WHERE DID OUR MONEY GO?
Where Did Our Money Go?
For example, it addresses the question of why government should not create money.
Have they [the banks] earned their privilege of credit creation and allocation?
There is a reason why commercial banks enjoy this enormously profitable privilege. The belief has been that were the government to create all the money in the economy, it would lead to three negative consequences:
1. it would do a very bad job of choosing economically useful projects to spend the money on;
2. it would be unable to resist the temptation to create too much money, leading to inflation or even hyper-inflation; and
3. the end result would be a financial crisis.
Instead it has been an article of faith that governments must not create money, that the independent central bank should try to control inflation only through the indirect tools of interest rates and money market operations, and that clever and professional private bankers should use their skills to assess the quality of each application for credit and ensure that it is an economically viable loan.
Unfortunately the events of 2008 have revealed that the privatised system of money creation has led to three negative consequences as outlined in this report:
1. the banks did a poor job of choosing economically useful projects to lend the money to;
2. they were unable to resist the temptation to create too much money, leading to asset price inflation (particularly in property); and
3. the end result was a financial crisis.
The response from the banks as to where OUR money went shows their complete contempt for the British taxpayers who bailed them out. In general when asked the question, Where did our money go?, the reply from the banks was silence or an answer to a different unasked question, much like a consumate on-the-take politician would reply.
The report does not propose that government should create money, but it does at least raise the question.
In a quite fundamental way, the analysis and conclusions of this report suggest it is time to review the current monetary system that puts the power of credit creation almost entirely in the hands of commercial banks – banks that have not only failed to look after the interests of society and the environment, but cannot even manage to look after the interests of their own shareholders.