This has been left almost entirely to the commercial banks, who create credit when making loans (it is one of the oldest myths in economics that banks merely lend out other people\’s savings).
Righty ho, banks create money then, magic it up out of thin air.
Second, and critically, the unreformed banking sector looks set to hit the edge of a funding cliff, according to Bank of England data analysed in the New Economics Foundation\’s (Nef) new report, \”Where Did Our Money Go?\”, published this week. Just to keep functioning, the main banks\’ monthly borrowing needs look set to more than double next year, rising to around £25bn a month.
And banks have funding needs, do they? They need to go and find the money that they can then lend out?
Quite how a man can put the two entirely contradictory points into the same article I\’m really not sure. If banks simply create what they lend out then they don\’t have funding needs: if they have funding needs then obviously they\’re not simply creating the money they use to make loans.
Simms reminds me of a boss I used to have. We were approached by a spiv who claimed to be able to make gold from lead. I thought it would be fun to play along and see how weird he got. My boss got quite taken in. I gave what I thought was the killer argument against \”investing\”: anyone who can make gold at will doesn\’t need investment money. Anyone who does need investment cannot create gold at will.
My boss just couldn\’t see it. Similarly Simms.