Opinion: Do Banks Rule the World?

Last week many of us may have witnessed the sickening spectacle of watching a city trader declaring that Goldman Sachs rules the world… among other insights, such as how he lays awake at night fantasising about another economic depression.

If money rules the world, then surely whoever rules the world controls the money supply?

Many of us would, therefore, assume that the Bank of England creates money and regulates its supply to the economy, thereby controlling inflation and interest rates. However, whenever we look to finance a house, car, business project, etc, we invariably turn to the banks (in the absence of a wealthy benefactor).

Banks work on an unremitting profit motive which drives their decision-making process, investing heavily in speculative bubbles to turn quick profits, the bubbles so large that they ultimately burst the world economy.

Consequently, financial investment affects us all, yet we have little control over the decision-making process, or the opportunity to voice our displeasure except through ‘Occupy’-style protests.

Liberal Democrat policies call for a re-balancing of the economy, but we should do more to ensure sufficient checks and balances are in place to stop the economy, and society as a whole, being brought to the brink of another economic collapse.

Although Vince Cable and Nick Clegg have identified market failings within the financial system and pledged to establish a Green Investment bank, Regional Growth Fund and Technology Innovation Centres to encourage more socially responsible lending, the root cause of the debt crisis has not been addressed.

The power banks yield lies in their ability to create, not lend, money.

Banking and investment throughout the world relies on banks leveraging their depositors’ funds by a ratio of 1:9. This is frequently referred to as ‘fractional reserve banking’. Unsurprising 97% of the money now in circulation has been created in this way, plus interest.

The Vickers Commission on banking pitched short of a full split between investment and retail banking, and failed to address that fundamental issue of rising debt and public exposure to private risk: the creation of money by banks.

Last year the Financial Services (Regulation of Deposits and Lending) Bill proposed to address this imbalance. The Money Reform party has been established to address the problem of rising debt, the Positive Money campaign launched to raise public awareness, and the All-Party Parliamentary Group on Economics, Money and Banking to discuss the issues.

The leadership of the Liberal Democrats has overlooked the root cause of our national debts; we need to collaborate with the aforementioned organisations to bring about the significant structural readjustment of our financial system.

The creation of money should be placed under the independent control of the Monetary Policy Committee, not at the hands of bonus hungry bankers with an eye on their next Porsche.

* Mark Hofman is a Lib Dem member in Harrow and stood for local election in 2010.

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9 Comments

  • Simon McGrath 20th Nov '11 - 3:47pm

    Oh dear.
    he’s not a “City Trader” he’s a self publicist who makes money selling training course. never worked in the City, never worked for a financial services firm and not registered with the FSA.
    http://www.telegraph.co.uk/finance/economics/8792829/BBC-financial-expert-Alessio-Rastani-Im-an-attention-seeker-not-a-trader.html

  • Buy all means take away from banks the power to create money but do not in turn give it to the government. Fix the money supply and allow for constantly falling prices. The American economy grew significant at the end of the 19th century with a falling price level.

  • The current system of banking dates back to the 17th century, its time we discussed significant reform rather than stick with a system which creates ever more unsustainable debt.

    The governments gross consolidated debt is £1130 billion (76.7% of GDP), and this rises virtually every year because the government lend money in order to pay their bond holders. An absurd system known as peonage (where you continuously lend to pay off existing debts): http://www.ons.gov.uk/ons/rel/psa/eu-government-debt-and-deficit-returns/september-2011/stb—september-2011.html

    Levels of debt are even higher in other developed countries around the world:
    http://www.bbc.co.uk/news/business-15748696

  • Bill le Breton 21st Nov '11 - 4:30pm

    Fractional reserve banking is a load of tosh ‘reserved’ for text books. In the real, world banks look for borrowers, lend to them, (creating money as you suggest) and then go and look for reserves.
    These days decreases rather than increases (or insufficient increases) in the money supply are the problem with businesses reluctant to borrow and in effect increasing the level of their ‘savings’ and along with individuals paying down borrowings. The money supply in various measures has been falling, especially in real terms.

    I was never in favoiur of joining the euro because it meant handing over an important power (which I thought should be controlled democratically): that is the power to influence our interest rates and money supply.
    As it is we have handed this over to the MPC – a totally undemocratic body which very nearly contained a majority of people intent on raising interest rates as little as six months ago. None of these nright things have resigned or been sacked. Nor could they be.

  • Andrew Duffield 21st Nov '11 - 7:45pm

    Money creation – like land ownership – does not require (re)nationalisation.
    The private banks’ privilege of creating sterling as credit (debt) – like all such privileges – simply needs to be taxed.

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