The Story of Our Economy in 2015: A cocktail of household consumption, household consumption, and more household consumption

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Debt-fuelled consumption underpinned economic growth in 2015. Without upgrading the policy ‘toolkit’ available to the Bank of England, the UK economy could come undone in the years to come.


Increased household spending, financed by soaring levels of consumer debt and the lowest savings ratio in history, continued to drive the UK economy in 2015. Our unbalanced economy and continued reliance on increasing household debt to fuel growth will most likely end in economic disaster. Policymakers need to begin thinking outside of the box and should consider taking measures to slow down money creation by banks – complemented by QE for People.


Growth and Consumption in the UK

When adjusting for inflation, growth in 2015 is now likely to have slowed to 2.1%, compared to 2.9% in 2014. A breakdown of the figures for GDP by expenditure demonstrates unbalanced growth, with continued dependence on household consumption.


Household spending made up 64% of total GDP expenditure in 2014 – and it still continues to grow faster than any other expenditure category. Figure 1, shows the quarterly contribution of the expenditure components to growth of GDP in chained volume measures. Throughout the year, the largest positive contribution to GDP came from household spending (growth in net trade was highest in the second quarter but was offset by the preceding and following quarters).


Quarterly measurements show that household final consumption has increased consecutively for the last 9 quarters; and when compared to the same quarter a year earlier, household consumption has been increasing every quarter since 2011 (Figure 3 below).


Speaking to the Financial Times, Andrew Simms, director of the New Weather Institute, said that his greatest concern about the balance of the recovery was “it has none…Any talk of recovery now is like saying that a previously paralytic alcoholic had recovered because he’d found the strength to lift a new bottle to his mouth.”


(Source: ONS)

Household Savings and Borrowings

What has been fuelling the growth of household consumption? In part, more people are working, thus more people are spending. Some might also emphasise the recent increase in real disposable income prompted by lower levels of inflation. But an increase in real disposable income cannot fully explain the higher levels of household consumption. Annual growth in real disposable income for the last three years has been 0.8%, and has been outpaced by growth in household expenditure, increasing at 2.5% per year in real terms.

To finance their spending, households have been dipping into their savings.

Figure 2 shows that just four years ago, UK households on aggregate were spending £67 billion less than they were earning. According to the Office of Budget Responsibility (OBR), households are now spending £40 billion p.a. more than they earn.


(Source: OBR)



(Source: Bank of England & ONS)

Indeed, at the end of the month, households are saving half as much as in 2012. The average savings ratio for 2015 was 4.6%, the lowest since records began in 1963. Figure 3 shows that the fall in the rate of household savings coincides with the increase in the rate of household consumption.

In addition, increasing household debt is helping to fuel consumption. With consumer debt growing at an annual rate of over 8% (Figure 4), £1.5 billion in November, this represents the biggest increase in consumer borrowing since before the crisis.


(Source: Bank of England Statistical Interactive Database)

The Years Ahead

The OBR forecasts that real GDP growth will average 2.3-2.5% a year between 2016 and 2020. This growth is meant to take place despite the reduction in government expenditure. As we have suggested before, considering that the UK is not a net exporter, if the government decides to reduce its level of debt then the domestic private sector has to take on more debt for there to be any growth. Increasing levels of private sector debt, (business and household borrowing), will be called upon to drive growth in the years to come.


However, early signals suggest that the business community is not as optimistic about their respective contribution to growth. Business activity in the last quarter grew at its slowest pace for more than two years – and long-term expectations for business activity were the weakest since 2013.


This coincides with a separate survey conducted by Deloitte, where the chief financial officers of Britain’s largest companies have reported a substantial rise in business uncertainty and have had to scale back their expectations for investment and hiring over the coming years.


When considering the future, therefore, our analysis suggests that economic growth will depend on the household sector taking on an unsustainable amount of debt. As Figure 2 demonstrates, the OBR projects that households will spend £40.4 billion more than they earn in 2016-2017, and another £43.9 billion in 2017-2018, £48.6 billion in 2018-2019, and £49.5 billion in 2019-2020.

The most recent report by the OBR indicates that household debt as a percentage of personal income will hit pre-crisis levels of 160% in 2019. Having over-estimated business confidence however, to achieve the projected levels of growth, households will most likely have to take on even more debt.


Monetary Policy

With a savings ratio at its lowest on record and the household debt re-approaching its pre-crisis peak, the Bank of England might be tempted to increase interest rates. According to mainstream economic textbooks this might be expected to increase savings and reduce consumer borrowing.


But the above suggests that a reduction in consumer borrowing would most likely dampen prospects for growth. Higher interest rates may further diminish business confidence and would increase the value of the pound, leading to a reduction of income on exports.


Moreover, our dependence on private debt to fuel growth has led us to a situation where households are financially stretched, and we should be worried about what households will do when interest rates rise. Over one third of mortgage loans have been taken out by households that have borrowed more than four times their income; while a sixth of it is held by those who have less than £200 a month left after buying daily essentials. In the meantime over 9 million Britons are over-indebted, half of whom are living in families on incomes below £20,000. Many households, especially those on lower incomes, could be in significant trouble if interest rates are raised.


This catch-22 situation demonstrates the current limitations and ineffectiveness of the policy ‘toolkit’ available to central banks, as well as, illustrating the dearth of ideas within mainstream policy-making circles. Policy makers should consider making the transition to a Partial-Sovereign Money System.

This would entail curbing levels of borrowing, without hurting the most overly-indebted households, by setting central bank reserve ratios for the private banking sector. To compensate for any contraction in household spending, triggered by the introduction of a reserve ratio, the Bank of England should create money and spend it directly into the economy. This type of QE for People would allow for spending to take place without a corresponding increase in the balance of net debt and without fostering further financial instability.

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Frank Van Lerven

Frank is our Research and Policy Analyst, and is responsible for our research on current events. Frank also leads our research in Public Money Creation and Quantitative Easing. Prior to working on the availability of credit under a Sovereign Money system, Frank also researched issues related to the 1844 Bank Charter Act and its implications for contemporary monetary policy. With a Research Master’s in Advanced Political Economy (cum laude) and a BA in African Development Studies, Frank is especially interested in how Western financial systems (and models) influence developing economies.
  • bankster01

    Email below sent to my MP, Kris Hopkins (Keighley), who did reply to a previous email. He conflated money creation (still allow banks to do it by issuing credit in his view), with using Sovereign money to pay for social infrastructure improvements which was my main point, although I told him commercial banks should not create any money.

    To get economic growth usually involves the private sector borrowing more, or the government, or both. Public and private debt is already at unprecedented levels with record low interest rates, and the appetite for borrowing in an ageing society, quite rightly, is less. The solution is not to keep high levels of immigration in the hope these will become new borrowers to fuel economic growth. Getting the Bank of England to create Sovereign money in the way I have described to pay for social infrastructure would not be inflationary, and would bring huge benefits. A poor second option is for the government to offer infrastructure bonds paying a much better rate of interest than gilts, to encourage pensioners and pension funds to invest their savings in these. However, this is more debt that would have to be repaid by the tax payer.
    Thank you again for reading this and previous.

    • RJ

      “However, this is more debt that would have to be repaid by the tax payer.”

      This debt would be simply rolled over. Govt bonds then create a saving asset held by the non Govt sector.

      • bankster01

        Yes but the bonds and interest would ultimately be repaid probably by the tax payer, you cannot increase debt ad infinitum. I am not going to get into another lengthy discourse RJ, I may even suggest that you are barred from commenting further on PMs site. Undemocratic I know, but it becomes very repetitive when so many comments are posted by you, and crowds out meaningful contributions from others.

        • RJ

          It wouldn’t be repaid This is more misinformation posted by those who would like to ban people to stop (deliberate?) misinformation being corrected. The only way bonds can be repaid in total is for the govt to run a surplus and this will not happen without the Govt destroying the UK economy (And there are hardly any comments on these blog posts. But even so PM is moving in the right direction but there is a lot of educating still to do. And to do this misinformation and nonsense needs to be challenged).

          • bankster01

            The more gilts and interest that are issued and then have to be repaid, the greater the burden on the tax payer, you never address this issue. The burden has become greater over time as the debt total has got bigger. It does not make sense to pay off all the public debt because it would cause a huge recession (that is why we propose using Sovereign money) but neither is it sensible to keep increasing the total, what on earth happens if interest rates go up ?

          • RJ

            More misinformation. You can’t stop it can you. The UK must keep on increasing the total. A balanced position (or worse a surplus) in the UK would be a complete and utter disaster. You read Franks posts but you completely ignore what he has posted. And throw in your misinformation to try and counter his excellent posts based on facts about what has been done by governments in the past. And must be done today in the UK (it is too late for Euro countries).

            The UK Govt MUST keep on running yearly deficits. These can be funded by bonds or reserves. It really makes no difference as both are created by journal entries (as is the interest). The neo-liberal misinformation like the burden has become bigger / must be repaid / what happens if interest rates etc etc is what the whole harmful austerity / sell off valuable assets on the cheap / we might run out of money scam is built on. There is no excuse for anyone who follows this to still promote this balanced budget nonsense.

            Sovereign money (whatever it is) is for the future. Ongoing deficits are for today. And are essential.

          • bankster01

            Rubbish, you misrepresent what I and Frank say, we will have to disagree RJ. You still do not answer the question about the growing burden on the tax payer. Sovereign Money would reduce the debt and the burden, your solution would increase it.

          • RJ

            Moving to a sovereign money system would be a massive change. It would completely turn our current system on its head. It would take a minimum of 10 years to discuss and explain this system, change computer programs, ensure that all the various bodies agree and understand the new arrangements, overcome public fear that would be blown up by all the papers etc etc. And try and explain how this new system would not result in Govt debt increases as it does now for deficit spending (one sided JEs are not possible in the real world). Because I can’t see how it will be done. And also explain how banks will not just recycle reserves in good times creating the same issues as we have now.

            Its a cool idea for people to discuss. I’m more concerned with the present. And stopping people promoting misinformation. Govts like the UK (but not Euro countries) can spend without limit. This is a fact. The UK Govt is not like a household. But many have been brainwashed by misinformation to believe otherwise. This is what austerity is based on. And the reason for the Euro. To take this power away from countries.

          • bankster01

            They said man could not land on the moon, or fly, or television was impossible. This is an easy challenge compared to them. The only thing holding it back is that the vested interests want to continue to rent the money supply to us.

          • RJ

            The JE’s for the £1,000 have already been done. As follows
            CR Money in circulation
            DR Bank account (reduction of balance)

            The bank account balance was created either by a bank loan or Govt spending
            DR Loan to house buyer say / BoE reserves
            CR Bank account

            Face up to it. You have been fooled by misinformation. This is what the neo-liberal austerity / Govts must sell off their asset / the Govt could run out of money etc is based on. You have not only been had by it but now you actively promote the misinformation. And have become a willing servant for the neo-liberal cause.

            And are still doing it full on.
            “at seeing an ever growing public debt total”
            Still focusing on the meaningless liability but not the critical important saving asset
            “an acedemic rather than a practical problem”
            Just nonsense but this is the nonsense they revert to when cornered.

          • bankster01

            You still dont address the issue of the tax payer paying debt interest. You do not make it clear, but I presume you mean the B of E would own the government’s increasing debt (they own about 30% now), if the B of E is creating money rather than the private banking system.. If that is what you mean, why do you not say it rather than referring to journal entries. You become increasingly incoherent and look at things from just an accounting view rather than a systems approach. My view is that the government would merely disburse money created by the B of E.

          • RJ

            There are two ways to look at interest

            1 – to focus on the interest expense as a terrible burden on the taxpayer. That’s the neo-liberal approach.
            2 is to focus on the additional non Govt income created out of thin air by the UK Govt that often helps pension funds to pay decent pensions. This interest directly improves non Govt wealth and yearly combined profits.

            The neo-liberals do not want us knowing that some governments (UK yes Euro countries no) have all the power today. Not the banks or markets. That’s why the Euro was set up. To take this power away from the people and pass it to a small ruling elite.

            You have been fooled as I was initially. The UK Govt can create money (reserves that are then used to back bank credit) and bonds as required when required. This directly one £ for one £ improves the wealth of the non government sector. But we have all been brainwashed to miss the obvious.

            All we need today is more government debt that will be never paid off. This deficit (and debt increase) can be used to fund new housing, new hospitals, clean energy, improved pensions, lower VAT etc etc. And then becomes an asset (a bond or money) used as an investment by pensions funds to help fund all of our saving requirements.

            Sovereign money is (another) trap to put off to the distant future what can be done today. Seeds like this (and debt free money / gold as money) were planted a long time ago. Now it’s taken hold. But all we need today is more monetary sovereign Govt debt. And less bank debt. It is that simple but we refuse to see it. We are blinded by misinformation.

          • jamesmurraylaw


            Give us a reputable or avademic link to support your nonsense.

            Just one.

            Go on.

            PM should indeed ban you from those able to comment on these blogs as you consistently push your arrogant claims that only you ‘know’ about these things.

            Better still, Frank van Leaven or someone from PM may take the (wasted) time to break down and answer your various arguments in a blog.

            Then, every time you comment the reader can instantly told you are a troll and be given the link to the blog.

          • RJ

            Why don’t you reply to my comments James with facts to counter them. Or just accept that you don’t know and try being humble for a change rather than continuously lashing out and making accusations and trying to get people banned.

            You mindset is a danger to the West. You hate any viewpoint apart from yours. You want to silence anyone who challenges the consensus when you meekly agree with it even though you obviously have not thought the issue though in any depth. And you bow down to so called authority figures but only those that agree with your consensus viewpoint.

            Can I suggest you do some research with an open mind and then either agree with my points or challenge them. Because if PM can not respond to my challenges then what will happen if called sovereign money ever becomes close to a reality.

            And Frank does not have to respond. He’s doing excellent work with these series of articles. We don’t need to wait for paradise at some distant point in the future.

          • PJM

            RJ, it is my understanding that the book “Where does money come from?” explains the whole process in great detail. Does what you say contradict that?

          • RJ

            “97% of the money in the British economy is ultimately credit created by
            commercial banks, which is then destroyed upon repayment. To understand
            why credit *is* money – legal tender – read this book.”

            I think its 100%. Our money = bank credit. The banks and treasuries (Govts) money is BoE reserves. That’s what they use to settle with each other. We use bank credit. (Notes and coins are really no more today than a token for bank credit. So bank credit comes first and then we exchange this bank credit for notes and coins).

            What I disagree with is the claim that 97% of our money (bank credit) is created by bank lending. It’s far and away less. As government spending also automatically creates new bank credit for monetary sovereign governments like the UK. This is a key point. It’s this misunderstanding that results in comments like the UK can run out of money. Or the UK Govt needs to borrow money. It’s behind this damaging and totally unnecessary austerity. This misunderstanding causes more harm than anything else today.

          • bankster01

            RJ, I am on your side to a limited extent if the B of E owns the government’s increasing debt, so the interest is paid to the B of E and then back to the government, if that is the system you are trying to describe. Government spending has to be funded by taxation, borrowing from home or overseas investors, selling assets, or money creation by the B of E as we have described. I think the vast increase in the money supply, especially since 1997, was caused by increasing commercial bank credit. The so called “reserves” increase as well if all banks increase their lending together, because a proportion of the increase in money has to be used by the commercial banks to settle with each other via their accounts at the B of E, although each bank only needs enough to meet its daily payment obligations, so in theory M4 money could increase, but reserves money be a smaller proportion over time (fractional reserve). This is what happened as the reserve requirement became much less as banks went on a lending spree, and the reserve requirement had very little effect in constraining it.

          • RJ

            “The so called “reserves” increase as well if all banks increase their lending together,”

            Agree with most of your posts. But banks can not increase or decrease the amount of BoE reserves. Only the BoE can do this
            They increase when
            – Governments spend to pay expenses or buy assets including

            – Govts buying back bonds
            Decrease when
            – We pay tax
            – We buy bonds

          • bankster01

            Yes, I meant to say M4 lending and M4 money increased, but the reserve requirement became a lower percentage of that, so the money held by commercial banks for daily settlement at the B of E was the same, unless the B of E specifies the same reserve requirement in line with M4 and M4 lending increases. You are correct in saying only the B of E could introduce new “reserves”

          • solutrean

            Article 101EC of the Treaty of Maastricht clearly states that the nations central bank is prohibited from direct financing of government spending so your idea that government spending creates new money is a non- starter no matter how you try to juggle those JE’s of yours RJ.

            This is what really happens in regard to taxation.

            Step 1/ The taxpayers (Solutrean) account is debited by £1000 (broad money).

            Step 2/ Solutreans bank, say Barclays reserve account at the Bank of England is debited by £1000 of Central Bank reserves. (narrow money).

            Step 3/ The reserves are deposited into the governments consolidation fund account at the B of E.

            Step 4/ When government spends. The £1000 of reserves (narrow money) leaves the consolidation fund account and is deposited into the central bank account of the recipients (JR) bank, which we will assume is Halifax.

            Step 5/ Halifax then increases the recipients (RJ) bank account by £1000 (broad money).

            New money is not created by government spending. As shown in the above example, government spending merely recycles existing money from Solutrean’s account to RJ’s account.

            By the way RJ I am not a neo Liberal.

          • RJ

            The key parts above from your example is step 1 and step 5

            Step 1 clearly shows money / bank credit being destroyed
            Step 5 clearly shows new money / bank credit being created

            This is EXACTLY the same process that happens with bank lending. But
            Step 1 is the equivalent to loans being repaid
            Step 5 a new loan

            except that the asset the bank holds is a loan for say a house purchase rather than BoE reserves.

            But you have been brain washed by the neo-liberal viewpoint that denies that the UK Govt can create money but refuse to see it. So it’s new money with bank lending. But recycled money with govt spending.

          • solutrean

            The money is no more destroyed and then re-created than if Solutrean had paid RJ the £1000 directly himself from his own account into RJ’s account.

            This from the B of E quarterly bulletin Q1 2014.

            Of the two types of broad money, bank deposits
            make up the vast majority — 97% of the amount currently in
            circulation. And in the modern economy, those bank
            deposits are mostly created by commercial banks

            Perhaps the Bank of England have been brainwashed too RJ?

          • RJ

            You are really struggling now aren’t you. But if you are genuine then you should be able to see it now if you just accept and understand that you have been feed bulls++t.

            re this (just in case you really can’t see the flaws in your post)
            “if Solutrean had paid RJ the £1000 directly himself from his own account into RJ’s account”

            This is just a transfer of money from one account to another. What happens if the Govt runs a surplus. The money is destroyed (step 1) but step 5 never happens. They are two independent steps. Like saving money and then using this to buy a car. Linked but independent. Whereas a transfer isn’t. One depends entirely on the other. One can’t happen without the other.

            The second part I agree with “Of the two types of broad money”. It has no relevance at all. None.

            Why not concede defeat, thank me and move on?

          • jamesmurraylaw

            More beef stroganoff from RJ.

            Waste of time debating with him.

            He is interested only with disagreeing and confusing readers of these pages.

            Regretfully, as the banks see the ideas of SMC, OMF etc encircle them to take away their money trees, so we’d will see more snide at racks on PM et al.

            Lads and lasses. Ignore him or scorn him.

          • solutrean

            My analogy is a good one RJ. The £1000 is a transfer of money from Solutrean’s account to RJ’s account. No money is destroyed and no money is created. The same thing occurs in regard to government taxation and spending, but the funds just happen to pass through the government consolidation fund account. Again no money is destroyed or created. Government taxes and spending merely redistribute existing bank money.

            Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves.

            The relevance here is that you have regularly stated on this site that bank money does not represent 97% of the broad money supply as Positive Money have claimed and that government spending contributes a significant percentage of money supply. This Bank of England statement would seem to confirm the PM thesis and also confirm that government spending does not increase the money supply but merely redistributes existing bank money as previously stated.

          • RJ

            “Article 101EC of the Treaty of Maastricht clearly states that the
            nations central bank is prohibited from direct financing of government
            spending so your idea that government spending creates new money is a
            non- starter”

            There are a number of points regarding the above comment.

            1 This self imposed restriction can easily be gotten around by QE. Where bonds are sold to the market and then purchased back by the BoE.
            2 The BoE can DIRECTLY finance spending. But it’s a self imposed restriction
            3 But the BoE does in fact fund UK Govt spending. By bonds issues before or after the spending cancel this funding out. What comes first? The reserve issue MUST come first in some way otherwise the banks could not settle for the bond issues (using reserves). In other words the BoE always fund treasury spending not the banks or markets. It’s the only possible outcome of the way the treasury payment system is set up. Where banks need reserves BEFOREHAND to settle for bonds. Otherwise the banks would be unable to settle.

          • solutrean

            These restrictions are NOT self imposed, they are rules which ALL members of the EU were obliged to adhere to whether they are in the Euro zone or not. All this was before the banking crisis. After the crash the rules had to be applied with a lighter touch or the entire banking system would have collapsed.

            My post referred to taxation and government spending and I suggest we stick to this and not get embroiled in bond issuance at this time as you seem keen to do. This is one more example of your persistent obfuscation.

          • RJ

            3 But the BoE does in fact fund UK Govt spending. By bonds issues or taxation before or after the spending cancel this funding out. What comes first? The reserve issue MUST come first in some way otherwise the banks could not settle for the bond issues or taxation (using reserves). In other words the BoE always fund treasury spending not the banks or markets. It’s the only possible outcome to the way the treasury payment system is set up. Where banks need reserves BEFOREHAND to settle for bonds and tax paid. Otherwise the banks would be unable to settle.

            I too was fooled by the misinformation many years back. But unlike you I saw the truth, quickly embraced it as it offers a path to a better fairer world without turning the whole system on its head, and moved forward. But most it seems refuse to do this.

          • solutrean

            I’m afraid you are wrong here too RJ. Banks do NOT need reserves beforehand. As private businesses they lend to maximise profits and look for the reserves later. The Central Bank is obliged to supply the reserves or the system collapses.

            This from Warren Mosler.

            “In the real world, banks make loans independent of reserve positions, then during the next accounting period borrow any needed reserves. The imperatives of the accounting system require the Fed to lend the banks whatever they need. A central bank can only be a follower, not the leader when it adjusts reserves in the banking system“

            So Warren appears to disagree with you on this RJ, But perhaps he has been brainwashed?

          • RJ

            “The Central Bank is obliged to supply the reserves or the system collapses”.

            So clearly they do. If the banks don’t have them they need to get them otherwise they can’t settle. Without them they can not settle with the treasury. The central bank could collapse the whole banking system. Just by issuing Govt bonds to withdraw all excess reserves. And then its game over for the banks.

            The BoE can create these reserves as require when require. These reserves fund Govt spending automatically whenever a Govt spends. Govts have all the real power not the banks.

          • solutrean

            You are wrong again RJ. The Central Bank is forced to react in response to the needs of the private banks or the system collapses. As Warren makes clear, a central bank can only be a follower, not the leader when it adjusts reserves in the banking system so your claim that governments have all the real power is patently false. Why would the central bank not issue reserves to the banks requirements and destroy the economy?

            The commercial bank tail wags the central bank dog.

            Do you disagree with Warren’s statement on this topic or not?

          • RJ

            Yet the example of Halifax and RBS clearly shows otherwise. They could no longer buy reserves and the BoE / Govt pulled the plug. Likewise Lehmans. The Fed did not step in and help them out. They could have and I think should have as Lehman’s was a temporary situation. But did not for whatever reason.

            The UK Govt is so clearly the top dog and yet you just refuse to admit it. But it takes time to drop flawed beliefs so will leave this for now for you to let it sink in.That we elect governments that work for the ruling elite. And lie and cheat for them at times when required.

          • solutrean

            You did not answer my question RJ. Warren Mosler said “A central bank can only be a follower, not a leader”. You may think that Warren has a flawed belief here that he has not yet had time to drop. Do you agree with him or not? .

            The only British bank that was allowed to go to the wall after the crash was the relatively tiny Northern Rock. The other British banks that you mention were deemed “too big to fail” The government did not pull the plug on them as you mischievously suggest. It seems certain that the British Bankers Association with the government and B of E in tow decided to put the British taxpayers on the hook and bail those banks out with taxpayers money.

          • RJ

            Where did Warren say this BTW. And in what context?

            The Govt took over the RBS. Using reserves generated on a computer screen (not taxpayers money – another myth) to settle RBS debts. So BoE JE’s purchased a bank. A great deal for the taxpayers. But carry on believing the banks and markets not the Govt have all the power. You may as well be a neo-liberal as you fight to defend their misinformation.

          • solutrean

            Warren’s remarks appeared in his essay Soft Currency Economics in 1995. The context was that the government or central bank had no or very little control over the private banking system’s monetary creation abilities as I keep telling you RJ. In future please accept my posts as being factual and if you doubt me please do your own research. You will learn much more that way and you may even avoid many of the blunders that you commit on this website.

            You must be a minority of one if you think that the bank bailouts were a good thing for the taxpayers RJ.

          • RJ

            “The context was that the government or central bank had no or very
            little control over the private banking system’s monetary creation
            abilities as I keep telling you RJ”

            You are all over the place. This has nothing at all to do with what we have been discussing (and I agree with this as it is done today). You are an example of someone who has read up on this topic but have not tied all the pieces together. So Warrens comment is correct. But it does not in any way counter what I have posted. Or back you up.

            I have tied all the pieces together. Rather than dismiss my posts and instead hold desperately onto your beliefs. You should reconsider with an open mind.

          • solutrean

            Why cannot you admit that you were wrong with some honour RJ? I have consistently said that the central bank or government had very little control over the private banks ability to create money summed up by my comment that the commercial bank tail wags the central bank dog. Warren Mosler backs up my statement.

            You have consistently denied this saying that the government / B of England have all the power.

            I await your next verbal summersault with interest.

          • RJ

            You are so badly confused by all of this it’s almost unbelievable. But unfortunately many (most) are yet these very people think they know it all.

            There are two completely different aspects of bank money creation being muddled up by you.

            1 is the ability of banks to create new money from bank driven activities. Like for example banking lending for house purchases.
            2 is where the banks are forced to create new money (DEBIT Reserves CREDIT Bank credit) whenever a monetary sovereign government like the UK spend.

            Warren would have been referring to point 1.

          • solutrean

            Good try RJ, but I’m afraid you have landed on your backside again. Government spending does NOT create new money RJ, it merely recycles existing bank money. So your option No 2 is not applicable.

            Where is my evidence for this you may ask? There are indeed two types of broad money, but your option No 2 is not one of them. Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves. The other 3% consists of notes and this note issue is the only fraction of broad money that is not created by commercial banks.

            My source is the B of E bulletin Q1 2014, Check it out for yourself.

          • RJ

            I have already covered these 2 points above

            You are inconsistent. You call money created from banking lending ‘new money’. But exactly the same process by Govt spending (banks creating new money by JEs) ‘recycling money’.

            And I have already explained the 3% / 97% above. It has no relevance to this discussion.

            But I assume you are just taking the piss now so will leave you too it.

          • solutrean

            There is no need to use foul and abusive language RJ. It’s patently obvious that you are not an expert on MMT. Sorry, I forgot. You have already admitted that on an earlier post.

            Warren’s deadly innocent fraud No 1 states that the federal government must raise taxation or borrow in order to spend. In other words, government spending is limited by its ability to tax or borrow.

            The point that I am trying to get into your head with great difficulty is that currently the British government DOES this because it is a willing vassal of the British Bankers Association and MUST because it has signed up to Article 101 EC.

            That is why private banks issue 97% of broad money. The B of E issues the remaining 3% and government spending supplies no new money at all

            When you get this inside your head RJ you will have made a giant leap forward without falling on your backside which must be getting rather painful by now.

          • RJ

            “Warren’s deadly innocent fraud No 1 states that the federal government
            must raise taxation or borrow in order to spend. In other words,
            government spending is limited by its ability to tax or borrow.”

            So you are clearly taking the piss again now aren’t you. I wonder why you are trying to mislead in this way. As readers might not realize what you are doing.

            You above quote from Warren is a fraud. . In other words, GOVERNMENT SPENDING IS NOT LIMITED by its ability to tax or borrow.

            But you must know this.

          • solutrean

            The above quote is taken directly from Moslers Seven Deadly Innocent Frauds of Economic Policy. If you have a problem with it blame Warren not me.

            You really should control that temper of yours RJ or you may blow a gasket. Why not nip down to the pub and have a few pints with the lads, I’m sure it will relax you but please don’t get onto the topic of JE’s or that backside of yours may be in for more punishment.

          • RJ

            What temper. You clearly are not being serious (you can’t be this confused) Warren is very very very clear in this book as to what he means.

          • solutrean

            I’m glad that you now seem to have calmed down and are no longer using abusive language, did you take my advice then?

            Warren and yourself are both referring to the Fed system. If you read my post more carefully you will see that I am referring to the British banking system.

            The Bank of England IS constrained from creating New money by Article 101 EC. There is no net change in bank deposits or reserves when the government borrows.

            That is why the B of E stated in its quarterly bulletin Q1 that private banks issue 97% of broad money. The B of E issues the remaining 3% as note issue and government spending supplies no new money at all.

            Since the crash the picture has changed somewhat with QE and Richard Werner has suggested that government could possibly borrow directly from private banks.

          • RJ

            And here is an extract from Warrens book. These points are all frauds

            Seven Deadly Innocent Frauds of Economic Policy
            1. The government must raise funds through taxation or
            borrowing in order to spend. In other words, government
            spending is limited by its ability to tax or borrow.
            2. With government deficits, we are leaving our debt burden to our children.
            3. Government budget deficits take away savings.
            4. Social Security is broken.
            5. The trade deficit is an unsustainable imbalance that takes away jobs and output.
            6. We need savings to provide the funds for investment.
            7. It’s a bad thing that higher deficits today mean higher taxes tomorrow

          • jamesmurraylaw

            Great response PJM.

            I also have said the same thing to RJ months ago, challenging him to give exactly the page or section on the book that he disagrees with.

            I have even told him how to email me and properly discuss his arguments in detail – no response.

            Arrogant twerp.

        • jamesmurraylaw


          I so very agree with you.

          RJ is a troll and a menace….

  • El_Commi

    It would be really useful if you guys are referencing research (such as the OBR) if you could provide a reference or a link.

  • mamabear

    Thanks for this article Frank – is there any chance you could provide references for the information in this article?

  • Peter Mccarrick

    Creating money for financial institutions was a massive blunder by The Government and the Bank of ENGLAND. The money should have gone into the real economy we need to manufacture and sell our goods abroad to balance the economy.

  • Dirk Argyle

    Vested Interest may be the reason! tax payers will probably pay for this!

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