The truth is out: money is just an IOU, and the banks are rolling in it. The Bank of England’s dose of honesty throws the theoretical basis for austerity out the window

The truth is out: money is just an IOU, and the banks are rolling in it. The Bank of England’s dose of honesty throws the theoretical basis for austerity out the window

“Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” … “In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.”

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there’s no question of public spending “crowding out” private investment. It’s exactly the opposite.

http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity

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