Dear Polly,

you have made some insightful arguments, especially your fiscal suggestions in the final paragraph.

But there is an elephant in the room: both Labour and Tories, most economic and financial advisers and media commentators (and all the bankers) have ignored the one strategy that will tackle the underlying causes of the credit crunch. You rightly identify the ongoing “tax and spend” debate, but this debate neatly (and comprehensively) sidesteps the real issue. The state does not have to borrow in order to spend; ask yourself this – where do they borrow from? Every country in the world is in debt…where do they borrow from?

Here is the elephant – the banks, not the government, create almost all (over 90%) of the money supply. So reform the money system by nationalising the power of money creation.

Now imagine: the government takes reponsibility for creating 100% of money (legal tender!) and the banks are limited to doing what banks should do, i.e. taking deposits and issuing loans based on these deposits (with strict liquidity ratios). The government issues money into the economy as it sees fit (health, education, jobs, public transport, environmental work, etc). This money is interest free and goes into productive circulation in the economy.

What a dramatic contrast to the current situation, whereby the state borrows from the banks, creating money and debt in parrallel, then repays the banks with interest, which the bankers keep as profits – a double payday for the bankers. The banks have always campaigned to retain this arrangement, since they benefit so much from having the power and the priviledge of creating money out of thin air.

You don’t have to weigh an elephant to know it’s heavy.

I invite you to join the campaign launched by James Robertson (www.jamesrobertson.com) to get this proposal (to nationalise the money system) onto the agenda of the G20 meeting in April. James also proposes to introduce an international currency to overcome the international aspects of the credit crunch.

I’ll leave the last word to Abraham Lincoln:

“The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles… the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.”