Monday, 30 December 2013

About money...

This is from the comments on an article in The Guardian about money - The link to the comment is here -
It is as neat a summary of what is wrong with our financial system and what is needed to put it right as any I have come across. 

The specific problem is that private banks can print money (i.e., create it from nothing), lend it to whoever the hell they like, then profit from the interest when it's paid back. These banks are far more likely to lend to someone who wants a mortgage than say a business. This is because if you default they can take your house, but businesses often have limited liabilities (which is much higher risk for the banks). Since they can print as much money as they like, they do so, which is basically what caused this crash (and other bubbles in housing markets).

The banks have made such vast profits doing this (along with general speculations) that they are now too big to fail. If they fail it would wipe out our entire economy due to the simple scale of the leverage. Therefore the Bank of England had absolutely no choice but to employ QE as a means to bail out the banks, it was the only way. Except the banks can also spend the 'money' acquired through QE however they like...

So it's not exactly (any) government that's the problem. The problem is the banks can print money knowing full well that if they overstretch and go bankrupt then the BoE has no choice but to bail them out with taxpayer's money. In other words there is no risk to the large private banks, only the taxpayer. After all, why wouldn't banks take risks with your money given if they fuck everything up you have no choice but to bail them out? And if the risk pays off, well of course they get to squirrel away all the profit. This is why you just got shafted, and why you will keep getting shafted.

The only solution to this is to remove the right of banks to print money (from nothing). But you wouldn't want to give that right to politicians either. This scam will continue until the printing of money is given to a new independent body that is both transparent and fully accountable to the public.

If this were done then the banks would become just like any other business and only able to lend money they actually have (which is comparatively harmless). Yet since this hasn't been done then you can expected to get shafted again, SOON.

This is not now a simple problem to resolve, but until we remove the capacity of the banks to create money that doesn't exist and lend it, nothing will change (apart from we will all get poorer while they get richer). The printing of new money needs to be 'democratized', put in the public realm somehow, instead of being given to private banks who win whatever the outcome of their gambles.

Until that happens the public are fucked, and might be permanently fucked in any event given how much debt we owe the banks. You can hardly blame the bankers. After all, If the public wanted to give me all their money with no strings attached, I'd find it tricky to resist. Anyone would. Free money? Yes please.