Both of these two announcements indicate that the new Government, as well as the old one, the Bank of England, and a sizeable proportion of the British people have no understanding of the money supply, nor of the way it impacts upon the economy.
We have had recessions before, of course, and each one was ended by a cut in base lending rates. This reduced the cost of borrowing, inducing companies to borrow to invest in their businesses and consumers to borrow in order to buy the products of those businesses, so causing the economy to resume its upward path again.
Bank base rates have been at 0.5% for well over a year. They have never before been so low, and they have never been kept low for so long. Yet, few people are borrowing. There has been no net increase in borrowing by private households or private businesses for the past year. Such borrowing that is occurring is simply matching the amount of old debts being paid off.
This level of borrowing is not enough to get the economy to grow. Indeed, it is not enough even to prevent the economy from sliding into recession. Look at the figures. Total UK debt (excluding inter-bank debt) is about £3 trillion. Half of this, £1.5 trillion, is household debt, mostly mortgages. Nearly another trillion is Government debt and the remainder is business debt. Most of this debt is low risk, low interest stuff, say 5% to 6% on average. This means that to create enough new money to pay the interest on this debt, new borrowing had to increase during the last year by at least 5% or 6% of £3 trillion, a figure of around £160 billion.
If this figure seems familiar, it is the amount of the Government's deficit on its budget for last year. In other words, only government borrowing created enough new money last year to pay the interest on all the nation's outstanding debts. If this figure is cut by any significant amount, there will be insufficent money to meet the interest on all our debts and we can expect a rise in bankrupticies, unemployment and house repossessions, causing a double-dip recession, if nothing more serious.
To get the country out of recession, net borrowing will have to be far greater than £160 billion, maybe £260 billion, which is why the government wants to get the banks lending.
To put it another way, they want to get the rest of the country, private households and private businesses, to increase their borrowing on a massive scale. But with such massive levels of debt already, who can afford to borrow the extra hundred billion that will be needed each year? And remember, as the debt rises so the level of new borrowing to pay the costs of the debt will rise as well, year after year after year. If net borrowing had to increase by £160 billion this year, it will need to increase by £170 billion next year, and by £182 billion the year after that, rising ever higher at an ever increasing rate – exponential growth.
This madness can only be ended by reforming the nation's money supply so that for our economy to function we do not have to have the nation's total debts rising exponentially year on year. We need a money supply that is not based on people being in debt.
Anne Belsey
MRP Leader
“Mankind's greatest failing is its inability to understand the exponential function.” Albert Einstein.
