Online — Feb 23rd 2021

David, wearing his Positive Money hat, explained how money is created when banks make loans and is destroyed when loans are repaid. Borrowing creates savings rather than vice versa. He stressed that it is private debt not Government debt which is the cause of financial crises.

He explained the differences between Central Bank Reserves plus Cash and Commercial Bank Deposit Money (Commercial Banks IOU’s). QE is new money but, being mostly in the form of Reserves ends up in Financial markets resulting in asset inflation with little reaching the real economy. In comparison Reserves (QE) being used to fund the Government does reach the real economy.

David gave a very short explanation of Modern Money Theory, explaining that you cannot compare the finances of a Nation, with its on sovereign currency, to a household; a sovereign nation with its own currency and central bank cannot run out of its own currency. Limits on money creation are the real resources available that can be financed by it.

David concluded by explaining Sectoral Balances, that a Government deficit is a private sector surplus, but cautioned of the dangers of running a deficit with the rest of the World, a serious vulnerability of the UK.

Finally, he warned against the dramatic warning of politicians and too many in the Main Stream Media of the country’s “maxed out credit card” and the Country being bust. And remember, that when they say we are leaving all this debt to our children too ask to whom will our children owe the debt!

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