That’s what he says 4 minutes into this interview. Well true, but
whose fault is that? Well it’s partly the fault of Mr & Mrs Average who
want government to stand behind or subsidise the private debt creation process.
That is, Mr & Mrs A. want government to stand behind the money they’ve deposited
in private banks. So in effect, Mr &
Mrs A. want private banks to be subsidised. And politicians can always win
votes by subsidising whatever Mr & Mrs A. want to see subsidised.
To expand on that, “loans create deposits” as the saying
goes. That is, when a private bank extends a loan and the borrower spends the
relevant money, that money inevitably ends up as someone else’s deposit. And
private banks, quite naturally, want to maximise the size of their businesses:
that is they’ll expand the total volume of loans and deposits as far as they
can.
So if governments stand behind deposits, they are effectively
subsidising the private debt creation process.
Of course, if we abolished the too big to fail subsidy and
other bank subsidies, the size of the private bank industry would shrink, the
effect of which would be deflationary. But that’s easily made up for by having
the government / central bank machine create and spend money into the economy.
And that’s “debt free” money, as Positive Money calls it. That way Mr & Mrs
A. (and indeed firms and corporations) would have a bigger stock of money, and
thus wouldn’t NEED TO borrow so much: i.e. the total amount of private debt
would shrink.
H/t to Positive Money, plus please note that the above views
are my own: they haven’t been officially endorsed by PM, though as far as I
know the above is fully compatible with PM policy.
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