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Privileges of the private banking sector distort the economy

October 21, 2014

james skinnerFT: October 19, 2014 11:51 pm: economist James Skinner (right):

As Amir Sufi points out (“Bernanke’s failed mortgage application exposes the flaw in banking”, October 14), the damage done to the economic system by the tremendous support offered to banks by governments is much more serious than just misdirected lending.

Under the present monetary and banking system, governments have in effect ceded their right to create new money to the private banking sector. The supposed justification for this extraordinary state of affairs is that in the past bankers somehow gained a reputation for being better able to direct money where it is most needed.

The record of the past decade has demonstrated conclusively that this is no longer true – if it ever was.

There is nothing to prevent governments from taking back from the banks the right to create money. If they did so, it would be possible for a large proportion of governments’ budgeted expenditures to be met by issuing new money to be spent (not lent) into the economy by the governments as a substitute for taxation and borrowing.

Among the major benefits of this change would be a massive cut in both taxation and borrowing, together with the direction of investment where it is most needed – the Green Investment Bank could, for example, be given equity resources on a similar scale to Germany’s KfW.

Obstacles: ignorance and vested interests

There are only two obstacles to this policy being adopted – ignorance and vested interests. A recent poll of MPs showed that only one in 10 understood how money is created. This is typical of the almost universal public ignorance of the workings of the monetary system. Most people are simply not aware of the distortion of the economy that results from the privileges of the private banking sector.

The benefits of the present system to the affluent elite are massive. They play a major role in accelerating the growing inequality that has become a feature of developed economies. It does not have to be that way.

Read about the author’s renewable energy and sustainable transport initiatives:, and his endorsement of James Robertson’s Future Money:


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