Introduction
When it comes to money, the government takes responsibility for creating metal coins and paper notes, but allows commercial high-street banks to create almost all of the electronic ‘number’ money that exists in our bank accounts.
Here’s How They Get Away With It:
Most people think of money as paper notes or metal coins. However, since the vast majority of transactions are now made through credit cards or electronic transfers, there is relatively little need for this kind of money. Consequently, most money only exists as numbers in a computer system – in fact, only £3 out of every £100 now exists as cash. The rest exists simply as electronic records in massive databases maintained by the high-street banks.
We all know that anyone – other than the government – who starts printing their own fake £20 notes will find the police knocking at the door. The law that made it illegal for anyone other than the state to create paper money or coins was passed in 1844 – before this date, banks were allowed to print their own paper money.
However, there is currently no law that prevents banks from creating the ‘digital’ form of money. The laws have not been updated in the last 160 years to take account of the rise of debit and credit cards and electronic banking.
However, there is currently no law that prevents banks from creating the ‘digital’ form of money. The laws have not been updated in the last 160 years to take account of the rise of debit and credit cards and electronic banking.
Money Is Created By High-Street Banks
Privately owned high-street banks have created 30 times more money than the government has ever created.
The flawed design of the banking system makes it possible for banks to create phenomenal sums of money, all without actually breaking counterfeiting laws. They can create money whenever you or I take out a mortgage, loan, credit card or overdraft.
The root cause of the financial crisis is this: money – the foundation of modern society – is no longer issued by the government. It is issued by high-street banks, lent to the public as mortgages, business loans, overdrafts and credit cards, and must be repaid back to the same high-street banks who created this money.
In other words, the money which we all need in order to pay our bills, buy food, and simply live, belongs not to ‘the people’ but to private, profit-making companies.
How Much Money Have They Created?
It may seem unbelievable that the government allows banks like Lloyds TSB, Halifax, CitiGroup, Barclays and so on to create our money, but statistics from the Bank of England shows just how much money high-street banks have created:
- Of the £1,800 billion that exist in UK bank accounts, £1,746 billion was originally created by the high-street banks, and must be repaid to them.
- This £1,746 billion has been created as a result of the infinite re-lending of the original £54billion of cash that the UK government has created.
- Of this £1,746 billion that has been created by the commercial banks, £800 billion has been created since 2003 alone! This is according to figures which are openly published by the Bank of England!
- The total amount of outstanding debt is now greater than the total amount of money in the economy!
Under This System, They’ll Never Run Out Of Money!
If you kept lending money to me every time that I was short, eventually you would run out of money. This seems as obvious as the fact that gravity will keep you fixed to the ground.
However, the banks are not subject to the same ‘laws of nature’, and don’t have to worry about the money running out. Every time they make a loan, it gets spent in the economy and lands back in someone’s bank account again. When it lands in someone else’s bank account, it is actually recorded as brand new money (because it is only digital numbers), which means it can be used as a basis for yet another loan.
In effect the same original amount of money can be lent over and over again, but each time it is re-lent, it is recorded as ‘new money’. This means that the more money that banks lend, the more money they will be able to lend!
This is how the banking system has managed to turn the £54 billion of cash created by the government into £1,800 billion of debt over the space of about 50 years.
Is This A Problem?
‘Creating money’ might sound like a good thing – after all, more money means we can buy new things. But when banks create new money, they also create new debt. When they created £800 billion in a little over 5 years, they did it by getting the nation into an additional £800 billion of debt. This is what pushed house prices up so far, and what created the credit card-fuelled boom on the high street. This is why we are all stuck in a debt trap right now.
The banks have been allowed to create real money. Despite being legally permitted (due to poor design of the banking system), it is no different to the government giving a criminal counterfeiting gang a printing press and the license to print as much money as the nation can borrow.
Don’t make the mistake of assuming that there is a ‘good reason’ why the government allows this – there isn’t.
Is This Legal?
The fact that high-street banks have created 30 times more money than the government ever has is a legally-sanctioned, commonly accepted feature of our modern banking system.
In fact, it is so uncontroversial that it is even discussed in degree level finance textbooks, where it is referred to as a benign-sounding ‘multiplier effect’. In other words, this certainly isn’t a conspiracy theory or some monumental corporate fraud. High-street banks have been creating huge quantities of money under the knowing eyes of the Treasury and Bank of England for the last few hundred years.
But it is only now we can clearly see the devastating consequences of allowing high-street banks to create the vast majority of money in the economy:
- soaring personal debt
- exceptional government debt
- a housing-market bubble fueled by excessive and irresponsible lending
- instability in the stock markets
- the destruction of the value of people’s pensions
- the Third World debt saga
Read On: How Do High-Street Banks Create Money?