The Pre Budget Reform - Do I laugh or do I cry?

.

The Chancellor of the Exchequer has set out the state of the nation's finances in his Pre-Budget Report. He has set out his tax increases and his rather more vague spending cuts, and he has talked of his expectation of significant future growth in the economy in the medium term from which will be drawn the revenues to pay off the still considerable differences between these economies and the high level of Government debt (the National Debt).

It is enough to make one weep.
.

Nor have we received any sense from the opposition parties. The ignorance of the Shadow Chancellor beggars belief. Slightly more sense comes from the Liberal Democrat's Treasury spokesman, but that is not saying much.
.

Let us start at the very beginning; that's a very good place to start. When you read, you begin with A B C; when you count, you begin with 1 2 3...
.

A functioning economy needs to have a money supply, a means by which goods, services and employment can be paid for. It is not rocket science.
.

So what does Britain's money supply consist of?
.

There is £54 billion in notes and coins in circulation (Bank of England Monetary & Financial Statistics October 2009 – the Bankstats). This is clearly not a very large sum when set against the hundreds of billions of pounds mentioned whenever Government borrowing or bank bailouts are discussed. Indeed, the Bankstats give us a total UK money supply of just over £2 trillion (£2,000 billion).
.

This £2 trillion does not consist of bank notes or coins. Despite what has been said about quantitative easing over the past year in the popular media, neither the Bank of England, nor the Royal Mint, nor the Treasury nor any other Government agency has been printing up hundreds of billions of bank notes.
.

Money in the UK and around the world consists of debt. When you have money 'in' a bank, that bank is in debt to you. Its debt to you, is your money. Similarly, a bank's money consists of its customers' debts to it. A bank can be said to have money 'in' those customers to whom it has lent.
In this whole process, no real money actually exists. It is just numbers in computers.
.

However, the net result is that for there to be deposits in some people's bank accounts – giving us a national money supply (£2 trillion at the present time) - other people or businesses or the government have to be in debt to the banks. Without their debt, the money supply would not exist (except the £54 billion of notes and coins).
.

“Everyone agrees that government spending has to be cut.”say all the major media outlets. “Oh no they don't!” say I.
.

The popular media, proving itself to be no more knowledgeable than our politicians, keeps on spouting the mantra of austerity, that government spending has to be cut, and that taxes have to rise. The reason for such austerity is to reduce the level of government debt (the National Debt), currently some £800 billion and approaching 70% of GDP.
.

This is the sort of thinking that we might expect to read in a schoolchild's essay, not opined by our leading politicians, economists and commentators. No wonder we are in a mess.
.

THAT DEBT IS A MAJOR PART OF OUR MONEY SUPPLY, YOU CLOWNS! Reduce it and you will reduce the overall level of money within the UK economy, and it is due to a shortage of money already that we are in recession.
.

The only way we can get out of recession is to increase the amount of money within the economy, and given that 97% of our money is based on debt, to increase the money supply, we have to increase the total level of debt!
.

Who is going to have to carry all this debt if not the government? The people of Britain will, whether as private householders or private businesses. Although, of course, it is questionable whether we can afford to borrow significantly more. Most people, having woken up to their own high degree of indebtedness, are trying to reduce their own debts. This is good for them, their families and their businesses, but it is disastrous for the economy.
.

So why is it that we need to keep expanding the money supply?
.

More debt is needed to create enough new money repay the high levels of debt currently in existence.
.

You might need to read that last sentence more than once to grasp the full absurdity of the situation in which we find ourselves.
.

Yes, it is true. We can only repay past debts, both principal and interest, by borrowing even more money into existence. Without that, an ever increasing proportion of the money supply would need to go on repaying the principal and interest of existing debts, effectively shrinking the money supply and plunging us further into recession.
.

If we have to borrow to provide the money supply, then government borrowing is best as it is cheapest. Governments, even the supposedly dubiously credit-worthy British Government, can still borrow at cheaper rates than most citizens or businesses.
.

But why have a money supply based on debt at all? Even with 'cheap' government debt, the debt-based money system is mathematically unsustainable. With a bit of jiggery- pokery, we might be able to eke out another decade or so, especially if the Chinese people can be persuaded to follow the UK and USA into high levels of personal debt. But as with all pyramid schemes, eventually one runs out of people – of credit-worthy borrowers, in this case.
.

This is the question that none of our senior politicians are addressing.
.

It would be farcical if it were not so tragic.
.

Anne Belsey
(Leader of the Money Reform Party)