Letter to the Guardian.
Guardian reader John Thorpe asks “…but please explain: is the bank just printing money…?” (Letters 16 JUN 12). The answer is YES.
At base, we – we the people – generate all real-money by agreeing deals – by making promises and contracts with each other, in the real economy. The limit to “money” is real-wealth, real things, in the real-economy.
Banks always and only “just print money”. Banks are essentially 3rd Parties to our real deals. Banks are bookkeepers. Basic economics says “Money is a means of account and a medium of exchange”. The “account” is e.g. when a UK person sells a bicycle and gets £114 in banknotes, the notes are IOUs that the nation owes the seller real-goods e.g. food or clothes. The banknotes are “bearer bonds” unquestionable IOUs (if you hold them you are entitled to them) from HM Queen via Her Bank. Money is bookkeeping. Money is a symbol of real-things in the Real-Economy. When all citizens agree that we can trust HMQ’s promise to pay – we have Confidence – and use Her trusted IOUs as a “medium of exchange”, instead of making impossibly complex swaps of real-goods-services.
We, in the real-economy, create “money” by working and swapping promises and contracts. Banks are trusted 3rd Parties to keep accurate records of our promises, to act as valuers to veto silly/crooked deals, and keep the records safe. Do they deserve our trust – or should we shift to another 3rd Party system – such as a laptop PC? The 2009 Wall St. crash took out trillions of banknotes by de-leveraging. Quantitative Easing has put back a tiny fraction of that lost “liquidity”. Banks and Governments are currently restricting “money” to stop day-to-day transactions – which drives up the value of “money” and drives down economic activity – jobs etc. Now, far too many spivs fiddle the books, to steal our work and goods. “Money” is real deals. Banks should accurately reflect those deals by replacing our IOUs with HM Queen’s IOUs, at a reasonable cost (interest). Instead they are shutting down the global economy, which suits moneyed off-shore billionaires, at the cost of our and our children’s jobs.
(Mr) Noel Hodson
OXFORD, OX3 7PJ, UK
Tel +44 (0)1865 760994