SIR,

It may surprise the reader to learn that only three per cent of the money in the economy is actually issued by the Bank of England in the form of coins and notes; 97 per cent in circulation is "electronic" money created by the high-street banks. When you take out a loan from a bank, it just creates the money. Of course, if an individual were to do this, he or she would be arrested and put in prison. However, banks can do this with impunity.

The obvious downside of the uncontrolled creation of money is that it leads to inflation, or a devaluation of the pound in your pocket and to a massive increase in private debt.

The largest sector for borrowing is the housing market. The reason that there has been a threefold increase in house prices over the past 20 years – well above wage inflation – is not due to the conventional view that there is a housing shortage, but more or less simply due to the fact that there has been so much mortgage lending.

House prices are at present about double what they should be compared to earnings, and it is clear that many people are finding it difficult to step onto the housing ladder. Before the credit crunch vast mortgages were too easy to come by, and this inevitably pushed up house prices.

In conclusion, we need a radical reform of the banking system. Since banks tend to take on too much lending, we must insist upon higher capital or liquidity requirements.

Since banks are socially irresponsible, we must nationalise them and impose democratic control. Since productive firms are starved of finance, we must create a state investment bank. In addition, we need more education and awareness of the problems in the banking system, and the media need to improve their understanding and portrayal of economics and banking. Discussions on issues such as this will soon be announced in Monmouth. Anyone interested will be welcome to come along and have their say.

Anthony Owen

(Monmouth)