An economic essay by David Bolwell
In today’s economic climate the government keeps our thoughts firmly fixed on the size of the deficit and our obligation to the country to suffer so this debt can be reduced, and the economy brought under control. What they don’t want us to do is ask why we have this debt and is it actually possible to reduce it? If we start to ask these questions we may uncover the uncomfortable truth which has been hidden in front of us all this time.
At present the UK deficit stands at around £150 billion. This is how much the government is borrowing each year and how much is added to the country’s debt. The current UK debt stands at a massive £950bn, which is 65% of the counties GDP. The debt is set to rise to about £1.1 trillion in 2011. Of course before we can reduce the debt there has to be no budget deficit, but is this achievable and what does it mean for the UK if it isn’t?
The problem with the economy isn’t as the government would have you believe, the welfare bill or winter fuel money. The problem is the way in which our economy has been constructed, as it is designed to cripple the country with debt. When the government needs more money, one of the options at its disposal is for it to ask the Bank of England (BOE) to print more. This sounds reasonable enough, but what most people don’t know is that the BOE then lends this money to the government at interest. So for every note printed we have to pay that back to the BOE with interest. From the start our money is printed out of debt. William Cobbet an M.P in 1810 said “There is something so consummately ridiculous in the idea of a nation’s getting money by paying interest to itself upon its own stock, that the mind of every rational man naturally rejects it. It is, really, something little short of madness to suppose, that a nation can increase its wealth; increase its means of paying others; that it can do this by paying interest to itself. When time is taken to reflect, no rational man will attempt to maintain a proposition so shockingly absurd”
Starting in 2009 as part of the Quantitative Easing measure, the BOE electronically created £200bn of new money out of thin air. With this money the bank bought up government gilts, despite most economists saying this is the worst possible way to spend the money. Gilts are one way the government can raise money. They are effectively an IOU, a promise to pay a fixed interest payment every six months until the maturity date, at which point the full value of the bond is repaid. The proceeds from a gilt sale are then spent by the government and the value of the gilt is added to our national debt. By purchasing these second hand gilts vast sums of money effectively left the UK and went to overseas bond markets. The bank could have purchased corporate bonds which would have allowed the money to go directly to companies which needed it. But it didn’t, and so the BOE became the main purchaser of government debt and now holds about 20% of government issued gilts.
By purchasing a vast amount of debt, the BOE effectively allowed the previous government to continue its spending addiction. The purchasing of gilts was not an effective way of injecting money into the economy, and there is no evidence that quantitative easing has worked. The main purpose was to keep the interest on gilts low so the previous government could borrow more money to feed its spending sprees. A very real side effect of the BOEs actions, could be a further devalued pound, inflation, and an economy that looks like a risky investment to foreign investors. Meaning that interest on gilts will increase, so the government will need to borrow more money to pay the inflated interest.
The BOE is believed to be a publicly owned institution, owned and controlled by the government and us the people. If this were true why would the government charge itself interest and cripple the nation with debt? Why also did the BOE help push the UK economy over the edge in 2008 by keeping interest rates at 5% for a whole year after the credit crisis started and the housing market had peaked? The Bank of England contributed to the current crisis by de-regulation of the banking sector that allowed banks to run wild, creating fictitious profits, knowing full well the liability was being placed on to us the tax payer. Were the BOE a government department run by us for us, then it could have averted the whole banking crisis. The bank cannot claim naivety as an excuse for it is an institution that was formed in 1694 and is over 300 years old. The only way the actions of the BOE can be perceived is that its main intention is to turn everyone including government in to debt slaves.
If we take a brief look at the history of the Bank of England we can see how this central bank effectively controls the nation’s economy and level of debt. What is harder to discover however is who is controlling the bank.
In 1844 the bank charter act gave the BOE monopoly on production of the sterling, and effectively control of Britain’s money supply. In 1946 the bank was nationalised by the labour government. The country was bankrupt after the war so it was agreed that instead of paying cash for the shares of the bank, shareholders would receive 3% treasury stake in HM Treasury and then operate the Bank as if it was really a nationalised Bank. All the banks shares were then transferred to the treasury solicitor where they still are to this day, and the bank remains a corporation not a government department.
In 1977 the BOE set up an obscure company called the Bank of England Nominees Ltd, company, no. 1307478. What this company does isn’t exactly known because it has never traded. The company has only 2 of its 100 shares issued. Who owns these shares isn’t know as the BOEN is protected by various government acts and was given an exemption by the Secretary of Trade, from the disclosure requirements under Section 27(9) of the Companies Act 1976 , because, “it was considered undesirable that the disclosure requirements should apply to certain categories of shareholders.” Add to that the fact the BOE is protected by its royal charter status and the official secrets act and you find you have an institution that is protected more than the MOD from the prying eyes of the public that supposedly owns it.
In 1998 Gordon Brown enacted the 1998 Bank of England act, which gave the banks directors complete independence with regards to the country’s monetary policy. In 2011 one of the first things the new coalition government did was to scale back the FSA and make it a formal subsidiary of the Bank of England. So now we have a central bank shrouded in secrecy that controls our countries money supply, has total monetary independence and now regulates itself!
If we as a country are ever to sort out the problems in the economy, then we must start at the beginning, and cut the Bank of England out of the equation. What we have seen in recent years is just how much power and control is in the hands of the central bank. Those who control the money control the country and when David Cameron tells us his current plans have been okayed by the BOE, then we know who is really running the show. Until the lid is blown off the Bank of England it is certain that the debt will grow, and we will continue to have recession after recession. In these dark times power is gradually slipping further and further in the hands of the world’s bankers.
The national debt creates a staggering £49bn of interest that has to be paid each year. So we all owe £1.1tn with £49bn of interest due. If everybody gave all their money to the banks and investors to pay off the countries debt there wouldn’t be enough money to do it, due to interest and banking charges. So what does this mean if there isn’t actually enough money to be debt free? It means we will always be in debt and CAN NEVER be free from the debt.
Cameron said last year that the decisions that led to the financial crisis represent “a policy crisis of historic proportions” and “in the United States, they have called on the federal reserve and it is time to call on the Bank of England”