“Post-crisis efforts to bolster economies and create safer banks have only preserved a flawed system.”, according to the Financial Times’ chief economics commentator Martin Wolf in his article“Financial reform: Call to arms”.
Martin’s article highlights the fact that relying on banks to create our money will guarantee a boom-and-bust economy. As he suggests, returning the power to create money to the state – under strict controls and in a transparent way – could give us a more stable economy that is less reliant on debt.
Here’s a short extract:
The need to shift away from reliance on highly-leveraged intermediaries fits with another and still more radical option: a move towards 100 per cent reserve banking, with financial intermediation occurring outside the banking system.Many have proposed variants of this radical reform, on the left and the right of the political spectrum. It makes a great deal of sense.
If people think the money they have in banks is safe, while the latter lend it out freely to risky borrowers, crises are inevitable. Worse, under current arrangements, banking institutions create the vast bulk of the money in our economy as a byproduct of often irresponsible risky lending. Since people view money as the one safe asset, this has to be a fundamentally crisis-prone system. It could be replaced, at least in theory, by returning the ability to create money to the state.
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