Although it is unnerving to think about, most economists and politicians do not fully understand why the financial crisis happened, reads an article written by Fran Boait, Positive Money, in The Revolver issue of the Strike! magazine (page 4)
Here is a short extract:
For a long time (at least the last 40 years), banks have had the freedom to make as many loans as they like. When someone repays a loan to a bank the money disappears – whilst the banks keep the interest as profit. Therefore banks will choose where to lend based on their own profits rather than the needs of the economy, and they will lend as much as they can to maximize their profit. In the 10 years running up to the financial crisis in 2008, banks doubled the amount of mortgage lending. This resulted in house prices increasing by more than 300%.
Although it is unnerving to think about, most economists and politicians do not fully understand why the financial crisis happened. Recently, a former regulator told us that he only started thinking about the creation of money in 2010, three years after the crisis started. This admission is of great importance because it shows that there is simply a huge lack of understanding in both policy-making circles and the finance sector about how the current system works. The creation of money was not even considered as a possible culprit for the 2008 crisis. Very few mainstream economists are looking at who is creating the money and where it’s going, even though money affects everything that happens in our economy. The type of economics taught widely across universities today essentially ignores money creation. If you ask any economics student to explain the exact process of money creation, chances are they won’t have much of an answer. We think this is a huge problem.
Five years after the financial crisis, UK businesses and households have hardly reduced their debts. A fall in the level of household and business debt is essential for a sustainable economic recovery, yet given the government’s commitment to lowering public sector debt mean this scenario is unlikely. Since most politicians do not have a full analysis of the crisis, they do not know how to get the economy started again. The big problems facing the UK today won’t be solved by passively waiting for the economy to recover. We need to demand that the government do something new and different — something that will create jobs, deal with the shortage of housing and allow people to reduce their personal debts. Current government policies are failing and it is time for a change.
We believe that money should serve the people, rather than people serving the money. To achieve that we think legislative change is necessary to fix the monetary system, but politicians will only act when academics, economists, business leaders and the public see the need and demand change, and the media have understood and debated the issue. We have outlined our proposal for reform in a book called, ‘Modernising Money’.
Finally, the UK is in a situation where banks are not lending enough to job creators, whilst increasing their lending for mortgages. This increases the level of private debt, which was the original cause of the financial crisis. We need new money, free from debt to be spent on areas like green energy that create jobs in the real economy. We know that the big banks can’t do this, and we think that the public and politicians are starting to realise this, too. Therefore we have a big opportunity to shift the status quo away from banks dictating our economy. We have people that want to work and jobs that need doing. Goliath has been beating David for a long time now. It’s time that David picks up his sling shot.