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Independent Green Voice

The Reason why Banks make Huge Profits
and our Private Debts Skyrocket

Alistair McConnachie writes

Why are the banks making such huge profits?

The answer is because the private banking system is acting as the nation's money supply mechanism.

It is the private banking system which creates 97% of the country's money supply -- as a debt, with interest.

The money which banks loan to their customers is money which banks have created out of nothing.

It does not belong to anyone else, nor even exist, before it's loaned into existence by the banks.

Banks are entitled to do this via the banking acts, which give them, literally, a license to print money.

The other 3% is the notes and coins which are created by the government, sold to the banking system and an amount equivalent to their face value is deposited with the Treasury as an effective debt-free input to the public purse -- that revenue is traditionally termed seigniorage.

In 1948, around 46% of all money in circulation was debt-free notes and coins created by government.

However, as the demand for electronic, cheque book and credit card money has risen, the demand for notes and coins has fallen.

This means that most money circulating in society, in any form, is now private bank debt-based money.

As a result, the banks are making vast profits from this situation.

The Government has ignored what is happening and has abdicated its traditional responsibility to create a supply of money, publicly, and debt-free, for the people.

As the banks' profits go up, so our taxes go through the roof to raise the revenue to repay the money which the government has borrowed from the banks.

And at the same time, more and more people are swallowed up in huge levels of debt.

We are saying that in addition to regulating the banking system, it is the responsibility of government to maintain a basic stock of money in circulation which is free from debt at its point of creation.

If society enjoyed the benefit of a 46% debt-free money stock in 1948, then there is no reason why we shouldn't continue to enjoy such a benefit today -- although this doesn't necessarily have to be in the form of notes and coins.

It can be electronic money, created debt-free for public purposes.

Otherwise, we will continue with the situation today where the private banking system is acting as the national money supply mechanism and levels of debt will continue to go through the roof, along with bank profits!

We argue that with a regular provision of publicly-created debt-free money, over time, levels of public and private indebtedness would decrease and banks would revert back to their original purpose of being loan providers -- rather than being the hugely expensive, and privately profitable, national money supply mechanism which they have become today.

As James Gibb Stuart says: "The problem -- which our politicians are not addressing -- is that the banks have achieved virtually a monopoly of money creation in the last 100 years. Without interfering with the present legitimate function of the banks to act as loan providers, we need to break the banks' monopoly of money creation by introducing an element of publicly-created debt-free money, supplied by the State. If we can establish this, then the whole money creation process -- both public and private -- would tend to ameliorate in favour of democracy and greater social justice."

There is certainly a moral and political concern based around the legal ability of banks to profit privately from the creation of money out of nothing. In that regard, making it illegal for the commercial banks to create new money, is the reform suggested by Joseph Huber and James Robertson.

That reform goes a step beyond an initial campaign which would encourage the government to, at least, examine the principle of even a modest relaxation of the practice of borrowing its own money from the banks at vast expense to the taxpayer!

People should not have to suffer in an increasingly usurious and debt-soaked society just because the demand for notes and coins has fallen.

Having a national money supply almost wholly dependent upon the private banking system is one of the scandals of the modern economic system just waiting for a political party to grasp and address.

When elected Alistair pledges to: Introduce a Bill in the Scottish Parliament to bring in a law to set up a Scottish Debt Commission which will study the nature of our debt-based money system, promote understanding of the link between unsustainable growth and poverty and the way money is created as a debt for the profit of the private banking system, and investigate the creation of a publicly-owned, democratic, accountable and not-for-profit Public Investment Bank, to create money debt-free, at no cost to the taxpayer, to fund public projects.

In addition to the "Debt Commission" Bill, when elected Alistair pledges to set up a Cross-Party Group in the Parliament to investigate and promote reform of the debt-based money system and to consider alternative public funding methods based on our debt-free money proposals.

In addition, we will use our public profile to publicise this vital subject which holds the key to the relief of poverty both in Scotland and worldwide.

Alistair McConnachie is the author of a new, 40-page, easily understood Manual on Money Reform
which explains these ideas further, and can be purchased here.

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