Monday, 31 August 2015

Nonsense from Boom Finance on money and debt.

Boom Finance and Economics makes a bizarre claim about debt and money. They claim that the existing form of money comes in the form of debt (correct) and that there is not enough debt to enable us to expand the money supply sufficiently (incorrect). Scroll down a bit on the right hand column where they say:

“Our aged monetary system where almost all new money is created as debt in bank loans is saturated and unable to respond effectively. In essence, the advanced economies have simply run out of sufficient borrowers to continue to adequately expand the money supply.”

So how much debt is there in total? Well in the UK, SME trade debts alone come to three times GDP. Then there’s big firm trade debts to add to that – another two times GDP? Then there’s household debts – very roughly equal to GDP. Plus there’s national debt – also very roughly equal to GDP.

Grand total: VERY ROUGHLY five, six or seven times GDP.
In contrast, the amount of money households need  will be VERY ROUGHLY  enough to tide them over from one monthly pay cheque to the next: i.e. very roughly one tenth of GDP. Double that to cater for the money needed by employers.

So…. total amount of debt is VERY ROUGHLY thirty times the amount of debt.

There are mistakes and there are mistakes. But being out by a factor of about thirty is pushing it!!!!!!!


P.S. (an hour after the above went online). Moreover, the popular claim that “without debt there’d be no money” is not actually true. That is, if all players in the economy were simply after some form of money, but didn’t want to go into any sort of long term debt, the existing bank system could easily do that. Reasons are here. (But that's not to suggest that I back privately created money. I back full reserve banking, a system under which only the state creates money.)


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