The chancellor, George Osborne, has set out dramatic plans to move Britain from the red into the black that will see public spending as a percentage of GDP fall to its lowest level since the 1930s and could require cuts in non-protected departments such as police, local government and justice amounting to a further £60bn by 2019-20, reads the Guardian, 4th Dec 2014.
It’s not surprising that the deficit is bigger than the government predicted. If they wanted an effective way of growing the economy, they should have used just £10bn of the money created through Quantitative Easing to do something useful, such as building affordable housing. This would have had the same effect on jobs and the economy as the £375bn of QE money that was pumped into the financial markets.
Money can be created by either the banks or by the state. When the banks create it, they put most of it into property bubbles and financial markets. If we regain some democratic control over money creation, then we have the option of making sure newly created money goes into activities that will create jobs and improve the economy and society. But rather than looking at serious reform of how money is created, the government is using the same old strategy of relying on bank to create enough money to blow up another housing bubble. Part of their deficit reduction plan relies on an increase in stamp duty on house purchases as house prices are artificially inflated over the next few years. In short, their answer is to use the thing that caused the financial crisis – the creation of money by banks – as a way to rescue them from the consequences of the crisis. That’s no way to get a sustainable economic recovery.
Perhaps they should read our paper from November 2013: ‘Sovereign Money: Paving the way to a sustainable economy’, which explains why the Bank of England should be using its power to create money right now, and restricting the power of banks to create money, as a step towards stripping them of that power altogether.