Bill Totten's Weblog

Sunday, August 01, 2010

The Proposed Bank of England Act

This is a reform that could prevent a future financial crisis, clear the national debt, and restart the economy.

It cures the sickness in our economy and financial system by tackling the root cause of the problem, rather than just the symptoms.

It would make the 'inevitable' cuts in public services completely unnecessary, reduce the tax burden by up to thirty per cent and allow us to clear the national debt. It takes control of the UK's money supply out of the hands of the commercial banking sector and restores it to the state, where it can be used to benefit the economy, rather than providing a GBP 200 billion annual subsidy to the banking sector.

Who Are We?

We're a group of economists, lawyers, engineers, former civil servants, university academics and business people who have realised that the root of the instability in the world economy, and huge burden of debt in every country, is due to the fundamental design of the banking system.

What's The Problem?

When money is created by the state, it is added to government revenue and reduces the amount of taxes that businesses and families need to pay. However, most money now is no longer created by the state. Instead, thanks to the rules governing banking, it is created by commercial, profit-seeking banks every time they issue a loan or mortgage. Rather than going to reduce the taxes that we have to pay, it is used to generate huge profits for the banking sector. This effectively provides a subsidy to the banking sector of up to GBP 200 billion each year - a subsidy that costs each of us over GBP 4,000 every year.

It also makes the economy hugely unstable. Each time a bank makes a loan, it actually creates new money to fund new loans. The more the banks lend, the more money they have available to lend, but as soon as they stop lending, the economy is starved of new money and quickly goes from growth to contraction, causing unnecessary hardship to millions of people .

This process - the creation of money by commercial banks - was the real root of the financial crisis, and if we allow banks to continue creating the nation's money, then we will soon be facing a crisis even more severe than the last.

What's The Solution?

We propose that the solution to the current financial crisis is to:

* prevent banks from creating the nation's money supply (through a few small changes to the rules governing bank accounts)

* restore the right to create the nation's money to a public agency of the state (the Bank of England under the direction of the Monetary Policy Committee)

* use the newly created money to reduce taxes, fund better public services and reduce the national debt.

These simple changes will withdraw the hidden subsidy that the banking sector has enjoyed for the last few hundred years. The banking sector will then need to generate profits by playing a significant role in the creation of wealth, rather than simply extracting wealth from the rest of the economy by charging interest on 97.5% of the money in existence.

The benefits to the wider economy, businesses and families of the UK far outweigh the costs to the banking sector.

Read the Act: The legal text of the Act, with notes

Find out how it works in plain English

Bill Totten


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