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Could These 3 Simple Changes to Banking Fix the Economy?


In one way or another, money affects almost
everything that happens on the planet. If we want to deal with the big social, economic
and environmental challenges that we’re facing today, changing the nature of the money
we use is where we have to start.  Right now we have a problem. More than 97% of all the money in our economy
is created by banks, when they make loans. Most of this money goes into house price bubbles
and gambling on financial markets. This has lead to ever widening inequality,
the highest personal debt in history and house prices that very few people can afford; before
even mentioning the financial crisis. But 3 simple changes to the way that money
and banking works could make a huge difference. These 3 changes would give us a more stable
economy, with more jobs, less personal and government debt, and a solid footing to begin
tackling the environmental crisis. So, what do we need to do?  Firstly, we need to take the power to create
money away from the banks and return it to a democratic, accountable and transparent
process.  History has shown that when banks have the
power to create money, they create too much in the good times, causing financial crises,
and too little in the bad times, making recessions and unemployment even worse. They put most of the money that they create
into house price bubbles and financial speculation, and only a small amount into businesses outside
the financial sector. We simply don’t think that we can trust banks, who are hardwired
to chase short-term profits, with something as powerful as the ability to create money. And it’s not enough to regulate them; regulators
have repeatedly failed to keep banks under control. There’s no reason why they should
get it right this time around. But we can’t trust politicians with the
keys to the printing press any more than we can trust the big banks. Instead, we need a new committee that decides
whether and when to create new money. This committee would need to be accountable
to Parliament and sheltered from vested interests. They would ensure the right amount of money
is created – not enough to cause bubbles and a financial crisis, but not so little
that it causes a recession. Secondly, we want to see money created free
of debt. Right now, banks create money when they make
loans, which means that for every pound in your bank account, someone else must be a
pound in debt. It means that almost all the money in the
economy is effectively ‘on loan’ from the banks, and we have to pay interest on
nearly every pound that exists. If we try to pay down our debts, money disappears
from the economy, making it harder for others to repay their own debts. Instead of letting banks create our money,
the state could create it, free of debt. And instead of lending money into the economy
through mortgages and loans, it could be spent into the economy. This means that new debt-free
money would stimulate the real economy, create jobs, and make it possible for ordinary people
to start paying down their debts. Finally, we want to see money come into the
real economy before it reaches financial markets and property bubbles.
If newly created money was used to fund public spending or cut taxes for ordinary people,
then that money would start its life in the real economy. It would create jobs and support
businesses, instead of getting trapped in financial and property markets.
There are real challenges facing us over the next 40 years, such as how to provide for
a growing population, a changing climate, and increasingly scarce natural resources.
Right now it’s impossible to solve these problems because money – which affects almost
every aspect of our lives – is broken. We need to fix it, and get a money system
that works for society rather than against it.  

Bernard Jenkins

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