Charles Adams has a post under the above title on Progressive Pulse which explores important aspects of money creation, and cancellation, as well as the chance that monetary policy might work. I strongly recommend it.
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This is an excellent read. Thanks for sharing Richard. Appreciated.
Key points for me included:
a. Money is created and destroyed (cancelled) and that this is an essential feature of the economy to make it function.
b. Debt is a promise. A promise is a debt. Without which the economy cannot function. Ergo, debt is not automatically a “bad thing”. Unmanageable or poorly managed debt is however.
c. It is the rate at which we make promises and money – and then destroy it – that needs to be carefully managed (if we are to keep the economy bubbling along nicely).
d. The deficit is simply the difference between what is spent and taxed, but that difference isn’t necessarily or automatically a “bad thing” – as is often reported in the media – and that difference does not in any way stop the government from creating more money and issuing more promises.
e. All government-created money makes its way back to the government eventually through taxation.
f. We don’t have to allow private banks to create money if we don’t want them to. We have a choice. They do not have an inalienable right to create money; they do it under licence from the Bank of England. But since we allow them to create it on our behalf, we have a duty and right to hold them to account and tax / share in their profits.
g. The duopoly exists because it is thought that government-created money is there to serve the public (or national good), whereas privately-created bank money is there to serve private individuals e.g. supplying mortgages and other loans for purely personal or commercial needs.
h. The real risk to the economy is the lack of political will to use fiscal policy to regulate the economy and private banks more effectively, because monetary policy is weaker than fiscal policy. That doesn’t necessarily mean having more regulation is the answer, just better regulation and the will to use it.
Conclusion: the optimal strategy to create a successful economy i.e. one that will benefit both the public and private individuals/organisations, is to have a well-balanced duopoly. Having one or the other – or imbalanced duopoly – seems to produce undesirable, unfair, unjust and distasteful effects.