Most of it was predictable comedy that skimmed the surface of our financial dysfunction, but they did tell us loud and clear that banks create most of our money when issuing loans, which was unexpectedly accurate.
More disappointing were the expert witnesses, Gillian Tett and Max Keiser.
Gillian told us that history tells us that credit bubbles typically end up with the collapse of civilization and war, or a debt jubilee where the monarch wipes everyone’s slate clean so that we can start the whole game over again. She failed to come up with anything fresh that might help us avoid either of these catastrophic options.
Max thinks that our financial woes are the result of grand larceny on the part of the bankers and their chums and implies that we only have to lock a few of them up and tighten the regulations under which they operate to fix the problem. It’s a popular analysis but not very helpful. The bankers are merely working the system to their advantage. It’s the system itself that’s faulty.
It’s disappointing that neither Gillian or Max explained why the credit bubble has got so big or why our current system of banking and money means that it can only get bigger regardless of how much tinkering the central bank does with interest rates and quantitative easing, or what the government does with taxation and spending.
Our system is built on credit and the idea that money is a proxy for wealth. This means there are only two ways that the economy can get moving again.
The first is for people and companies to let go of the vast sum of money that they’re hoarding and distribute it across the whole economy by spending, investing, and giving it away. The problem with this solution is that we like to have hoards of money stashed away because that’s what makes us feel rich.
So we’re probably stuck with the alternative. Banks will have to start lending again and people will have to start borrowing again, which will pump up the debt bubble even more, and in a few months or years we’ll end up even worse off than we are now: deeper in recession and deeper in debt.
The other disappointing thing about the radio show was the mantra that “money isn’t real”, which is true to the extent that it’s not gold or silver, but the chant implies that money itself is the problem, which it isn’t.
Money is pure genius as a way of making our productive economy work, helping us to produce and distribute all of the things that we need for our survival and comfort. We need to acknowledge that genius and open our eyes to all of the things that get in the way of money being able to do what it does best.
First and foremost we have to stop pretending that money is the same as wealth. We have to stop hoarding it away where it can’t be used for commercial activity.
We also have to stop banks from creating money whenever they issue a loan.
If we do these two things then and only then will we be able to deflate the credit bubble, permanently, and give our productive economy a chance to prosper.
Let’s hear that loud and clear on a radio show sometime soon, please.