Monday, June 03, 2013

The Missing Link in UK Banking

The colonisation of Africa and elsewhere is easy to see. The colonisation of the credit market at home less so. Fred Harrison writing on page 8  in The Silver Bullet about people's natural right of access to land and nature's resources, defines colonisation as external intervention and control so as to abuse that natural right. Land and its sources of wealth, is a natural, pre-existing resource. 

In the credit market we have a resource that did not pre-exist in nature. It arises out of the collective success of a whole nation. The community grew and worked well and this generates the ability to create credit. Credit arises variously: on the level of a supplier allowing a few weeks before goods supplied need to be paid for, or by a bank instantly creating a loan out of thin air for a customer who walked through the bank doors needing money to support a business. 

The ability to create credit does not reside in any skill of a banker. They have colonised the 'credit creating territory' that the community, and only the community, has made. Banks are granted monopoly powers by government to be the creators, gatekeepers and controllers of the credit flow back to the people who made it possible.  Unfortunately the last five or six years has shown what folly has arisen because there was too much trust by the community in banks to use their credit creating powers wisely. 

In colonising the credit creating territory, just like the historical land colonisers, success arises from an ability to control and harness the resources of credit creation at every level and direct it to the colonist's own ends.  Clearly, credit creation starts with local deposits which, after following certain reserve rules, enable massive multiplication of those original deposits in the act of credit creation. [See this video.]  But to what extent do these local deposits create local credit? It has been a complaint by small businesses through many business cycles that credit is often very scarce. Whyever so? The problem is that dealing with many small businesses needing individually-tailored loans does not really fit the business model of banks that are free to range away to large cities and even the entire world, feeding credit to large enterprises with multi-million sized loans. Why bother with talking to fifty firms, each of two persons wanting £30,000 to start to employ a third, when in a more efficient use of time one multinational firm can be dealt with and is calling for £200m for speculation?

There is a missing link in UK banking. We have virtually no locally defined banks such as exist in Germany, Switzerland, the US and elsewhere. UK credit unions are heavily restricted so that they are not able to operate as full bank, credit creators - the colonisers of the credit creating territory have seen to that.  The crushing of comprehensive, local, credit creation in the UK is as suppressive as methods of empire-building Europeans ever were in earlier centuries. Germany has Sparkassen (savings banks) which are locally defined. They are also not-for-profit, which takes care of the capturing of monopoly powers - the profits are recycled back to good causes in the local community that enables the credit creation to happen.  Monopolies, like colonials, need sorting out to produce win-win results for all parties.    
posted by Charles Bazlinton. See Banking references in The Free Lunch - Fairness with Freedom

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