The argument for banks managing our money was that politicians could not be trusted to not inflate the currency for spending on influence.
So how well do the banks do by comparison?
The idea with governments (let’s pretend public central banks) creating currency is in order maintain price stability1.
In other words, as the economy grows, so the currency supply should grow to prevent deflation.
The concern was that politicians would irresponsibly inflate the currency to spend on influence to be re-elected (and other objectives).
So now (since 1971/3) banks create currency. Currency is created out of nothing on the strength of a promise to repay a loan2.
Since governments still need to be financed, they obtain currency created by banks (in contrast to creating it themselves). The government issues treasuries (IOUs) which the banks use to create currency for the government to spend.
Inflation and debt
Of course bank loans are debt at interest secured with claims on public assets (either future labour of taxpayers, or dispossession of public assets).
So now not only can governments still inflate the currency to spend, they go into debt doing so…. ??
Where does that leave the citizen?
So now the citizen is even worse off being:
- taxed to pay for the interest on government debt, and
- still invisibly taxed through inflation of the currency, reducing buying power of wages and savings
It gets worse
Not only is the citizen crushed under two impositions (tax and inflation), the private (central) banks:
- Have claims on public pensions, -assets, and -infrastructure through debt obligations, and
- Are even buying up equity and debt of listed corporations with this invisible tax coming out of our savings and wages, leading to a small number of private banks owning more than half the corporations on the planet.
Who owns governments and corporations, and who pays…?