Magic Money Trees. Truth Lies and Deception.
By Professor Emeritus Mary Mellor, from the University of Northumbria
That’s right there are two magic money trees. Both the state and the banks can create money out of thin air.
States do this by having budgets. Despite the myths that have been told time and time again, states are NOT households – they run armies and banks and schools and police forces and so on. They allocate expenditure in expectation of getting an equivalent amount of money back through taxation. There is no direct connection between public expenditure and public income. There is no state piggy bank or house-keeping allowance.
Despite the claim that states ‘printing’ money is automatically inflationary, this is not the case. What matters is the relationship between state income and expenditure and the condition of the wider economy. The skill is to balance the money created with the money recovered via taxation. In any case, public deficits can be a good thing. They put fresh money into the economy that is then free to circulate.
The other magic money tree is the banking sector. Banks do not simply look after the money in people’s bank accounts and “lend it out”, they actually create money out of thin air by creating new accounts or putting new money into existing accounts – with no democratic accountability.
The neoliberal era saw a massive increase in bank lending (student, consumer, mortgage, financial speculation) with banks becoming the major source of new money in modern economies. The magic money tree of the banks is far more de-stabilising than the magic money tree of the state. Unlike state magic money which can be created free of debt, bank magic money always has to be repaid with interest.
This creates the dilemma that the banks always want more money back than they lend out. Where does the extra money come from? Either extra loans constantly being taken out, or ‘leakage’ of debt free money from the state, that is public deficit. In fact, the use of public money was much more direct following the 2007-8 crisis.
‘Quantitative easing’ – a fancy term for new electronic money from central banks – put billions of pounds, dollars and euros into the banking sector to stave off collapse. This and other rescue measures did little to stimulate the core economy but made a small elite very rich.
So when we are told social welfare, education, housing, health cannot be afforded because there is no magic money tree, this is a lie. New money is constantly pouring into the hands of the already rich as they gamble and speculate. Ordinary people are burdened with debt as they try to keep their heads above water.
The right of states to directly fund public services (“people’s quantitative easing”), is denied. It is falsely claimed that all new money is ‘made’ by the market sector. This is not true, money is accumulated in the market. It can only be created by states or banks. The claim that all state income comes from taxing the private sector is also false. The public sector also pays taxes – much more reliably than the private sector.
Let us have no more myths about the lack of magic money trees. They do exist – what matters is who owns and controls them. And it should be all of us.
Mark Blyth on Austerity.
Mark Blyth Quote: Spirit Level.
The kicker is that those social services that used to be state funded, will be sold off to the privatised free market.
Why should we be forced to sell off our safety net to those who crashed the economy in the first place, Is this fair? The free market very rarely creates genuine price realisation, just Ponzi growth created by monopolisation, funded by toxic banks, resulting in very little infrastructure investment.
Privatised energy and transport markets are a prime example of this here in the UK……we get completely ripped off.
PLEASE HELP US KEEP GOING AD-FREE
This is a "Pay as You Feel" website.
Hey there! Thanks for stopping by. If you've enjoyed reading the articles on Labour Heartlands so far, We would be incredibly grateful if you could consider making a small donation. Labour Heathlands is not your typical news outlet. We are not here to simply regurgitate the daily news cycle, that's for the rest of them. Our focus is on delving deeper, uncovering the untold stories and shedding light on the issues that the mainstream media chooses to ignore.
Our unwavering commitment to journalistic integrity means that we are not influenced by any external forces. We are not beholden to PR companies, advertisers or press barons, and we refuse to let anyone dictate what we report on. Our editorial independence is sacrosanct, and our only allegiance is to the truth.
While we do not align ourselves with any particular political party, we stand firmly against corruption, injustice and the erosion of truth and the rule of law. We believe that accurate information is the lifeblood of a democracy and that facts are not up for debate.
Once again, thank you for your support – We truly couldn't do this without you!