"Of all the many ways of organising banking, the worst is the one we have today".But Jackson and Dyson don't just analyse the problems with the current system - they also explain in detail their proposals for fixing the system for good. Essentially, their idea is to remove the right of commercial banks to create new money and introduce a new system whereby the money supply is created by central banks, under the supervision of a democratically accountable but independent "Money Creation Committee".
I would love to know what those within the banking system would think about their proposals. For example, what would Sir Mervyn King think? Or Lord Adair Turner? Could any of them provide any good reasons for not implementing the reforms proposed here?
The book is full of gems. For example, on page 114 we learn that:
"In 2010, 45% of the value of total loans outstanding in the UK was to individuals (and secured on property), with an an additional 15% to commercial real estate companies. A further 20% of lending was for financial intermediation. 7% was unsecured personal debt, 1% went to insurance companies and pension funds and 9% was to "public and other services". Meanwhile, the value of loans outstanding to the productive part of the economy (i.e. those sectors which contribute to GDP) accounted for just 8% of total lending".This is what happens when the money creation process is in the hands of commercial banks whose only motivation is to maximum their own short-term profits. And then, on page 160, we read:
"From 2002 to 2009 banks increased the money supply by roughly £1 trillion. If the government had instead benefited from this money creation, the UK residents could have paid £1 trillion less in taxes, or public services could have received £1 trillion more. Alternatively, the entirity of the UK government's national debt, which currently stands at just over £1 trillion pounts could have have been repaid".And we are supposed to believed that only commercial banks can be trusted to do money creation intelligently?
Agreed, not productive in the sense that nothing new was produced. The limited supply of existing housing simply went through an asset bubble. Also as house prices go up so do land prices, REDUCING further building. Not productive at all.
ReplyDeleteHi Simon,
ReplyDeletei also read the book, and i also consider it a gem. But a gem in terms of how the authors mix Hayek and MMT. Amazing.
But when i finished the book, i also had the same doubt pointed out by another post. Andrew Jackson claims that housing investment do not contribute to GDP. It would be true if the house market doesn't grow, so the investment creates a financial bubble. But if the investment goes to real new houses (even if they are built for holidays purposes) ... i do not understand why they claim this industry doesn't create real GDP. Housing creates a huge GDP growth. Of course, another thing is if this investment is sustainable, like in Spain :-). But thats another subject. My main doubt about the book is why Andrew Jackson claims that new house investment does not provide "real GDP investment", when its obvious that housing (new) bubbles skyrocket real GDP.
regards :-)