The government claims its run out of money, it has too many debts so it has to cut spending. Is this right? Is it true? No is the answer.
Why is money one of the most brilliant of social inventions and yet, paradoxically for something so familiar and essential for day-to-day existence, one of the least understood. Attention has focused on money and the financial system since the start of the global financial crisis in 2007. Yet governments, central banks and politicians have been unable to deal with it because conventional economics lacks any insight into the relationship between money, interest and debt.
Politicians, bankers and economists think money has no impact on inflation, output or employment and banks simply lend money deposited by savers. In reality, however, money is not a thing but a social institution and a legal relationship. The cause of the crisis, correctly identified recently by Adair Turner of the FSA, lies with unrestrained credit creation by banks.
Virtually all our money supply originates as debt in the form of interest bearing loans created out of nothing, that is, without any supporting collateral such as savings or government bonds. In the absence of controls, debt expands exponentially to the point where it exceeds capacity to pay, the production of goods and services.
http://ineteconomics.org/blog/inet/adair-turner-how-do-we-get-out-mess
While the expansion of credit - £1trn in ten years - leverages growth and asset prices, sooner or later, the process reverses with devastating effect. If all debts were to be repaid tomorrow, the consequence would be economic collapse, in the absence of any alternative source of new money. It is excess private debt which has simultaneously made banks insolvent and created public deficits.
Austerity programmes, however, are ideological rather than being based on any economic logic and will not address either deficits which are a fact of basic macroeconomic accounting or public debt which is unnecessary. What we need then is a modern explanation of money and a programme for a new monetary system to be introduced by a government committed to economic and social justice.
The campaign group Positive Money has come up with that explanation and that programme. You can watch the explanation of how to modernise money here. You can buy the book which explains the issues in more detail.·Now we have a new programme it’s up to us to make it happen – our path out of austerity!
How can we escape from our current dysfunctional money system? Ben Dyson brilliantly encapsulates 3 years of research into 33 minutes!
He presents the main principles of the reform proposals which are described in detail in the new book 'Modernising Money'
http://www.positivemoney.org/2013/02/banking-reform-by-positive-money-video/