Comments on: FAQs

By: Bank of England Act

Bank of England Act — Wed, 04 Aug 2010 12:28:03 +0000

It’s an independent public organisation, wholly owned by the government. Have a look on either the Wikipedia entry for the Bank of England, or on the Bank of England website, specifically here.

http://www.bankofengland.co.uk/about/parliament/index.htm

By: Gregory

Gregory — Wed, 04 Aug 2010 10:45:11 +0000

Who exactly owns the Bank of England ? Is it private or government?

By: Simon Davies

Simon Davies — Wed, 21 Jul 2010 20:05:28 +0000

Good answer to Kieron’s question. The speculation and gambling enabled by the huge increase in money supply using the multiplier effect has been hugely damaging. Essentials for life like food, oil and housing could not so easily be manipulated by the gamblers. Less money being ‘created’ or forged by the banking system means property prices for example, are more stable, and house buyers do not have to take out mega mortgages to keep up with unsustainable rises in house prices. The present system has to inevitably collapse in bust because we run out of good debtors and peoples’ ability to take on yet more debt. Most bank lending at present is used for short term gambling rather than long term investment. See the mania of the buy to let boom where banks went crazy lending out more and more in the expectation of ever rising prices. Some buy to let apartments in Leeds and Manchester are now selling for half their boom time prices of 3 or 4 years ago. Where did George Soros get the money to place his bet that the pound would fall out of the Exchange Rate Mechanism in 1992 ? From the banks of course, at the cost of billions to the UK tax payer.

By: Bank of England Act

Bank of England Act — Wed, 21 Jul 2010 16:37:39 +0000

Hi Kieron,

Under the reform, banks will not be able play dice with your money, and cause it to not be there when you want to withdraw it – this is a good thing!

There will be a reduction in the amount of available credit, but there will also be a decrease in demand that is greater. The money will still be created, but publicly. This means, for instance if all the money is put into a reduction in taxes, that the amount you pay less in tax will be greater than the amount you would have needed to borrow without the reform. Interest rates post reform will be dictated by the market, the amount you pay for a loan will be dictated by demand, which should fall over time as debt free money is injected into the economy. A side effect of the fall in supply and demand of credit will be that high risk financial speculation, which interferes with free markets more and more as more money is created, will fall, as low risk investments such as mortgages and business loans will replace them.

Banks won’t move out of the UK, for many reasons…. They would lose out on the entire lending market here, and not be able to collect any of their debts. Other banks would spring up operating under the new legislations and make a lot of very safe money, without ruining the economy. It is equivalent to saying that Tesco would pack up and move abroad if we increased taxes on supermarkets. They would also have to compete in already crowded markets abroad, and remember that currency is not unlimited, and still operates under supply and demand, if a bank wants to lend in dollars, it must buy the dollars, at the market price. An increase in demand of foreign currencies from an exodus of the UK banks would lead to a massive increase in the costs of doing this, which would not go down too well with their UK shareholders!

By: Kieron

Kieron — Wed, 21 Jul 2010 13:14:45 +0000

So without the multiplier effect, banks will not be able to spread their risk and make a substantive profit. Will this not mean:

1. Massive contraction in the amount of available credit – including business loans
2. Contraction in the supply of credit – driving up interest rates to astronomical levels
3. Banks moving out of the UK to countries with ‘normal’ lending regulations

Is this not simply a giant leap backwards?

By: Bank of England Act

Bank of England Act — Sat, 17 Jul 2010 12:08:46 +0000

Hi Jim,

The precautions are there to ensure the economy is safe from hyperinflationary money creation, as we have seen in Zimbabwe in recent years.The answer to your question is that by the time such a fundamental reform is passed, it will have been so widely discussed and will be so well understood that markets will have no incentive to attack the “new” pound, quite the opposite, in fact!

By: Martin Jones

Martin Jones — Sat, 17 Jul 2010 09:50:15 +0000

Great site, well done.
Sometimes it is difficult to visualise just how much the banks are costing us.
If £1 million pounds was represented by one day, then £1 trillion pounds would be 2,740 years.
The cost to us of bailing out RBS and Lloyds is reliably believed to be between £1 and £1.5 trillion pounds.
The interest (ironically paid to the banks) on an extra £1 trillion of government debt is estimated at around £50 billion, which happens to be greater than the total of all the spending cuts that we will suffer shortly.
However, it is the nature of interest on debt that it is paid every year and not just in the first year, so unless something is done we can expect spending cuts of this scale for many years to come.

By: Bank of England Act

Bank of England Act — Thu, 15 Jul 2010 22:44:09 +0000

A common threat, often employed by the banks themselves, is that any change that threatens their profitability will mean that they have to move abroad and leave the UK. In the case of this reform, that is truly an empty threat. This proposal would apply to all lending and banking services in pound sterling, and therefore any bank threatening to go abroad would in effect be suggesting that they would voluntarily withdraw from the entire, £2.6 trillion pound sterling lending market in the UK. Not only that, but they would then need to go and compete for Euro or dollar lending in other countries with already saturated banking markets.

In short, the argument that this reform would lead to an exodus of banks is like arguing that Tesco would close all 2,500 of their UK stores if the government introduced a tax on plastic bags.

By: Jim Green

Jim Green — Tue, 13 Jul 2010 19:24:06 +0000

What additional measures would a government have to take when implementing such a Bill to protect the £ from speculative attack by ‘the markets’, debasing the currency and risking hyperinflation?

By: Paul Wyndale

Paul Wyndale — Mon, 12 Jul 2010 16:54:46 +0000

Well alright! These reforms are definitely a good start!