6 Dec 2015

More on Adair Turner's proposals and the taboo of overt money creation by governments

Since publishing his excellent book "Between Debt and the Devil: Money, Credit and Fixing Global Finance", Adair Turner has been very busy. He gave a conference at the World Bank on the 4th of November that you can watch online here. And there is another interesting conference that you can watch that took place at the Oxford Martin School on the 24th of November.

In both talks, he makes a strong argument for the idea that states and central banks can and should directly produce money debt free, and inject that money into the economy. And he also asks the question of why that simple idea, proposed by such economists as Milton Friedman in papers in 1948 and 1960 has remained taboo.

For me, the reason that the idea has been taboo is simple. The financial system is run by bankers and their associates who profit enormously from a system where they have an effective monopoly on money creation. They try to convince us that allowing governments to create money would immediately lead to Zimbabwe style hyperinflation. But this argument is total bogus.

No, the real reason is simple, and is evident when you look at two simple facts that I have repeatedly stressed here on my blog. And if Lord Turner was ever to read this, I would love to know what he makes of them.

The first is the fact that, ever since the creation of the Bank of England in 1694, the UK's taxpayers have been paying an average of 4% of GDP every year to the banking system in the form of interest payments on public sector debt alone. You don't have to take my word for it. Just look at the graph on a website called www.ukpublicspending.co.uk. 

The average cost has been 4%, but there were times when the amount was more than double that figure- for example between 1814 and 1824, and between 1922 and 1933. For 2015 the figure will be 2.9%, but thanks to the fact that Cameron and Osborne have managed to add an extra £625 billion in debt in just 5 years, the value will be 3.17% next year, even if interest rates stay low.

When you realize that the (a) the banks that lent the UK government the money can just create the money out of thin air, and (b) that there was never anything to stop the government producing their own money debt free, you realize just how absurb the whole thing has been.

The second important fact is the realization that while European Governments have borrowed no less than €7.8 trillion in the last 20 years, a whopping €6.7 trillion of that - namely 86% - was used only to pay the interest payments on public sector debt.  Imagine that. Essentially ALL the excessive borrowing of our governments has been used to keep the bankers happy.

So, Adair, do tell me. What do you think is the reason for the taboo concerning overt money creation by governments? Would you agree that the number one reason, without the slightest doubt, is that the vested interests will do everything in their power to keep that particular gravy train on the rails. It has been that way in the UK since 1694. But it now high time that we put an end to what I believe should be denounced as the most lucrative racket ever devised.

I thank you wholelheartedly for finally telling everyone, including the World Bank and the Oxford Martin School that there simply are no reasons for not changing the system. The sooner the better.

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