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Legal Forgery Introduction

The chart below gives the total money supply of the UK as measured by the statistic M4 (Bank deposits) and the total bank lending M4 Lending in each of the years from 2004 to 2009.

It shows that M4 Lending increased by about £1000 Billion in the five years, rising in step with M4 deposits. The rate of increase slowed in the last year but remained positive. Money, both in the form of bank deposits and loans made by banks continued to increase after 2008 but at a slower pace. 

 The provisional estimates up to May 2010 from the Bank of England  show a small fall in M4 (-£0.2 billions) and  M4 lending continuing to fall strongly (-£15.1 billions in May 2010).  These falls are the first for very many years so the money supply has stopped rising at last and this is an opportunity to stop the private banks from creating money completely and replace  it with Government created money which would be a substitute for taxation. 
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Chapters 2 and 2 B give a detailed explanation of the way in which money is created.  (Go to the heading "Legal Forgery to find a list of links to the chapters).

In 2008 several of our largest banks lost their reputation and with it went the value of much of the money deposited with them plus an unknown amount of exotic derivatives and insurances. The damage done to us as ordinary citizens is very well documented. The cost of saving the banks using taxpayers’ money was enormous and much of it was directed at allowing the banks to resume lending money created by themselves without much thought on how to prevent it all happening again.

The ability of banks to lend money deposited with them is essential but their ability to create the money they loan is forgery. It is forgery because money created in this way transmutes from a temporary addition to credit into permanent legal tender when it escapes into the clearing system. See Chapter 2.

This book was first written at the end of the 1980s as a result of the author’s research into the causes of the high rate of inflation during the 1970s. This revealed that the money supply was created in the private banking system and that all efforts made to control the amount created had failed, resulting in the only control left being changes in short term interest rates in order to control the demand for loans.

Statutory liquidity ratios were reduced from 32% in 1947 to virtually nil in 1996 (Chapter 6).

During the 1980s we moved from a variety of physical controls on the creation of bank money to almost complete dependence on varying short term interest rates. “It is therefore futile to target the CPI as a measure of inflation because it is neither a measure of our rate of inflation nor is it much affected by our only control lever, namely interest rates" (Chapter 5)

The amount of new money created each year is very large and was increasing ever more rapidly. New money is created in the form of bank loans of money that has not been first deposited as savings. This can only be done by banks who are members of the Central Clearing System (APACS) see Chapter 3, because all money lent by one member bank is deposited in another member bank, which has the effect of keeping it all in the family of clearing banks.

This ability to create new money in vast quantities raises the question of “seigniorage” or the benefit which accrues to those who can mint money. Originally minting money was the sole prerogative of the Monarch and forging or counterfeiting currency is still a felony. It is truly remarkable that the clearing banks are allowed to do it, even encouraged to do it. How often did you hear Gordon Brown saying that he wanted to get the banks lending again?

If the power to create new money were removed from the private banks it could be replaced by new money created by the government. New money created by the government could be used for government expenditure to replace part of taxation or the need for borrowing by the government.

During 2009 the government through the Bank of England created £200 billion of new money under the name “Quantitative Easing”. The money was used to buy existing government securities (Gilt edged securities, or Gilts) which were then held in a special account. The interest on these Gilts, amounting to about £10 billion was still paid by the government but into the special account, thus saving the expense of paying it to the original holders of the Gilts. The £200 billion cost nothing, not even printing as it was all done electronically.

The Gilts are scheduled to be re-sold to the public sometime when the situation is back to normal but that is not going to be easy if we are still trying to fund new government debt by selling new gilts. Meanwhile government debt has effectively (even if only temporarily) reduced by £200 billion and government expenditure on interest payments has effectively reduced by £10 billion a year.
This exercise demonstrates the power of seigniorage. It could be extended but the power of private banks to create money at the same time would have to be curbed.

The way in which private banks could be prevented from committing legal forgery is open to suggestions. The fact that it should be done is not open to question. The damage that has been caused and the injustice of allowing legal forgery to occur at all are now very clear. The rest of this book expands on the causes and possible cures for monetary chaos.