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It would be helpful if letters to MPs etc were collected here so that others could comment/build on the examples. Following the 5 questions line of thought, I recently sent the following to Natasha Engel our MP in NE Derbyshire. I will let you know if any helpful reply is received! Natasha, I am very concerned that the Coalition is not addressing the serious problems caused by the lack of effective regulation of the banks. It has delayed implementation and diluted the recommendations of the Vickers Report . The banks can lend much more money that they take in deposits. By 2007, they had created up to £100 of new credit for each £1 in reserve (Bank of England, Reserves and M4 Supply, July 2007). This is equivalent to the banks creating money. They created £260 billion in 2008. In rough terms, less than 20% of this was used to support industry, around 40% for mortgages (resulting over the years in massive house price inflation) and around 40% on "financial services" (including "casino betting" on food futures etc etc) The Bank of England also creates money (as cash and notes) and this generates "Seniorage" which is worth some £2 billion each year to the Treasury. (For each £1 created by the Bank of England, 99 pence is "profit" for the Treasury). In my view and that of Positive Money (www.positivemoney.org.uk) it would be better for the Bank of England to control the money creation and feed the Seniorage back to the Treasury. Estimates suggest that this would more than balance the savings from the current Coalition spending cuts. This could be achieved by a gradual increase in the ratio of bank reserves to lending, with the Bank of England making up for shortages in the money supply whilst still avoiding inflation.
Re the proposal to develop ideas on "telling a friend in 5 minutes", The following is offered for further discussion. It takes the form of 5 questions. The answers given by the friend can then branch out to more specialised lines of interest. 1) Are you aware that banks can lend more money that they take in deposits? 2) Do you know how much money the banks have to hold in deposits (reserves)? For example, if a bank lends £100 does it have to hold £100, £10 or £1 in deposits? - £1 (or only 1%) is the right answer. 3) Would you agree that by lending 100 times what it holds in deposits the bank is creating money? (if appropriate give some recent statistics on the level of money creation before and after the 2008 bale-outs (£260 billion/year in 2008) and after (£101 billion/year in 2010) and the proportion of this money that is used to support industry (~20%), for household mortgages (~40%) and "financial services" (~40%)) 4) Are you aware that in addition to this money created by the banks, The Bank of England also "creates" money (as cash and notes) and this generates "Seniorage" which is worth some £2 billion each year to the Treasury. (For each £1 created by the Bank of England, 99 pence is "profit" for the Treasury). 5)But £2 billion is very small compared with the amounts of money created by the banks each year (£100 to £260 billion). Would it be better for the Bank of England to control the money creation and feed the Seniorage back to the Treasury? Estimates suggest that this would more than balance the savings from the current Coalition spending cuts. This means that there would be no need for the current cuts in public and social services.