Solving The Debt Crisis

In this 13 minutes presentation, I argue that there is a simple way out of the debt crisis facing governments. Central banks such as the European Central Bank and the Bank of England should be forced to lend governments enough money to pay off the entire debt to the banking system. Expect massive resistance from the bankers, who have extracted a massive €5.6 trillion in interest charges from Europe's taxpayers since 1995. They will fight to keep this gravy train on the rails.

• Category

  News & Politics

[016whi]

As I understand it, fractional reserve banking (the mechanism by which banks 'create money') increases the money supply in the economy.

This sounds risky but doesn't it also mean there is more money swilling around? I agree that banks are being tight with their money now but surely businesses would find it equally difficult to borrow if the money supply was restricted?

Also, if a Gov't borrows money, why shouldn't it honour its debts? Paying back owed money is part of being a grown up.

[Simon Thorpe]

Sure - fractional reserve banking does increase money supply in the economy. You can see that in the M3 and M4 figures for the EU and the UK (on my blog). The trouble is that the money hasn't been going to help stimulate the economy - most of it gets used for speculation and house price bubbles.

I agree that if a government borrows money, they should honour their debts. But what do you say if those who lent the money didn't actually have the money in the first place? Why pay interest there?

[BirdandBee Co]

Furthermore, I understand that the money lent by these banks to countries is drawn down form a Fractional Reserve system that has gone crazy - why do governments allow this to happen? Take the UK for instance - surely the payments made by the City of London to the governmant are tiny compared to the interest payments that have to be met - why would they prefer to do this?

[Simon Thorpe]

One reason is that the markets can blackmail governments. For example, isn't it interesting that the two countries that have done well as a result of the recent flooding of banks with central bank money are the two countries that are totally opposed to any change in the current system - namely the UK (interest rates 1.47% - down from 1.54% last month) and Germany (interest rates 1.62% - down from 1.83% last month) - see the latest ECB numbers.

[BirdandBee Co]

Simon Thorpe - your presentation "Solving the Debt Crisis" is a great solution. Thank you. I find it staggering that a few people linked to Goldman Sachs have the power to hold the whole of Europe (and indeed the World) to ransom with extortionate interest payments. I am also amazed that all of the 27 countries in the EU are in debt - not one of them in the black. Are there any countries that don't owe any money at all to these private World Banks?

[Simon Thorpe]

Good question. China maybe, because they very sensibly decided to keep their currency under local control.

But the fact is that all countries could get out of the debt trap if they allowed their Central Banks to break the money creation monopoly. But it's going to require massive public mobilisation to break the strangle hold of the vested interests.

[montmorencyyou]

Agree with most of this, enthusiastically.

Except that I don't think it is Positive Money's current policy to pay off the (UK) national debt (although I think it should be, in the way you say, or similar).

And in the case of Greece, it should probably leave the Euro, or its problems will start all over again in a few years time.

Regards,

Mike Ellwood aka Montmorency

[Roger Lewis]

great video i hope you dont mind i linked to it on the bbc here

business-18448636

others might find this blog very informative too.

golem xiv blog

[016whi]

I agree that the money doesn't seem to be going anywhere useful at the moment but isn't that partly due to the banks being in a bit of a bind? On the one hand they have to increase capital reserves and on the other hand they are being asked to lend more to businesses.

I don't really see it as an issue of whether the banks had the money in the first place. The market needs to feel confident that if it signs a contract (which would include interest payments) then the other party will honour it.

[Simon Thorpe]

I still have this antiquated idea that we actually live in a democracy and that if 99% of the population realize that they have been ripped off by a totally unjustifiable system that is as close to criminal as you can get, that things could change.

What is lacking is an open debate on the subject. I simply don't believe that the commercial and private banks can justify a system where they create money out of thin air, lend it to governments and then charge interest.