Milking The People, Part Two: The Plot Thickens….

A recession or a slump is a shortage of money, which is created when banks refuse to supply the economy with money by tightening up on lending.

To end our current slump more money must be put into circulation, which under our idiot system would be done by the banks lending more money. When banks simply refuse to lend more money we are locked into the slump and are prevented from emerging form it.

The sensible solution would be for government to start printing money and spending it into circulation as a service to the community. That option is very simple, very logical but has the disadvantage of yielding no profits for the banks. Banks prosper by raking in interest on lending money they conjured out of thin air.

Government seems to believe it must protect bank profits at all costs and that banks take precedence over everybody else. It is quite acceptable for the nation’s economy to be smashed so long as the banks can continue raking in the bucks.

Government long ago dropped the ball of money creation and handed that privilege over to un-elected private-profit corporations known as banks. It works like this:

Let’s imagine the government is $1000 short of money and instead of just printing more and spending it, it does the "modern" thing of borrowing it from the banks.

How is this borrowing done? Well, what government does is print pieces of paper with a fancy design on them. It calls these fancy pieces of paper "bonds." It assigns each bond a value (say, $100). It then sells 10 of these this $100 bonds to a "financial institution" (a bank). The bank creates $1000 out of thin air (in other words, prints money) in order to buy the bonds.

Later, the bonds are "redeemed," which means the government buys them back AT INTEREST. Essentially then, government has borrowed $1000 from the bank and repaid the loan at interest. The bank created the money it lent to government out of thin air and made a nice profit on the loan.

Okay, that’s a simplified picture but it is nevertheless the essence of what happens, stripped of its usual smoke screen of complexity and gobbledygook.

It becomes obvious to anyone with an ounce of common sense that government could just as easily draw up a fancy piece of paper with "$100" on it and call it a "note" and SPEND it directly into circulation, bypassing the banks altogether.

After all, if a private corporation called a BANK can create money out of nothing and spend it (by lending it to people) then why not have your elected government create it instead and SPEND it into the economy, say by grants to industry, building roads, increasing pensions or reducing taxation or whatever?

In the latter case the new money is not LENT, so does not have to be repaid at interest and so does not set us up for an even greater round of borrowing a few years down the line. In this fashion the economy could be re-inflated very quickly and the money shortage eradicated without us having to grovel to the banks for the privilege of borrowing our own means of exchange from them.

So why does government not do it that way? Good question.

I’ll take a look at that in my next article