Just think what the UK could have saved if there were more restrictions on banks


Related Topics

A trillion pounds is a lot of money.

If you counted it, one pound every second, it would take you 32,000 years. Stacked in pound coins, it would reach beyond the moon. It could pay off a quarter of all third world debt and could run the entire state of New York more than ten times over.

It is also the amount of money the UK government could have saved if there were more restrictions on banks, according to banking reform campaign group, Positive Money.

This truly unimaginable sum is what private banks injected into the UK economy in just the years 2002-2009 by the creation of digital money through lending. That’s £1 trillion that should have been injected into the public sector rather than – as it actually was – pumped into financial and housing markets. It’s £1 trillion worth of tax cuts or £1 trillion worth of extra public spending – enough to fund the entire NHS for ten years.

The total UK national debt is approximately £1 trillion, so yes, it’s also enough to have paid off our entire national debt. Far from the government worrying about reducing the deficit, there would hardly even be a deficit and spending cuts would be merely a thing of politicians’ bad dreams.

Instead we have a government obsessed with cutting public spending and unsuccessfully reducing a deficit which refuses to budge. And to top it all off, we are staring down the barrel of the loss of our triple A credit rating. How has this happened? How have the government let so much money slip through their, and our, fingers?

It wasn’t always this way. Money creation used to be a valuable source of revenue for the government before the advent of the digital age. This is because the Bank of England prints money and sells it to high street banks at face value, making a healthy profit on each note. This money is paid directly over to the treasury and enters the government coffers, saving us taxes and increasing public spending.

From 2000-2009 the government made approximately £18 billion from the creation of physical money. This, of course, is a lot of cash but it pales into insignificance compared to the £1 trillion created in digital money by the banks’ lending over roughly the same period, almost doubling the total money supply of the UK.

It’s not just the amount of money that is staggering either; it’s the short amount of time it was created in. To put it into perspective, the total UK money supply currently stands at around £2.5 trillion. It took the Bank of England over 300 years, from its founding in 1694, to create the first trillion. It took private banks just seven years to create a second trillion.

But it is the fact that the government – and hence we the public – got absolutely zero profit from this digital money creation that really sticks in the craw. This is because banking laws have not kept up with growth in technology. Instead we find ourselves in the absurd state of affairs where it is illegal for anyone except the government to create physical money (counterfeiting) but any old bank can create as much digital money as it likes simply by lending it out to customers (there are a few constraints on banks’ lending, but not nearly enough).

There is one important proviso here. The figure of £1 trillion is slightly misleading in the context of government savings. The government wouldn’t actually have saved £1 trillion because it wouldn’t (we hope!) have been foolish enough to have created so much money in such a short space of time. It is a measure, in fact, of just how far out of control the banks had become, that the amount of money they created – through lending – is so large.

You might also ask: what about inflation?  If all this money really was created by the banks in such a short space of time, surely we would have hyperinflation on the level of Zimbabwe or Weimar Germany. The answer to this is: we do. It’s just limited to certain bubbles where banks do most of their lending.

As the chief researcher for Positive Money, Andrew Jackson says: “Why hasn’t the £1 trillion of bank-created money created inflation? The answer is: it has. It’s just all gone into the housing market and financial markets.”

Ever wondered why there was such a ridiculous housing bubble in this country? Jackson’s point might well hold the answer.

What should we do then? Hand the reins of money creation back to the politicians and pray they do a better job than the bankers? Isn’t political power over money creation equally abhorrent? Don’t governments have a similar tendency to print money, leading to hyperinflation?

The answer is simple, according to Positive Money. We already have the institutions in place to restrict the political use of money creation – namely the Bank of England and the Monetary Policy Committee. All we need to do is hand the power of digital money creation back to them. They already have the power over physical money creation, so they’ve had a bit of practice after all.

In a healthy economy a democratically elected government chooses how to spend public money but an independent and transparent financial body, such as the Bank of England, chooses how much is created, and it does this solely with the interests of the economy at heart.

When you think about the current creators of digital money – the private bankers – and the interests they have at heart, it becomes quite clear just how unhealthy our economy really is.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Ashdown Group: Marketing Manager (B2B) - Romford - £40,000 + car

£35000 - £40000 per annum + car and benefits: Ashdown Group: Marketing Manager...

Ashdown Group: Helpdesk Analyst - Devon - £20,000

£18000 - £20000 per annum: Ashdown Group: Helpdesk Analyst - Devon - £20,000 ...

Ashdown Group: Data Scientist - London - £50,000 + bonus

£35000 - £50000 per annum + generous bonus: Ashdown Group: Business Analytics ...

Ashdown Group: IT Project Coordinator (Software Development) - Kingston

£45000 - £50000 per annum: Ashdown Group: IT Project Coordinator (Software Dev...

Day In a Page

Read Next
The plan could lead to up to 15,000 people being operated on annually  

The obesity crisis affects the whole of Europe... apart from France

Rosie Millard
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month  

General Election 2015: Politics is the messy art of compromise, unpopular as it may be

David Blunkett
General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'