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What politicians could learn from a chemist about banking fraud

The end of last week saw a flurry of stories about how banks were conning the public into thinking that “free banking” was really free.  Andrew Tyrie MP, chair of the Treasury Select Committee noted that there is no such thing as free banking, “it is not just misleading; it is a con-trick.”

Indeed it is.  But most of us are wise enough to understand that there is no such thing as a free lunch and that either there is a hidden charge somewhere or (like Facebook) we are the product. The story, however, amounts to what psychologists call a “displacement device” – a trivial problem to take your mind of worrying about an altogether larger concern.  It is a bit like worrying about the homeless person who “steals” food from your bin while studiously ignoring the fact that the Mafia controls your town.

There is a single, massive confidence trick that banks have visited upon an unsuspecting public over many decades that has been eating our economy and our society like a cancer… banks print the money we depend upon out of thin air, and then rent it back to us.  Economists like Michael Hudson and Steve Keen (one of the few economists to predict the 2008 crash) have been telling us this for years.  The Positive Money campaign explains the process in detail, and has developed an international movement to create an alternative system.  Even the former Governor of the Bank of England, Mervyn King alluded to the problem in a 2012 speech: “when banks extend loans to their customers, they create money by crediting their customers’ accounts.”  Bank of England economists confirmed this in a 2014 paper:

“In the modern economy, most money takes the form of bank deposits.  But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans.  Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

As anyone who has ever taken out a mortgage or a loan will tell you, the problem with debt is that it comes with interest.  You end up having to pay a lot more money back than the amount that you borrowed to begin with.  But when the money we use is quite literally borrowed into existence, where on Earth are we going to find the interest?  There is only one way… even more debt.  Like a massive pyramid scheme, the banking system can only continue by adding ever growing debt into the economy.  Taken to its logical conclusion, the only economic activity in the global economy would be 99.9 percent of us borrowing increasing amounts of money in order to pay what we already owe back to the 0.01 percent of people whose banks loaned the money into existence in the first place – the real economy would shrivel and die.  But our MPs prefer to focus on banks penny pinching a few pounds a year in interest payments to avoid charging for current accounts!

These observations are not even new.  In 1933, Nobel Prize winning chemist turned ecological economist Frederick Soddy[1] noted that:

“The banks have usurped the Prerogative of the Crown with regard to the issue of money, and corrupted the purpose of money from that of an exchange medium to that of an interest-bearing debt, but the real evil is that we now have a concertina instead of a currency. These powers have fallen to them in consequence of the invention and development of the cheque system, unforeseen before it became an established fact. It has been connived at by politicians of all parties, who have betrayed the people and without their knowledge or consent have abdicated the most important function of government and ceased to be the _de facto_ rulers of the nation.”

Soddy correctly viewed this process as tantamount to a fraud that must ultimately destroy modern civilisation:

“The essential rule is that whoever, in the way of business, receives wealth for money—itself now intrinsically valueless—must give up the equivalent, and this is simply enough secured by his having in the preceding transaction given up for the intrinsically worthless money the equivalent of wealth. But it is not _and cannot be_ observed with credit-money, falsely so called, in the first issue of new money, and as a direct result the whole scientific civilisation has been brought about as near ruin as it is possible for it to go…

“So ends Democracy in an absolute stranglehold by a few unknown men!”

Nor did Soddy have much time for state investment banks of the kind currently favoured by the British left.  These, he argues, merely perpetuate the problem because they leave the much broader banking system and its debt-based money in place.  The only solution is to return the exclusive power to make money to a democratically elected government:

“The proposal in this book is to re-establish the National Mint as having control over the issue or destruction of all money, i.e. legal tender, and, if necessary, proceeding against all substitutes by specifically illegalising them.”

Had he been alive today, Soddy would no doubt have been a prominent supporter of the Positive Money campaign”

“We’ve spent the last five years researching the problems caused by the current debt-based monetary system and how to fix them. This is what we think needs to change to fix our broken money system:

  1. Take the power to create money away from the banks, and return it to a democratic transparent and accountable process
  2. Create money free of debt
  3. Put new money into the real economy rather than financial markets and property bubbles.”

Although the campaign is growing – just as it did in the 1930s during the Great depression – it will probably take another financial crash to shake our MPs out of their complacency and force them to acknowledge that all pyramid and Ponzi schemes – the current global banking system among them – can only end in ruin, and that, having tried everything else, it is now time to do what is right.

[1] Wealth, Virtual Wealth and Debt: the solution of the economic paradox. (out of print)

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