Saturday, November 26, 2005

NZ Green Party magazine reviews the book

Reviewed by Brian Westbrooke for Te Awa, The River, Magazine of the Green Party of Aotearoa New Zealand

We often think of money as something tangible like notes and coins. A moment’s reflection provides a reality check. Most money, from our bank account balances and mortgages to our wages and EFTPOS transactions at the supermarket, is imaginary and electronic. Only 2% of New Zealand’s money supply is state issued currency. All other money is based upon private debt, a pyramid of mortgages, loans and overdrafts created by banks.

Deirdre Kent’s Healthy Money Healthy Planet offers an accessible and readable critique of our monetary system and a comprehensive review of alternative currencies and community banking systems from a New Zealand perspective.

Part One describes the organisation of our diseased monetary and banking institutions, explaining how banks create money through the money multiplier effect in an easily understandable way. The author shows why our monetary system, based upon interest bearing debt, will collapse unless more money is continually created, and how this money supply expansion creates relentless pressure for economic growth.

Over the term of a typical housing mortgage, for example, a borrower will, with interest, repay more that twice the amount borrowed.

Banks do not directly lend the interest component of these repayments into existence. For borrowers to meet their commitments, new debt money must be continually be created elsewhere in the financial system. Borrowers must ceaselessly engage in competitive economic activity to produce goods and services in a struggle to obtain such money from others. Paradoxically, our monetary system creates a continual scarcity of money for many whilst also propelling expansion of the total money supply.

The book reveals that New Zealand’s money supply has grown phenomenally since banking industry deregulation in the 1980s. Household mortgage debt, constituting over 60% of our money supply, grew from 3.7 billion in 1978 to 81 billion in 2003, a rise of more than 2000 percent over 25 years! The money upon which our economy relies largely created through an increasing housing debt burden (and rising house prices)

The second part of the book examines alternative healthy currencies and community banking systems from around the world that produce more socially and economically desirable outcomes.

Kent argues that the first step towards a healthy monetary system is the development of local currencies and banking systems based upon mutual exchange. These would not be founded in interest bearing debt, and would exist alongside national and international currencies.

Although it does not offer a simple panacea for our problems, monetary reform is crucial to the creation of a substantial society. Healthy Money Healthy Planet is a very useful starting point for those who wish to know more about our diseased monetary system and alternatives to it.

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