How the Green party is miles ahead of the game on monetary policy

For several years the group Positive Money has been running a public education drive to explain the way that money is created out of nothing by private banks, and then rented out to the public in interest bearing loans and mortgages, and why this kind of rentier system leads inevitably to irresolvable debt crises and vast speculative bubbles (here's a short video).

At first the establishment treated Positive Money dismissively, as if they were some kind of dangerous tinfoil hat wearing conspiracy peddlers, and tried to talk around the truth by harping on about things like capital requirements.

The Green party recognised the truth in what Positive Money have been highlighting, and in September 2013 they passed a motion to reform the monetary system by taking the power to create money away from the private banks and placing it in public hands.

This landmark motion didn't attract much attention at the time, this is hardly surprising since the mainstream economic press were hardly likely to pay much attention to what the Green party were up to. They should have been much more concerned with the fact that the Reinhart-Rogoff paper they had all lauded as concrete evidence that austerity was necessary was based on a hopelessly botched Excel spreadsheet that any proper science would have picked up in the process of peer review, and by the admission by the IMF that fiscal multipliers (government returns on investment) have been much, much higher since the global financial sector insolvency crisis (between 90p and £1.70 return per pound of investment, rather than the 50p return that austerity fetishists like George Osborne had assumed in their wildly over-optimistic economic projections).

Of the very little coverage about the Green party motion to reform the monetary system, the tone was negative. I actually agree with some of the criticism, because in my view their proposed solution isn't ideal, however to have recognised the problem and proposed a solution is far better than the political establishment (the Lib-Lab-Cons), which has carried on without any recognition of this glaring flaw in the way in which 97% of the money in the economy is created.

For the next six months Positive Money kept up their campaign to spread public awareness of the way money is created out of nothing by private banks and rented out to the public via interest bearing loans and mortgages, the political establishment continued to ignore the issue, and everyone pretty much forgot about the Greens.

Everything changed in March 2014 when the Bank of England released a document entitled Money Creation in the Modern Economy which admitted that "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money" and goes on to explain that banks actually loan out money whether or not they have enough in deposits in their reserves and then borrow the shortfall from the central bank to top up their reserves; thus showing that the Bank of England has accepted that Positive Money were absolutely right. This is probably the closest thing to a revolutionary paper released by the Bank of England in living memory, and has brought the subject of monetary policy to the fore.

This admission from the Bank of England shows that the Green party were well ahead of the game when they voted to reform monetary policy six months beforehand, and that the four other parties are way behind the game, with their heads stuck firmly in the outdated neoliberal textbooks that created the financial sector insolvency crisis in the first place.

That none of the other four parties have shown any interest in reforming the way money is created, in order to prevent the inflation of more speculative property bubbles (like the London bubble) is an illustration that they don't have any solutions. This is because they don't actually seem capable of recognising what the problem actually is, let alone offering anything resembling a solution.

The fact that the Labour party and the Liberal Democrats are offering no new solutions on monetary policy is bad enough (UKIP have been far too busy with their immigration fearmongering campaigns to look at the problem either) but the behaviour of George Osborne and the Tories has been frankly ludicrous. Not only is Osborne incapable of seeing the problem, he's busy pumping taxpayers' cash into the housing market (via Help to Buy and other such schemes) in order to further inflate the speculative property bubble caused by excessive and uncontrolled private sector money creation.

I don't think the Green party have got it exactly right on monetary policy, but they're way ahead of the Lib-Dems, Labour and UKIP by virtue of having actually recognised the problem, and they're double the distance ahead of George Osborne and the Tories because the Tories have actually introduced a load of policies which exacerbate the problem by using taxpayers' cash to pump up the market with false credit. This creation of false credit is their cack-handed solution to help people that have been priced out of the market due to the speculative bubble that has been fuelled by private sector money creation. Not only have they failed to see the root cause of the problem, but the solution they've devised simply makes the mess even worse.

To put this situation into a nice simple narrative, the Green party started running the race over six months ago (their running style isn't perfect, but they're moving along quite nicely and will hopefully really hit their stride soon), Labour and the Liberal Democrats are milling around at the start line unaware that the race has actually started, UKIP are off in the crowd somewhere hunting out immigrants, Muslims and homosexuals to intimidate, and George Osborne, like the clueless towel-folder that he is, has set off running in completely the wrong direction, going backwards around the track.

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