I’m delighted to have a guest-post here from Keith Lindsay-Cameron, the man who’s famous around social media for writing a letter a day to number 10. It is a fantastic addition to our information for campaigners and activists collection – KG.
For seven years we have been browbeaten into thinking we have a catastrophic national debt which we, tax payers, must pay off either through our taxes or through tightening our belts – through government-imposed austerity. This is one of the greatest scams ever imposed on us by a government which has knowingly and deliberately set out to play us for fools.
What is money?
In the UK we use a monetary term GBP meaning ‘Great British Pound’. This is a unique term for the UK’s sovereign money supply issued by the UK central bank, the Bank of England (BoE). It comes in two forms: physical cash, which accounts for about 3% of money available in the UK, and digital money, which accounts for all the rest, including bank loans.
Physical money is an IOU (coins or notes) guaranteed by the BoE which we all familiar with and exchange for goods and services. Digital money is created as loans which are pulled out of thin air (financial services providers are not obliged to point to a specific pile of “real” money to back a loan) but the recipient of the loan can use it like real money – as credit to buy goods and services. In general, we expect to pay off such loans through our physical labour and earnings, and we expect an additional charge of interest on the loan.
What is government debt?
This is where we get into less familiar territory. Government debt is the sum of its investments. As a sovereign money supplier, the government pays for its investments not by looking at how much it is receiving in taxation, checking whether there is a lot or a little in the tax bag, but just by saying, as the banks do, ”So be it”. If the government decides to invest £10 billion in housing, it simply credits the building industry with £10 billion and the building industry starts building houses. Because that money is now active in the real economy, as opposed to in the financial markets, it works, moving from hand to hand, business to business, and creates a return of approximately £2.80 for every £1 invested, creating growth in the economy. It creates something tangible – wages which circulate to pay for the stuff of living, profits and homes for people to rent or buy. In short, that government ‘debt’ creates growth. It is absolutely normal for governments to run a deficit, it is no use creating money just for the government to pointlessly sit on. It just creates it at need.
What is Quantitative Easing?
Financial markets offer a much smaller return on government investment. Through what is called Quantitative Easing (QE), the government gave the financial markets £445 billion for which the return was around 8 pence for every £1, because that money was not circulating in the real economy; it was used simply to generate more profits for the financial markets. Positive Money described this QE gift to the banks a ‘failed scheme to stimulate the economy and end the recession’, calling it, ‘one of the biggest missed opportunities in history’ (see links at end).
Necessity or Ideology?
The problem we are facing today is that the government is not investing in the real economy: it is investing money in privatisation of public services, whilst deliberately cutting public investment to the bone. It is not building houses, it is not investing in public health care, care services and social security, it is not investing in secure jobs and decent pay, or services like the Fire, Police and Ambulance Services, Teachers and schools. This is merely a political ideological choice, not a necessity. It is wilful neglect, perpetrated to further privatisation.
Austerity is a failed experiment which has been condemned the world over by leading economists. The only way to grow the economy is by investing in it. That is what happened after WWII when UK debt was at 230% compared to the current 80%. During the post war period the government invested in a massive house building programme, founded the National Health Service and the Welfare State, bringing about near full employment until the 70s and generating unprecedented growth which saw ‘rising real incomes which in turn led to higher tax revenues and falling debt to GDP (gross domestic product) ratios’. (see links at end)
The Magic Money Tree
Theresa May told a nurse who asked for a pay rise, “there isn’t a magic money tree that we can shake that suddenly provides for everything that people want.” (see links at end) Yes there is, it’s called the bank of England. If the government can afford to offer Richard Branson £700 million to run privatised NHS health care in Bath, it can afford to give public sector workers a pay rise. The government will never turn to Branson and say, ‘We can’t afford pay you this month’, because he knows, as does Theresa May, as do the DUP, that such a claim would be complete and utter nonsense. The government always has money for what it wants to do.
23 July 2017
NB (by KG) I asked Keith why, if the govt can issue money as investment whenever it likes, we need taxation – and what about the dangers of inflation. The answer is in the following link…
…In short, tax is a kind of regulator, which a responsible government would use to keep the economy stable, investment and taxation being the ‘on’ and ‘off’ taps as it were, to prevent inflation, or to prevent activity being stifled by the gathering of too much money into inactive pools by too few people, for example.
Keith’s Blog: https://creatorsnotconsumers.wordpress.com
The ‘letter a day to number 10 collection: http://www.keithordinaryguy.org.uk/
Former ‘answers for for canvassers’ posts…
The Answers: https://kaygreen.blog/2017/04/23/the-answers/
Answers to the answers: https://kaygreen.blog/2017/05/13/answer-to-the-answers-to-the-answers/