The background to it is that commercial banks themselves create the huge majority of the money supply in the form of bank-account money as profit-making loans ("credit") to their customers, thereby deciding who shall borrow it for first use and so put it into circulation, and for what purposes. The rest of the national money supply, less than 5% in this country, is cash. This is issued by agencies of the state – banknotes by the Bank of England and coins by the Royal Mint.

The unanswered question is: Did the banks' creation of bank-account money to lend to one another – for the purpose of investing in risky packages of debt – play a significant part in fuelling the credit bonanza and associated sub-prime market and financial boom that then went bust? – leaving:

    Northern Rock effectively bankrupt, and other banks with losses of billions of dollars and pounds;

    such a tangle of international interbank indebtedness that the central banks and other authorities (like the FSA) were unable to assess the potential consequences if it all unravelled; and

    a backlash in the form of the present "credit crunch" which will be disastrous for many unfortunate citizens in no way at fault.

The evident reluctance of supposedly democratic parliaments, governments and monetary and financial authorities to discover and tell citizens in understandable words how the money system works, why it works as it does, and to consider whether there might be some clear and simple way in which its workings could be significantly improved, is making a growing contribution to the current disillusionment with democratic politics and government.

People in leading public positions, calculating the "risk-to-reward ratio" in terms of their careers, are reluctant to support serious study of the pros and cons of monetary reform – on the lines summarised in my article "Exploring Northern Rock: The Stone That Must Not Be Left Unturned" in Quarterly Review, Vol 1, No 4, Winter 2007, pages 23-274. So the pressure for studying it seriously must come from independent citizens outside the political, economic, and financial complex – to raise the balance of reward against risk as perceived by our "leaders".

One next step is to press the Chancellor of the Exchequer and others responsible for the money/finance system in our parliamentary democracy to be asked to answer some of the following questions in words that the electorate might be expected to understand.

Where did the billions of money come from which fuelled the credit bonanza, sub-prime market and associated financial boom?

Broadly what proportion of it was created out of thin air by commercial banks as loans to one another?

Did their ability to create it for that purpose make it more difficult for the authorities to assess the potential consequences of the tangle of international interbank indebtedness when it threatened to unravel?

Who are the people who have actually suffered from the losses of the billions of pounds and dollars that banks have now "lost"?

Where have those billions gone?

Who got them, and what have they done with them? have they "been laughing all the way to a bank" with them? and is their bank quietly laughing too?

Or have the lost billions simply disappeared into the thin air from which bankers originally created them?

If so, during their return journey from and back into thin air, roughly what proportion of them will have stuck to the fingers of bankers and other financial operators on the way – which they are now enjoying as additions to their share of the money in circulation?

1 www.bankofengland.co.uk/publications/fsr/2007/fsr22.htm

2 www.parliament.uk/parliamentary_committees/treasury_committee/runontherock.cfm

3 www.parliament.uk/parliamentary_committees/treasury_committee/tcfst.cfm

4 www.quarterly-review.org/index.html

– from Prosperity, April 2008

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