There is an idea gaining ground in the US which sounds absurd, but which perhaps simply highlights the absurdity of something we now consider normal.
There is an idea gaining ground in the US which sounds absurd, but which perhaps simply highlights the absurdity of something we now consider normal.
Faced with a massive debt burden and a dysfunctional political system, it has been suggested that President Obama could take advantage of a loophole in the law. This loophole allows the US Treasury to issue platinum coins, and to assign to them any value it chooses. It’s suggested that President Obama could order trillion dollar coins to be minted and deposited in the Federal Reserve Bank. Hey presto, financial situation considerably improved.
The suggestion has been ridiculed, and it does sound pretty bizarre. The idea that if a country has a debt problem it can so easily be solved seems ridiculous: fantasy economics, perhaps. But the idea has gained the approval of Nobel Prize winning economist Paul Krugman. The idea may sound silly, he says, but as the alternative is a crisis that causes real suffering to real people, silly is not so bad.
Perhaps those who see this as a ludicrous idea do not fully appreciate the way money is created at the moment. Governments have largely handed over the power to create money to the private banks.
In the past decade we have seen just how the banks have abused this power. First they massively increased the amount of money they were creating in the form of debt, producing a boom. Then, when it all went horribly wrong, largely due to the banks’ dishonesty and incompetence, the banks were bailed out by the State, which is why we are now suffering enforced austerity.
Look at this graph. There are two lines. One shows our national debt excluding the bank bailouts. It was rising, as one expects in a recession, but not dramatically. But when the bank bailouts are included the line shoots up, showing that most of our problems come from the vast amounts of money poured into the banks, not from reckless spending on public services and welfare benefits. So all the austerity now being imposed, all the suffering caused to the poor, is really a result of the banking crisis and political ideology.
The malign role of the banks is also graphically illustrated by looking at the example of the European Central Bank (ECB), and how it is dealing with the crisis in the Eurozone. The ECB created billions of Euros to bail out countries like Greece and Spain. They lent this money out at one per cent, but instead of lending this directly to Greece or Spain, which would have gone a long way to rebuilding their economies, they lent it at one per cent to the private banks which had caused the crisis. These private banks then went on to lend it to distressed countries like Greece at rates of up to 18 per cent.
In order to repay this punishing interest the Greek government has imposed crippling austerity on its own population, causing terrible poverty, homelessness, and mounting suicides.
In contrast, Iceland dealt with its banking crisis in a very different way, putting the welfare of its citizens and society first. This approach has proved very successful, and Iceland’s economy is recovering well.
Recently, the International Monetary Fund produced a working paper which examined the idea of taking the power to create money away from the banks, and returning it to the State Iceland is said to be seriously considering this step. One hopes that, like the idea of the trillion dollar coin, it will gain ground. Why should banks be allowed to create money and lend it to the State, taking interest payments from taxpayers, when the State can create its own interest-free money?
To learn more about this subject, the website of the campaigning group Positive Money has a very accessible course in the form of short videos.
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© Bernadette Meaden has written about religious, political and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor.