Grab em by the Bradbury’s!!

funny money

In spite of the coalition’s savage programmes of austerity during the last four years – in which they have attacked the poor, the elderly, and the disabled, in short, the most vulnerable members of society – last week’s budget revealed that Britain’s debt is still growing, standing now (at a conservative estimate I would suggest) at £1.8 trillion.
Yes, £1.8 trillion and still growing.
Whilst Osbourne’s budget naturally attracted the headlines, something far more newsworthy emerged from the from the Bank of England’s Monetary Analysis Directorate; namely, a paper entitled Money Creation in the Modern Economy. In this paper, the Bank of England has finally admitted that money – or in truth, fiat money – is created from nothing! I don’t want to say I told you so, but….I told you so.
So how does this process of money creation work? How did we come to be in a position in which an international banking syndicate controls the supply of money? More importantly, what are the alternatives to the current model? Is the debt escapable?
Let’s address the last question first. Under this current system of money creation, the debt will never be escapable, but, rather, will continue to grow exponentially. Within a closed economic system, in which money is created privately for profit, the very nature of money is not really “money” at all but debt! Indeed, for money to be in circulation, governments, corporations, small businesses, individual citizens, have to pledge themselves to a state of indebtedness. Let’s consider the example of governments. When a government wants to raise money, it will draw up a bond to the value of the amount of money it wishes to create. At this stage, the Bank of England, investment banks, perhaps even large corporations, will purchase the government bonds. Once the bond is purchased, the government will immediately invest the money into the economy. The bond is essentially an IOU and, like any IOU or loan, is repayable with interest! Admittedly, the process is somewhat more complex than this, but this is essentially how it works. So when David Cameron talks of “significantly reducing the deficit” he is talking complete nonsense. Even if the government were able pay off a significant portion of its debt, the economy would be thrust into chaos, for the money supply would be shrunk to such an extent that the remaining debts would be unserviceable.
To fully understand the process of money creation, one must delve further – in fact, much further – into the past. Let’s start in Ancient Babylon, where the commodity money system first began to emerge. Commodity money is any form of money that has intrinsic value. In Babylon, and other ancient cultures, precious metals came to be used as commodity money, especially gold and silver. By the early middle ages, the commodity money system in Europe gradually evolved into a receipt money system, because it became increasingly unsafe to carry large bags of gold and silver coins around. Instead, the affluent merchants and traders began to store their gold coins safely in the vaults of the Goldsmith, for a small storage fee. The Goldsmith, in return, issued the customer with a paper receipt, to the value of the gold deposited in his vaults. Over time, people began to accept payment in the form of these paper receipts. The receipts were completely backed by the gold held on deposit and could be redeemed in gold at any time. They were, as the saying went, as “good as gold”. This is why, on Bank of England notes today, it is written “I promise to pay the bearer on demand the sum of…”. Paper money, or fiat money, is simply a promise to pay. It is an IOU.
But what began as a legitimate form of receipt money would become, over the centuries, fractional money. Increasingly, but unbeknownst to the customer, borrowers began accepting receipts backed by only a quarter, sometimes even only a tenth, of the gold held on deposit. Before the Bank Act of 1844, Bank of England notes were not the only form of paper money in circulation. Moreover, one could refuse to accept Bank of England notes as payment.
Today the fractional banking system is based completely on fiat money. Fiat money is defined as “paper money that a government declares as legal tender although it is not based on or convertible into coins”. In other words, fiat money is based on nothing more than worthless pieces of paper which the government, in league with its financial masters, have forced the people to accept. Under the modern fractional reserve banking model, the reserves that banks rely on to create money have no intrinsic value whatsoever. There is not a single ounce of gold or silver backing our fiat currency; instead money is simply created by issuing more fiat Bank of England notes and Federal Reserve notes or, increasingly, computer entries in an electronic account. Indeed, the term “fiat” itself is an old Latin term meaning “let there be”, ironic given that today’s money is, quite literally, created out of thin air. With the abolition of the Gold Standard in 1973, fiat money has swamped national economies, inflating the money supply and forcing up prices. Whilst the banksters become even more wealthy and powerful through collecting the interest on money created from nothing, the average citizen finds that the value of his hard earned money – its purchasing power – is in a constant state of decline!
As David Greaber wrote in the online Guardian this week “everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There’s really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit”.
So what are the alternatives to the current model? It may come as something of a surprise to many people reading this, because it has been carefully airbrushed out of the pages of official History, but in 1914, Chancellor of the Exchequer Lloyd George issued Treasury notes signed by Joint Permanent Secretary to the Treasury John Bradbury. This was a government created currency, introduced interest free, backed by the real wealth of the country. There are also well documented precedents in the US, too. Both Kennedy and Lincoln introduced what are known as “Greenbacks”; that is, government issued fiat money. But, of course, we all know what happened to both Lincoln and Kennedy.
But for us Brits, sick of the deficit, sick of the programmes of austerity that target the most vulnerable in society, I say it’s time to bring to an end the monopoly of private banking, and grab the banksters by the Bradbury’s
!

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