If we nationalise the banks this will not change the fundamental way that money is created, when banks make loans. Therefore we will still be left with these problems:
- Unsustainable indebtedness: Because all money is issued as credit, debt increases at the same rate as the money supply.
- Financial instability: Money creation is pro-cyclical – too much is created in a boom, and too little in a recession, causing the pronounced boom and bust cycle.
- Perpetual expansion: In order to service large amounts of debt the economy has to grow, even when markets are saturated and resources depleted
Banks will still have the ability to choose how much money they create when they make loans, and who and what those loans are made to. We propose to nationalise the national money supply, but leave banks in the private sector. If we did not rely on banks to create our money supply then we could let them fail and go bankrupt just as any other ordinary business.
We’re big fans of mutual and cooperative banks, as well as things like peer-to-peer lenders. But these models still don’t fix the fundamental problem of allowing money to be issued by banks who are chasing their short-term interests.
Posted in: 3. The Positive Money proposals