Banks to blame for spiralling debt says author

By SIMON COLLINS

Our homes are filling up with goods that don't last - and British schoolteacher Michael Rowbotham says it's all because the banks are lending us too much money.

He says the banks' uncontrolled lending is forcing us all to work longer than we want to and buy more goods than we need, destroying the environment in the process.

His book, The Grip of Death, has been hailed by Waikato University vice-chancellor Bryan Gould as a powerful indictment of how banks create money and "a persuasive case for reform".

Rowbotham will speak at a seminar on alternative economics in Auckland on Sunday and meet Economic Development Minister Jim Anderton in Wellington on Monday.

A schoolteacher from East Anglia, Rowbotham has never belonged to a political party. He says he wrote the book because no one had updated monetary reform ideas in the context of today's complex financial system.

Since publishing it, he has become secretary of the Christian Council for Monetary Justice and spoke at this year's British Green Party conference. His NZ visit has been organised by an Alliance member party, the Democrats.

He says there is "a complete contradiction" in the fact that consumer debts, corporate debts and national debts are highest in the world's richest countries.

"The Americans, supposedly the richest citizens ever to walk the face of the planet, are the most heavily indebted people of the world, carrying mortgage debts that currently total $4.2 trillion," he says.

But it is no accident. Rowbotham says our economic system actually prevents us from growing wealthier except by going further into debt, because the extra money we earn is actually created by the banks in the form of loans.

In Britain, notes and coins issued by the state-owned Bank of England amount to only 3 per cent of what is counted as the "money supply". The other 97 per cent - the money in our bank accounts - has actually been created by the banks. (In NZ the figures are 2 per cent and 98 per cent.)

Starting with that 2 or 3 per cent in cash, the banks can lend most of that money to borrowers. When the borrowers spend the money, the people they pay it to deposit it in banks. Those deposits "create" new money, which the banks can then lend out again, creating an ongoing spiral of money creation.

Rowbotham says this system forces us all to work longer hours to try to pay off our debts. But collectively, we can never do so, because if we all paid off our debts and stopped spending, production would collapse.

Meanwhile, he says, our mounting interest bills force us to buy cheap, low-quality goods. This suits business because it can sell new goods to replace the ones that wear out.

Rowbotham says the Government itself should create money through its public spending.

It should then prevent the banks from inflating the money supply by imposing limits on how much people can borrow.

For example, people could be limited to borrowing no more than twice their annual incomes through house mortgages - a severe restriction when the average mortgage in Britain today is about three times the home-buyer's income.

Rowbotham's seminar starts at 10 am on Sunday in Lecture Theatre WH125 at the Auckland University of Technology, Wellesley St.