Could this actually work?

I found this article through Daniel Hannan's blog.

It is very interesting to read and it looks like it has some good ideas, but I don't have the economic knowledge to know if this could actually work.

Have a read and see what you think.

The Emperor’s New Clothes: How to Pay off the National Debt & Give a 28.5% Tax Cut
By Toby Baxendale.

I offer a £1,000 reward for anyone who can tell me why this logically won’t work, practical politics, for now, being another matter.

What follows is an attempt to show you that this can be done.

Remember the story about the Emperor whose only concern was not the welfare of his people but the state of his clothes? Lacking a new outfit for his procession, he instructs the finest clothe-makers to propose designs. Step forward Slimus and Slick, promising that only clever people will be able to see their splendiferous garments; they will be invisible to anyone stupid. In exchange for gold coin – real money – they make something special for the King. The King, seeing nothing when presented with these designs made out of thin air, worries that he must be stupid because he pretended to the fraudsters that they were wonderful. Word goes round that only clever people can see the garments, so everyone cheers the naked King during his procession. It takes a small child, on top of his father’s shoulders, to exclaim: “the Emperor has got nothing on!” Everyone falls silent. Then, one by one, they start muttering, “the Emperor is naked!”

I am going to tell you that our Emperor – the government – has no clothes and is indeed naked with respect to our money. The sooner we realise this the better. Then we can make real progress and prevent the imminent misery. Indeed, the realisation of its nakedness should reveal that we have a unique moment in history to do something very special: to make banking secure, pay off the national debt, and even enable a 28.5% income-tax cut.

We all know what notes and coins are: money, or cash. It allows us to exchange the fruits of our work for the goods of others. When we deposit cash in Bank A – say £100 – we lend this money to the bank. This may come as a surprise to most, as we think what we deposit in a bank actually remains “ours” beyond this point. But as soon as you make a deposit it becomes the bank’s i.e. “theirs.” They then lend what is called credit of £100 to an entrepreneur, who banks it in bank B. Like magic, we now have you, who have a claim to “your” £100, and the entrepreneur, who also has an equally valid claim to “his” £100. This happens 33 times for every £100 deposited in the UK economy on average, meaning that for every £100 deposited, it is lent out to 33 people. Some of the banks did this up to 60 times. This cash cannot exist in two places at the same time, let alone 60 places at once. So what bank A does, is write you an IOU. Yes, your bank-statement is a mere IOU, the bank saying “ bank A owes you £100 on demand.” This is called a demand-deposit. We now see that demand-deposits are created out of thin air! Indeed, these are just ledger-entries from one bank customer to another.

Tesco groceries can be paid by electronic transfer. All we are doing is moving our bank’s IOU to Tesco’s bank in exchange for their groceries. This is how the world works. Do we care that we are buying goods and services out of thin air? Like the Emperor, does he care – as long as all believe he is clothed? Well, the customers of Northern Rock did. So when more than a small percentage of them asked for their IOUs from Northern Rock to be repaid – or, as they thought, for “their” money back – it could not be, as the bank had already lent it many times, making it impossible to reimburse all they owed. Indeed, if the government had not pledged to underwrite all deposits, then there would be a very good chance that the whole system would have collapsed.

If we accept that the Emperor is naked then the path to solving all our current financial problems becomes clearer.

Consider this following programme of reform:

Print cash and replace all the demand-deposits/IOUs that exist in the system with that cash. This means the government printing approx £850 billion in cash and injecting it directly into the vaults of the banks and into the accounts of individuals. Thus, if you deposited £100 once thinking it was “yours,” it now really exists in cash, with the bank acting as custodian of your money.

Mandate all banks to hold your cash (100% reserved) on demand at all times.

Wipe from the bank ledgers all the demand-deposits/IOUs as banks would not owe you money anymore. This means the “thin air” money disappears, to be replaced exactly with cash money. Note: this is not inflationary, as the cash replaces the demand-deposit which acted as money. As we have established, it is only thin-air that the banking system has created to facilitate the multiplicity of lending of the same bit of money, so its total replacement with cash would mean the money supply stays exactly the same.

Require all banks to lend real savings that people knowingly place with banks to lend to businesses to get a return of interest and capital back when the business repays that loan. This is nice, simple and safe utility banking. This is what Mervyn King advocates.

As you are not a creditor of the bank anymore, the banking system will only have its assets and its capital, i.e. no liabilities. This means that there never again could be a bank run.

As for the banks, not having you the depositor as a liability anymore, they will suddenly be £850 billion better off, with no current liabilities and only assets (loans to business etc), post reform. The government can now put those assets into Mutuals, which would then immediately pay off the national debt, and leave the banks in exactly the same position net worth wise as they were prior to the reform, owned by their existing shareholders. As the national debt is still just under the £850 billion, which would be available as surplus assets of the banks, this could still be achieved.

No national debt means no interest costs (currently £40 billion p.a) associated with paying for our borrowing. Therefore, give an immediate 28.5% income-tax cut. Total income-tax raised is £142 billion.

The boy in the story stood on his father’s shoulders. I stand on the shoulders of great men who have advocated part of this reform: Irving Fisher, the greatest American economist, the Nobel Prize winners Soddy, Hayek, Buchanan, Tobin, and Allais. Recently, Kotlikoff of Boston University has published an excellent book, “Jimmy Stewart is Dead” advocating a similar reform. It is endorsed by more Nobel Winners: Akerlof, Lucas, Fogel, Prescott, and Phelps. I count 36 endorsements from the great and the good for the book. All endorse Kotlikoff’s move to what he calls Limited Purpose Banking which is another way to get 100% reserved (i.e. secure) deposits backed by cash rather than thin-air.

The Economist Huerta De Soto, in “Money, Bank Credit & Economic Cycles,” has seen the opportunity that presents itself to reform for 100% money while also paying off the National Debt. Following on from this, I suggest a substantial wealth-creating tax cut for the people. Just like the boy in the story, I do hope that people start to realise that the emperor really has no clothes, and that an enlightened approach can address this.

If this could work, will the politicians use it, or at least consider it?

£815 per Week

I would love to get paid £815 per week.

I have 2 jobs. I work my arse off to keep a roof over my family's head to keep them fed and warm, but I barely take home £1150 per month, and today I read this;

Why work when I can get £42,000 in benefits a year AND drive a Mercedes?

An extract

The Davey family's £815-a-week state handouts pay for a four-bedroom home, top-of-the-range mod cons and two vehicles including a Mercedes people carrier.

Father-of-seven Peter gave up work because he could make more living on benefits.

Yet he and his wife Claire are still not happy with their lot.

With an eighth child on the way, they are demanding a bigger house, courtesy of the taxpayer.

Apart from about 4 months in the early 90s I have always been employed, hell I even had a paper round when I was a kid.

I work hard to try and get a good wage, but when I read an article like the above I get angry and depressed because my family and I could earn a lot more on benefits than in employment, but my father gave me a strong work ethic and I have always believed in paying my own way in life.

To all the hard working people out there who are struggling in the current financial climate, If you read the following you may explode with anger;

'It's really hard,' said Mrs Davey, 29, who is seven months pregnant. 'We can't afford holidays and I don't want my kids living on a council estate and struggling like I have.

'The price of living is going up but benefits are going down. My carer's allowance is only going up by 80p this year and petrol is so expensive now, I'm worried how we'll cope.

'We're still waiting for somewhere bigger.'

Mrs Davey has never had a full-time job while her 35-year-old husband gave up his post in administration nine years ago after realising they would be better off living off the state.

I have an idea for the wife, stop having babies.

I have another idea, if someone gives up his job just to go on benefits then that person shouldn't get any benefits.

How many people in this country are doing the same thing as the Davey family?

How much money are these people, in my opinion fraudulently, getting money from the working taxpayer?

Is there any wonder why this country is in so much debt when the taxpayer is paying for people like the Davey family

Would you go this far to escape your debts?

I don't know if this is true or not, but you never know.

The following is taken from this article;

Man had sex change to escape debt collectors

A man from the West Midlands, who was believed to have debts of up to £50,000, had a sex change in a desperate bid to avoid debt collectors.

The man, who cannot be named, had got into so much debt that he decided to switch identities completely.

Actress Sarah Thom revealed that she found out about the man after speaking to workers at the Wolverhampton Credit Union to research her role playing a debt-ridden cleaner in a touring play called Forever in Your Debt.

She said that she met up with workers at the union – which provides financial advice and loans to members – who revealed its most extreme cases of debt to her.

One was the case of man from the West Midlands area who decided to have a sex change in a bid to dodge debt collectors.

The man is believed to have gone through with the operation, but is now thought to be in the process of sorting out his debts and paying off his creditors.

He is thought to have built up the massive debt – around £50,000 – after falling behind on his mortgage payments and credit card bills after losing his job.

It was also revealed that the owner of a 99p store in Wolverhampton had to shut down after penny-pinching customers demanded 1p change, while another man took a job as a debt collector only to have to hassle his own family for repayments.

Ms Thom, said: "The thing I picked up was the humour people have at the point of tragedy."

This is a bit unbelievable, but I thought I would share it.

Have a read of this Headline.

Liam Byrne: No new tax rises under Labour

Labour has pledged to impose no new tax rises despite being warned that increases are the only way to cut record public debt.

Now ask your self this.

How is Labour going to cut the debt the country is in by not raising taxes and by not cutting any front line staff?

An extract;

Last night, the Institute of Fiscal Studies warned that Labour would not be able to keep its promise of protecting front line services and jobs under its current deficit reduction plan.

In his pre-Budget report in December, Alistair Darling, the Chancellor, said that the Government would halve the £178 billion deficit in four years.

Another extract;

Mr Byrne is seen as a close ally of Gordon Brown and his comments are likely to reflect the wishes of No 10.

Mr Darling is likely to want to keep options open for his vital pre-election Budget.

In my opinion, Alistair Darling wants to do what is right for the country, but is being undermined by Gordon Brown and his allies.

Alistair Darling knows that hard choices need to be made and that front line services would probably have to be cut, but he is being forced into a corner by these quotes from Gordon Brown and his allies.

I know that life is going to be financially hard in the next few years, and i think a lot of other people think so to, but if i am honest i don't think Gordon Brown thinks so, or at least doesn't show it.

When you are in debt you make sure there is enough money for the essentials and you stop, or reduce the luxuries you have and you cut back on your spending.

I don't think Gordon Brown gets that.

Scientists call for new word for 1,000,000,000,000,000,000,000,000,000

That is the headline to this article.

I would like to nominate the name Brownillion (or a Browner), due to the amount of debt Gordon Brown has put this country in.

What has Gordon Brown done for Britain since his first Budget?

That is the headline to, in my opinion, a very honest article, by Jeff Randell, that looks at the state of the UK finances since Labour came to power.

The last paragraph says it all;

In short, sterling is in the toilet, our pensions have been slaughtered, cash savings yield almost nothing, the country is up to its neck in unprecedented debt, the banking system is awash with funny money, our gold reserves were sold off at rock-bottom prices, and Britain’s dole queue is considerably longer than before Crash Gordon began cooking the books.

Apart from that, it’s not too bad.

I knew we were in for a rough ride over the next few years, but i am starting to think it is going to be worse.

Thank you so much Tony, Gordon and the rest of your cronies in the Labour Party for ruining this Great Nation.

Quangos

What are quangos and why do we need so many?

In my opinion a quango is just a talking shop that the government uses to make their policy for the day.

Here is a quote, from this article in the Mail today.

Definitions of what a Quango is vary a bit. But using a rather tight definition the Economic Research Council estimates a total spending of £88.9 billion for 1997/98 and £174.7 billion for 2005/06, the latest figures available. The Taxpayers Alliance estimate that UK quangos now employ an army of almost 700,000 bureaucrats.

Now I am in total shock at the amount of money that has been spent on these quangos. How on earth can the government justify the amount of money being spent.

£86,000,000,000 (£86 BILLION) and that's only up until 2005/06.

How much more has been spent in the last 4 years?

£86 BILLION extra spent on quangos, that's about half of the UK debt.

What else could the £86 BILLION of tax payers money been spent on?
More hospitals, more nurses, more equipment for our troops, there are a million and one things that the money could of been better spent on.

700,000 employed by these quangos. Is this how the government has been keeping the jobless figures down all these years?

Are the quangos good value for money?

Do the quangos offer the country good value for money?

Who ever wins the next general election, must cut the amount of money spent on the quangos.

Is This a Major Shock? 3

Update to my previous Blogs. Is This a Major Shock? & Is This a Major Shock? 2

Public sector pay races ahead in recession

That is the headline to this article in the Times today.

So public sector worker pay races ahead of the private sector, shock, horror.

Now if the pay rises were for nurses, the police or any front line service i wouldn't be that bothered, but i bet it isn't.

Here is a quote from the article

Since Labour came to power in 1997, the number of public sector workers has increased by 914,000 to more than 6m, just over a fifth of the workforce.

What i would like to know is, of the 914,000 public sector jobs how many were front line workers like nurses and police?

Not many i would think, most of them would be the quangos and non jobs. If the 914,000 jobs were the police, nurses and other front line jobs i wouldn't of minded.

Another quote from the article;

This has come despite a decline in productivity. According to the ONS, public sector productivity fell by 3.4% in the 10 years from 1997 — compared with a rise of 28% in the private sector over the same period.

“It is ridiculous that pay and perks have risen when public sector productivity has fallen. This gravy train now has to come to an end,” said Graeme Leach, chief economist and director of policy at the Institute of Directors.

This is a great example of why government, local and national, should be under the same rules as private business. How can they get away with having 914,000 more workers and have productivity fall. If that happened in a private business the owners would have to make staff redundant, but not if you work for the public sector.

Another quote from the article;

One of the starkest gaps between the public and private sector is in pension provision.

Most civil servants receive employer pension contributions worth 19.4% of their salary paid into their final salary pension scheme each year. This is more than three times the average of 6% paid by private sector firms into their employees’ less generous defined-contribution schemes last year.

Why is it so different to the private sector, they get paid more by the tax payer, they get better perks than the tax payer, they get better pensions than the tax payer.

Who pays for all of their pay, perks and pension, yes us the tax payer, but what gets me is, they can retire earlier than the rest of us. Some of them can retire at 56 while the rest of us tax payers have to work till we are 65 and in some cases beyond that.

How in the hell is all this going to be paid for. The country doesn't have any more money. The country is so much in debt that each person in this country owes in the region of £25,000 each.

The whole system has to change.

Is This a Major Shock? 2

Update on the previous blog

One in three mandarins has a £1m pension... and retires years earlier than private sector staff

This is the headline to this article.

I am working my arse off to keep a roof over my families head and to put food on the table, and trying to save as much as i can for my family's future.

I am saving pennies for my family's future, but i am paying, as well as all the other taxpayers, for certain people to lavish in luxury.

The article only covers a fraction a what the taxpayers have to cover. All government employees, local and national, will be paid a pension funded by the you and me.

I can only wish for a pension of 1 or 2% of what some of these people are on.

If the next government, whoever it might be, must change this, and many others, if they want to start gaining the public trust ever again.

Is This a Major Shock?

Below is a the headline to this article from the Telegraph

Rising public sector pay cost £11bn in taxes

Britons would have been spared £11bn in taxes had public sector pay rises been kept in line with the private sector over the past two years, according to a think-tank.

I'm not shocked by this.

We all knew that the public sector was being paid more than the private sector, but finding out that they have cost us £11 Billion is unforgivable.

How many quangos are there that doesn't do much else apart than being a talking shop, and issuing useless and stupid new rules and regulations.

I would love to know the truth how much money has been wasted throughout the last 10 years on computer systems that don't work, bonuses for workers who save money on buying equipment that isn't up to the job (yes MOD i am talking about you)

Bonuses for workers who put their 'lives on the line' (yes that's right the immigration officials See This Blog).

The government, local and national, should be under the same rules as private business. They should be legal requirements to show the public, whose money it actually is, that the money isn't being wasted.

If someone in government does waste millions or billions on a computer system that doesn't work, for example, then the people responsible should be fired.

That's what normally happens in private business, but if that happens in government you get promoted and get a huge bonus.

How much of the tax payers money has helped some MPs become rich through house sales, where they buy them cheap, do the house up at the tax payers expense, and then sell at a profit. How many MPs have done that.

Will this all change next year?
Will the public sector pay get frozen next year?
Will we see a reduction in the amount of public sector employees?
Or will it be a token gesture and the status quo will carry on?

That is just what is wasted by the UK Government.
I would hate to know how much is wasted in the EU?

Spend money or Save Money?

This is something i have been thinking of since i read about Gordon Brown giving £1.5 Billion to the fund on helping developing countries to fight Climate Change.

If, and i mean if, the 'catastrophic' climate change occurs, wouldn't the money be better spent on updating and shoring up this country's flood defenses, or was this extra money found down the back of the sofa?

To be honest the flood defenses need fixing now, because as we have seen if it rains more than usual we get flooded. The drainage system in the UK is very poor. We need to build proper storm drains and keep flood plains as they are, so families won't get flooded out of their homes.

The UK is massively in dept and we cannot afford to give any extra money out. The government has to cut back on everything and make huge changes in what they spend on.

I know things are going to be hard over the next few years, but if you are in dept you only spend on essentials and if you have any extra money after that you put it away for a rainy day.

There needs to be a massive rethink of government spending now, and not in 6 months time.