From Mr Andrew Dickie
Sir, - So, Malcolm Dixon (Letters, 16
August) would have us believe that "while commercial banks
undoubtedly make a profit from lending money, they do not create
that money or debt. Only central banks, which are an arm of
government, have the power to create money, and they have been
doing so assiduously in recent years."
Oh, dear me, no: this must be rebutted, for two reasons. First,
because it is wrong: the Bank of England does not create the money
that is circulating in our economy - or at least not 97 per cent of
it, which is the product of bank-created debt.
Only three per cent of the money circulating in the economy is
created and issued by the Bank of England. All the rest is conjured
out of thin air by the banks. Would that they did pay the Bank of
England for the privilege, but, alas, they do not.
Does Mr Dixon imagine that, when I create a debt by using a
credit or debit card, the card-providers trot off to the Bank of
England and ask for increased money to be created to meet the
"money" they have lent? If so, he is living in Alice's Wonderland;
for, of course, all that happens is that an entry on the electronic
ledger is made, recording that I owe £x. This entry constitutes a
proprietary right, for the honouring of which I can be sued, but no
actual money is issued by anyone.
This "right" is tradable (consider the business of factoring, or
of vulture hedge funds, which buy up the debts of impoverished
developing countries), issuing into real property only in the form
of the object that I have bought, and/or the interest charged to
me.
If Mr Dixon prays in support of his argument the concept of
quantitative easing, we need to realise that that consisted in the
Bank of England's "paying" the Treasury to buy back debt, mostly in
the form of gilts, issued by the Government. None of this ever
emerged into the real economy, but remained firmly within the
banking community, used to bolster the balance sheets of banks.
To add insult to injury, the banks awarded themselves even
bigger bonuses for displaying skill and foresight in being in the
right place at the right time to receive an entirely unmerited
bounty.
This brings me to the second reason why Mr Dixon's thesis must
be rebutted: it obscures the real causality of events since the
2007 credit crunch, and allows us to blame profligate Government,
which "issued too much money, and spent too prodigally", when the
truth is that taxation receipts under the last Government were
always comfortably ahead of government spending, until the reckless
and potentially criminal (remember the LIBOR-fixing scandal, which
made the cost of credit dearer?) behaviour of the financial sector
caused the crash of 2007, resulting in a sharp fall in tax
receipts, and so producing a deficit. The banks directly caused
this.
Where I am in sympathy with Mr Dixon is when he lauds a more
prudent age that kept strict control of the amount of credit - a
system abandoned in the early 1980s, with its concomitant trashing
of mutualisation - and in blaming governments for not stepping in
to impose controls.
Too right! A Labour Government worth its salt would have done
so, and not supinely subscribed to the neo-liberal mantras that lie
at the back of the increasingly polarised and dysfunctional
economic system of the past 35 years, which has seen the top one
per cent take an ever-greater share of the total wealth, by playing
a fixed system to their benefit.
I would say that Bishop Selby's strictures on banks and
Government were milder rather than harsher than the facts
allow.
ANDREW DICKIE
15 Gowing Road, Hellesdon
Norwich NR6 6UN