Funding the Future

The Bank of England is signaling we’re going to have high interest rates for a long time because it thinks we are still at risk of suffering inflation. But that’s absurd. The Bank of England is now the biggest creator of inflationary pressure in our economy.

Like almost all economic truths, austerity works in the opposite way to that which most people think. It does not save money. Instead, it prevents the government creating the money required to deliver what the economy is capable of.

It’s not true that bank savings fund bank loans. The economic truth is that bank loans create the money in bank savings accounts.

If Rachel Reeves wants to go down as one of the worst Chancellors in history, then she set about establishing her claim with yesterday’s ‘blame the Tories for things we all already knew’ speech. When her ambition is to penalise pensioners but let the rich off tax increases you known from the outset how badly she’s misjudged the mood of the country.

The government will agonise over the cost of paying NHS workers and teachers the above inflation pay rises that have been recommended for them, but doing so is absurd. Once tax is taken in to account a large part of any payment due heads straight back to the government, quite quickly. So why does no politician ever talk about that?

Most people think banks take in deposits from people and then lend that money to those who want to borrow from them. Nothing could be further from the truth. Banks take deposits and make but they don’t loan out depositors’ funds.

Labour says it is incredibly short of money. It need not be. I suggest that they just stop paying maybe £30 billion of interest to our commercial banks each year that they have done nothing to earn and then see what they can do with it to change the well-being of people in this country.

It’s an economic truth that no one has money with their name on it in a bank. All you have when you make that claim is a bank statement with an IOU printed on it. The bank has a debt owing to you. And that’s it.

I'm excited to introduce a new video series on this channel. When I asked readers of my Funding the Future blog what they wanted from these videos, the message came back loud and clear: they wanted me to explain some pretty basic economic concepts. Instead, I want to talk about the opposite of myths. I want to talk about truths. This series is going to be about economic truths. Those things that are actually, in a sense, glaringly obviously correct, and which need to be understood. I'll be creating a whole series of videos addressing these truths that I think people need to understand about how our economy works.

Is Labour really going to let some UK universities go bust, which they almost certainly will if it does not step in to save them? Do they really want to be the party that oversaw the start of the decline in UK education? That’s a long way from the legacy they’ll want.