With thanks to Campaigner Frank Taylor from Shropshire, a letter to the Editor of the Independent, in response to 10 ways out of the credit crisis:
Re: The Eleventh Chinese Way
Your lead article (Wednesday 16th April) recommends ten, largely palliative, measures to stem the credit crunch hemorrhage. May we, the undersigned, offer an eleventh by way of a more helpful cure?
Many might wonder how it was that the post war Attlee government was able to embark on such an ambitious programme of social and industrial reform in a country so recently bankrupted by war, whilst maintaining full employment and keeping government debt and inflation under control.
The answer is quite simple. In that era as much as 40% of the broad money supply was issued in the form of notes and coins. This was inevitably so in a time when far fewer people had bank accounts. Importantly such government currency created no debt and paid no interest.
Today less than 4% of the broad money supply is created by government. The remainder is created by private banks in the form of interest bearing debt. This is commonly called ‘credit’ although the Chinese, call it ‘quasi money’. China is also one of the few remaining states to maintain a high level of state money, the results of which are being poured into infrastructural investment, on an audacious scale, in the form of ‘soft loans’.
You cannot run an economy by piling debt upon debt upon debt forever. Current problems are caused by bank created quasi money feeding a debt-asset bubble. Throwing even more interest-bearing money in the form of central bank credit at such a situation is like curing an alcoholic with a truck load of whiskey.
Perhaps the most toxic of modern myths is that infinite growth is possible within a finite system. Such logic applies to debt as much as it does to pollution, population, production and resource consumption. All that the palliatives so far proposed can achieve is to stave off events for a few more years until we reach the stage when the mathematical limit of how much interest bearing debt the world can repay is reached. The longer that goes on the bigger the ultimate crash.
The only hope, as an alternative to economic depression, is to restore the government’s share of the money supply to at least the levels prevalent in the post war era, together with associated controls such as special deposits and reserve ratios. If it works so well in China, it can work here.
Frank Taylor, Monetary Campaigner, Shropshire
Sabine McNeill, Organiser, Forum for Stable Currencies
Alistair McConnachie, Editor, Prosperity UK
James Gibb Stuart, Convenor, Bromsgrove Group
Brian Leslie, Editor, Sustainable Economics
Mary Fee, Coordinator, LETSLINK UK
Anne Belsey, Leader, Money Reform Party