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Economic howlers of our time

This country started removing controls from banks under Chancellor Anthony Barber and continued under Margaret Thatcher. Now there are few controls over commercial banks’ power to create money.

Contrary to popular notion, a bank can make a loan without needing to take the money out of someone’s account or having to wait for someone to make a deposit; it can simply create a new account for the customer and key a number into it. 97.4% of all the money circulating in the UK economy was created by banks in this way – in effect out of nothing.

Without democratic debate or even questions in the House, without legal basis to sanction it, UK governments surrendered one of their most important powers – the power to create money and control the money supply – to the private finance sector.

The private finance sector exploited this power by putting nearly 90% of this money towards activities that did not contribute to real growth of the economy, but instead fuelled the bubble that led to the crisis and made buying a home unaffordable for many. Huge amounts of money were gambled on financial products that produced nothing useful, transferring wealth upwards to the rich, and reducing the amount of money available for health, welfare, education, police, tackling climate change, etc.

The need for large-scale reform, regulation and re-structuring of the financial sector, especially banks, has therefore never been more urgent. Unless and until government addresses this outstanding problem the danger that our society will be devastated again threatens.

By David Murray, May 2013.

How economic de-regulation has influenced the behaviour of banks in their role of creating money, and the relevance of that to the ongoing economic and financial crises, is explored in a half hour presentation put together by Sutton for Peace and Justice member David Murray. David would be happy to give the presentation to meetings of local groups and facilitate a debate – please contact Sutton for Peace and Justice if your group is interested.

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