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A Hidden Road To Recovery? This Magic Money Tree Was All Along There

The question of whether lockdown measures will be lifted, Nick Sasaki return to the workplace, and retail shops reopen is still a major concern.

How can we afford all this?

I’m talking of course about the costly government policies like the furlough programme, small business relief grants, bounce-back loan, self employed income support payments and many others that were instituted to try and nurse UK through the destruction caused by Covid-19 and its lockdown.

In order to get a handle on the massive mountain of debt that has built up in recent months, conventional wisdom says either the government will drastically reduce spending (which is likely to harm public services) or the taxes would be substantially raised (which might harm the growth).

The Observer for July 11th, 2020 published an article entitled Tax Cuts and Rises Are the Only Way To Pay For Covid-19 by David Gauke.

Gauke claimed that the Government will need to increase taxes or cut spending in order to close the budget gap once we have recovered from the recent economic crisis.

A BBC article titled Coronavirus: What will it Cost UK on July 9, 2020 concluded, “The government is left with three choices: raise taxes or increase borrowing.”

As a result, conventional wisdom may be at times incomplete and at other times completely incorrect. As an example, conventional wisdom once held that Earth, not the Sun as the centre of solar system.

A new conventional myth has emerged in regards to recovery following Covid-19.

You Can Make Money… Just Literally

Money is not a natural thing.

These currencies were created by humans to aid in the exchange of products and services.

Most people would say the Royal Mint printed the money in coins and banknotes.

But only in a small amount.

In reality, commercial banks such as Santander, HSBC and NatWest create over 97% the money that is in the British Economy (and this figure is the same in most industrialised nations). HSBC NatWest Santander offer their customers loans.

In a 2015 bulletin entitled, ‘Money Creation for the Modern Economy’ by the Bank of England this was very clearly stated. This was the exact phrase they used:

Where does the money come from? Bank deposits are the most common form of money in modern economies. In the modern economy, money is created by banks when they lend. Every time a lender makes a credit, it deposits a sum of money in the bank account of their borrower. It is important to note that this description differs from some textbooks on economics.