A Banker’s Perspective on Money Creation

 

A Banker’s Perspective on Money Creation, Degrowth, and the Real Economy: A Conversation with Hans from The Break Down.

Understanding Money Creation and Economic Growth

In contemporary discussions about economics, the role of money creation is pivotal. Private banks generate money primarily through loans, driven by profit motives. This mechanism raises critical questions about the sustainability of growth-oriented economic models, particularly in the context of increasing calls for degrowth and postgrowth economics. These concepts challenge the traditional narrative of perpetual economic expansion, suggesting that a shift towards a more sustainable model is necessary.

Degrowth and Postgrowth Economics

Degrowth refers to a planned reduction in resource and energy use to achieve a sustainable economy within planetary boundaries. It is distinct from merely advocating for less economic growth; rather, it emphasizes the necessity of using fewer resources for overall well-being. Postgrowth, on the other hand, envisions a future where economic activities are not inherently tied to growth imperatives. The two ideas, while related, serve different purposes in the economic discourse. Degrowth advocates for immediate changes to reduce consumption, especially in wealthier nations, whereas postgrowth focuses on systemic changes that can facilitate a more equitable distribution of resources.

Challenges of Growth Dependency

The traditional economic system is heavily reliant on growth, which often leads to negative consequences such as rising unemployment and environmental degradation when growth falters. Critics argue that this growth dependency is unsustainable, particularly in wealthy countries where consumption patterns exceed ecological limits. The notion that economic growth can be decoupled from carbon emissions, as seen in some nations, is viewed as a coping mechanism rather than a viable long-term solution. The reality remains that resource use and environmental impacts are deeply interconnected; thus, true sustainability cannot be achieved without addressing growth itself.

Transitioning to a Sustainable Economy

Transitioning to a degrowth or postgrowth economy requires significant changes in financial systems and ownership structures. Financial institutions must prioritize investments that contribute positively to societal well-being rather than merely chasing profit. This shift involves redefining the purpose of money creation to align with ecological and social considerations. Furthermore, fostering inclusive economic policies that redistribute resources and ensure basic needs are met is crucial for achieving equity in a degrowth framework.

Envisioning Change

To implement these ideas, it is essential to engage in grassroots movements that showcase viable alternatives to the current economic system. Critiquing existing structures while articulating a clear vision for a sustainable future can help galvanize support for the necessary changes. Ultimately, the path toward a degrowth economy is not only about reducing consumption but also about reimagining the economic narratives that govern our societies. By fostering a collective belief in the feasibility of a new economic model, society can begin to shift away from growth dependency toward a more sustainable and equitable future.

 

Progressive policies explained: The monarchy

 

I discovered early in my political campaigning that just because someone else is against Brexit and has been on all the marches does not mean that I have anything else in common with them. Which is probably why when I put a position on social media that someone disagrees with I get a “your not progressive your” response and then they proceed to make a lot of low-level insults? Or we get called Conservatives or Blairites. The truth is progressivism is none of these things. 

Not that the system of government that is detailed in our manifesto is that hard to understand. The problem lies in that it is an interrelated system so when one detail is looked at in isolation it can not always be fully appreciated.

Therefore it has proved to be difficult to put pEp’s position on retaining our monarchy when replying to the comments of those who are advocating their removal. 

The only way that I can hope to give justice to our argument is to quote directly from our manifesto. 

The section on Constitutional Reform first covers the separation of the UK into regional governments and the implementation of direct democracy. 

3. Constitutional Reform

Part E. The Monarchy

 

Synopsis

 

Nature of the modern monarchy 

Advantages of constitutional monarchy 

Insufficiency of the alternatives 

Expenditures on the monarchy 

Constitutional implications and provisos

 

In our exploration of the present institutions of “parliamentary” democracy and “representative” government, we identified much that would benefit greatly from the changes suggested by (and made possible by) the new technologies. The case is rather different with the constitutional monarchy. If we apply the Free-Test to this curious and quintessentially British institution, the results are rather surprising. It may be argued that the selection of the nominal Head of State by the hereditary principle does not meet the requirement that it should be fair. This would be of some significance if any real power were attached to the office. There is a tendency in the modern world to regard the Monarchy as “family business” - and there is much to be said for this analogy. It would be unusual to suggest that the very natural wish of a small-town greengrocer or cobbler that his son or daughter should succeed him in his business should be thwarted because it would not be “fair”.

 

It is no longer the case that the Royal Family (as an example of family cohesion and right conduct) is seriously considered, by any significant section of the population, to be a model that invites emulation. A number of ill-judged remarks by some of its members have completely ‘demystified’ the Royal family However, the constitutional monarchy not only has very little power, it also has no very extensive influence. But it does still have a number of useful functions which will be considered below. On the question of responsibility, it is true that there are no formal channels for ensuring that the Monarchy is answerable to the people. But recent events have shown very clearly that the nature of the institution, in the modern world, requires it to be extremely sensitive to public opinion. And our history shows repeatedly that there are means “of last resort” for removing a given monarch from the throne. However, on the only occasion when the whole institution of the monarchy itself went into abeyance (during the “Protectorate” of Oliver Cromwell and his Puritans) its removal was soon adjudged to have been a dreadful mistake - not least because the “Lord Protector” proceeded to attempt to found his own dynasty. This latter tendency is still regrettably seen among some of the “political family dynasties” in republics throughout the world. To make a meaningful judgment about the extent to which our monarchy may be said to be economical or efficient is virtually impossible. The impact which it makes on people, both within and beyond these shores, is difficult to identify, impossible to quantify and depends on too many variables - not the least of which is the personality of the reigning monarch. It may reasonably be supposed, however, that a person who, from birth, has been trained and prepared for a particular occupation, whether it be the vocation of greengrocer or of monarch, is likely (barring some mental impediment) to excel in the skills and qualities required by the “trade”. That our monarchy is greatly admired by many foreigners (including, ironically, those who have unwisely jettisoned their own royal families) is a matter of common observation. That it is one of the pillars of our tourist-trade and helps to swell our reserves of foreign currencies, most would concede. That it lends a dignity which no mere president could supply to our rituals and at times of national import, is a fact of common experience. That it is the most potent symbol of our Union, and therefore of our unity, is beyond question. Even our enemies and zealous republicans admit (and usually regret) that our monarchy serves as a focus for patriotic feeling. That the monarchy is currently held in affectionate esteem by the great majority of British people, even when they disapprove of some of its particular actions, could probably be shewn.

 

The modern constitutional monarchy may have its flaws, but most of the alternatives are too horrible to contemplate. Would we really wish upon ourselves an executive President who does not have the necessary skills of international decorum. The examples of those republics that have an executive President are usually enough to make the blood of British nationals run cold, while a nominal presidency (for convenience but without executive powers) would have no discernible advantages over the present constitutional monarchy - and would probably be almost equally costly to maintain. It might rapidly become an expensive constitutional sinecure for retired politicians. The Progressive European Party therefore believes that, at present, there are no very good reasons for abolishing the monarchy altogether. There are, nevertheless, very good reasons for reforming the funding of the monarchy. Much of the land owned by the monarchy was seized from the noble enemies of former monarchs or (by Henry VIII) from the pre-Reformation Church. These lands should be reclaimed for the nation and the expenses of maintaining the monarchy should be greatly reduced. These expenses, under a Progressive administration will be part of the annual Budget. The restoration, if only in name, of the ancient “kingdoms” within a single Union would be greatly enhanced and strengthened by allegiance to a single, and preferably shared, monarch. It is possible that the Scots, if they become an independent nation, may wish to find a monarch with stronger Stuart credentials. It is also possible that they may eventually wish to become a republic. As they already have their own parliament, whose nature and functions may be expected to change with the introduction of direct democracy, that will be a matter for them. The same might eventually be said of the Welsh. In the event that any of the restored “kingdoms” (or Territories) decide - by a clear popular majority that a different Head of State is more appropriate to their needs, their wishes will, of course, be respected. Nor will any individual kingdom be prevented from seceding from the Union if a clear majority of its inhabitants believes this to be in the best interests of their nation. By the same token, if (at some future time) a majority of the inhabitants of the Union of Kingdoms wishes to do away with the monarchy, then that wish will be implemented. But we cannot on the one hand argue that Northern Ireland should remain within the Union for as long as a majority of its people wish it to do so, or that Gibraltar or the Falklands should remain British for similar reasons, without also, on the other hand, conceding the converse.

 

It will not, therefore, be a condition of participation in the Union that a given Territory should accept the House of Windsor, or indeed any Royal House, as the only legitimate source for their sovereign. And it is a corollary of these principles that, at least in theory, nations which have not, hitherto, formed part of the Union will not, henceforth, be discouraged from joining it.

 

The Free-Test that is mentioned in paragraph one is a method of evaluating policies by asking. 

Is it: Fair? Responsible? Economical? Efficient? 

The Progressive Party uses this test instead of the ideologies of left, right, green and so forth that other parties have adopted. Each policy can then be assessed on its individual merits free from biased opinions and the influence of lobbyists.

 

Philip Notley

progressiveeuropeanparty@gmail.com

 

2017 Progressive European Party Manifesto by

John Coats

Citizens income, why it is necessary and how it could be financed

 

In 2010 we had David Cameron's big society, today we have Boris Johnsons levelling up. What we have never really had is a solution to the problem of poverty that has any more substance to it than a sound bite. Our Benefits system is designed to be as difficult to use as possible, forcing the unemployed and disabled into low wage jobs. Things are now so bad that I keep expecting a statement from Priti Patel announcing the return of the workhouse. 

Philip Alston, the United Nations Special Rapporteur on extreme poverty and human rights, in his final report for the United Nations has said that Poverty is a Political Choice. That is certainly true in a country as wealthy as ours. There seems to be no shortage of money. The Bank of England has "printed" £1trillion over the last year in a quantitative easing (QE) stimulus package. Where the problem lies is in the distribution and entitlement to all the wealth. 

What real solutions are there available to us to end the poverty trap that so many find themselves in today? 

We propose as one of the cornerstones of our progressive policies a Citizens Income. This would be paid to all UK citizens regardless of their employment status putting an end to the benefits system, state pensions, family allowance, sickness benefits and food banks. Children's legal guardians would receive the child’s CI on their behalf up until the age of 16. All real poverty in society would finally be alleviated.

This would end unemployment as it is perceived today and retirement could be at the discretion of the individual. CI itself will not be taxed and all income over and above CI being taxed at the same flat rate. 

Having CI enables everyone to live at a basic level without the worry of becoming destitute through a lack of funds. The financial stability that CI brings would take the unnecessary stress out of everyday living, helping both families and individuals to fulfil their lives more productively. An augmented Citizen's Income (ACI) would be paid to those with disabilities. It will not be means-tested. Also, in recognition of their long years of service, a Seniority Supplement for all voters over the age of sixty-five will also be made. 

 CI is basically a dividend, as we are all shareholders in UK PLC. 

All well and good except that the amount of money this would cost is astronomical. So how could it be financed?

If CI was £10,000 a year for each adult and £5,000 for each child the cost of CI would equal that of the total annual tax revenue that the government currency receives. 

The Green party has a similar policy in their manifest that they would fund with a Carbon Tax. They do not however give an estimate as to how much extra revenue a Carbon Tax would bring. Whatever the amount such a tax would raise it could never be enough to finance a Citizens Income for all. So an alternative way of funding CI needs to be found other than creating a new tax or expecting general taxation on its own to be sufficient. 

 What is money and where does it come from?

We come here to an interesting question, what actually is money and where does it come from? If you do not already know you may be surprised by the answer. Only about 3% of money currently in circulation comes from the Bank of England. These are the coins and notes that we use that are made by the royal mint. The rest comes from debt and is made electronically by the banks when we borrow from them. 

If you use your bank overdraft or credit card, take out a personal loan or mortgage the credit that your bank extends to you is all new money. When Theresa May told the nurses that there was no magic money tree she was not being truthful. In fact, all our money comes from the magic tree, i.e. it comes out of nowhere. When we pay it back into our account the money that we have borrowed just disappears again. All that is left is the interest that our bank charges us. 

 A drawback with this system is that the Central Bank and the Government have little control over the money in the economy. So when things occasionally go wrong it can be costly to rectify the problem. 

The last economic crash is an example of this. Mostly caused by deregulation because past governments had decided that growth was more important than stability. George Osbourn when he became the Chancellor of the Exchequer decided to pay back the government borrowing that resulted from the bailout with an austerity program of reduced spending. Coupled with a tax cut for the rich to help stimulate growth. This was totally wrong thinking, the more governments spend the greater their income because it is their spending that stimulates economic growth. Therefore the bailout in the end cost us more than was necessary.  

QE has been used in the past to put money into the economy when the banks have stopped lending. The problem with QE is that it puts money into the markets when in fact it is most needed at the lower end of the economic spectrum. Another idea for solving this kind of liquidity trap is called a helicopter drop. Putting a lot of cash into the economy by Central Banks making payments directly to individuals. This has so far never been tried and is, like QE, a quick fix as opposed to a long term strategy for maintaining a stable economy. 

Direct monetary financing.

The Governments overdraft facility with the bank of England is a form of direct monetary financing. Instead of financing the Government indirectly with QE the Bank of England is now financing them directly. This has given them unlimited funds to fight Covid. But so far they have made no new Fiscal Policy that takes into account the possible ramifications of having unlimited credit. 

 A new idea that is being looked at by the worlds governments and central banks is Central bank digital currency (CBDC). We are all aware of Bitcoin and other digital currencies. The difference between those and a CBDC is that a digital currency made by a central bank would be guaranteed by them. So £50 in your central bank digital account would always be worth the same as a £50 note in your wallet. 

Everyone having a CBDC account would give the Bank of England the ability to helicopter drop money directly into the economy if liquidity had become a problem and the economy was stagnating.  

CBDC accounts however could alternatively be used as a way of paying CI to all citizens. Without undermining the role that the banks play in generating credit and being a safe place for savings and for making bill payments. 

 What are the dangers?

Putting too much new money into the economy can devalue the pound and cause inflation. This is where taxation comes in. Taxation is the most efficient way of removing surplus cash from the economy. Setting tax rates at the right level as well as interest rates can keep the currency stabilised. With the added ability to put more money in should it be needed. Giving far more control over the economy than is currently possible. 

Five small countries already have a CBDC. St. Kitts and Nevis, Antigua and Barbuda, St. Lucia, Grenada and the Bahama’s. We should not expect it to be long before larger economies such as ours do the same thing. Why not use this opportunity to create a Citizens Income for all and end poverty for good. 

 Philip Notley

progressiveeuropeanparty@gmail.com

Could Brexit have been a success?

The simple answer is yes. Provided we had stayed in the single market and had a customs union with the European Union it would have. The so-called Norway plus option. Norway is in the single market but they do not have a customs union with the EU. The EU’s customs union is for members only, but we can negotiate our own customs union with the EU.

This would make us rule takers but not rule makers as Farage once put it. But that is unavoidable, every country bordering the EU comes under their sphere of influence, even one as big as Russia.

The leave voters would, of course, cry foul at such an option, we need however to remember that many people who should have been entitled to vote were excluded. If that had not been the case we can be sure that the vote would have been a 50/50 split for leaving or staying.

If we had stayed in the single market I for one would have accepted the result and not become a political campaigner. We were told that leaving the single market was not going to be on the cards by more than one of the leave campaigners. Things went wrong because of Theresa May's “red lines” which were then taken to their logical conclusion by our present Government.

Ending freedom of movement was one of the main aims of many leave voters. With only half the electorate voting for leave, they should have accepted a compromise. We all know what happened, the extremists kept putting pressure on the Government until they became the Government and since then chaos has ensued. They are so desperate to have total independence from the EU that many babies have been thrown out with the bathwater. Trade deals, cooperation in science, human rights, you name it we have or are in the process of losing it. The possibility of our being a successful nation outside of the EU has been trashed. All for the sake of an unrealistic unworkable xenophobic political doctrine.

The country is now experiencing an unprecedented decline that will have long term consequences for generations to come. And we have nowhere reached rock bottom yet. After only nine months of Brexit, everything is falling apart. They can not even implement the full customs checks at the UK/EU border because we will run out of food if they do and shortages are beginning to become a problem even without them. Because of this EU imports have gone up while our exports to the EU where the full customs requirements are being made have gone down.

This hardly helps our balance of payments, we are becoming a bankrupted isolationist country full of miserable destitute people living below the poverty line. When we could have had independence without losing everything the EU had to offer.

Can our decline be reversed?

If we rejoin the single market and negotiate a customs union it can. We will probably not make up the lost ground for a long time to come but our decline can be stopped by doing this. For the longer term, I would identify the problem as being that we do not have a constitution. Our system relies on our elected leaders having some integrity. That was always taken for granted by past generations but it has now been taken advantage of by unscrupulous power-grabbing charlatans.

Where this will all end is unknown and unknowable. For sure things will continue to go downhill for the time being. In the end, however, the people will rise up either on the streets or at the ballot box, or both. Things will change but we are still in for a bumpy ride for the foreseeable future.

Philip Notley

progressiveeuropeanparty@gmail.com

Labour and Tony Blair

If we are going to have the slightest hope of returning the country once again into a viable democracy then the Labour Party has to win the next general election. 

I am no fan of Labour, however, with a two-party system, they are our only hope. Their present leader, Keir Stamer, has as much charisma as a damp flannel and stands no chance of winning against Johnson. The light may still be visible at the end of the tunnel if Labour accepts its predicament and goes for a new leader. 

Anyone — and I mean anyone — is better than the conservatives

It always looked unlikely to happen and not worth giving any credence to the rumours that have sprung up over the years, but this time it is actually happening. Tony Blair is coming back into politics and he wants to be the Labour leader again.

No matter what any of us may feel about him, he certainly has history. And no matter how difficult it may be for him to achieve it. If Blair does become Labour leader again we must vote for him. And quite possibly temporarily abandon our own political affiliations and campaign for him as well. 

It is the only hope we have of escaping the new dark age that is slowly enveloping our lives our country and our futures.

Happy Europe Day