain) will be asking for bailouts within the next 2-3 months. Spending cuts will kick in in the next few weeks - many local council employees have already been warned that there will be job losses after Christmas.....Unfortunately, even positive economic growth does not mean we're out of danger, since economic growth under the current system usually come hand in hand with a growing total level of debt. That increase in debt will lay the foundations for the next collapse. Very simply, there's no chance of a recovery without complete overhaul of the monetary system."

In terms of the good news Positive Money say that we do have a solution to all these problems. They've outlined how it works in plain English, and even in draft legislation (soon to be updated). As unappealing as is the threat of economic collapse may be our chance for reform? Are the economists at the FSA and Bank of England beginning to realise that the current fractional-reserve banking system needs to be scrapped entirely?

Positive Money write: "We've had this destructive, socially-harmful debt-based money system for centuries, and it's got us to where we are today. It redistributes money upwards to the richest people and has benefited a small cartel of banks massively, at the expense of the other 97% of us. It's holding us back, economically and socially, and right now it's the greatest barrier between us and a better quality of life. It's time to let it go and replace it with a money system that works in the interests of society as a whole, rather than just in the interests of the banks. In that sense, the approaching economic collapse is something we should welcome. The challenge is to get the authorities to realise there's a solution before the situation deteriorates beyond control."

Do I understand 'fractional reserve banking' now? No! But I have a better idea and can see the arguments for change.

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