When banks create new money and pump it into the economy through personal loans and credit cards it causes a ‘boom’ that creates jobs and encourages businesses to expand. But because the boom is all fuelled by debt, sooner or later it causes the crash that sends businesses bankrupt and causes millions to lose their jobs. The current money system is bad for business and jobs.
1. Money creation by the banks creates an artificial boom
The last big boom was fuelled by people spending money that they’d borrowed, with every extra loan creating brand new money. By creating money in this way, banks doubled the amount of money in the 10 years running up to the financial crisis. When so much new money is being created and put into the economy, it feels like everyone is getting richer and can spend more. Businesses sell more, take on more staff, and can borrow more in order to expand.
2. Eventually the debt becomes too much and the boom turns into bust
All of this newly created money has to be repaid. Eventually the burden of debt becomes too high. Spending in the economy goes down as more and more of people’s income is swallowed up by debt. But worse still, because this money is based on debt, when it is repaid it disappears. It is not re-circulated or reinvested: it literally disappears. So if the banks don’t make new loans to replace this money, the money supply shrinks and we go in to recession.
3. This instability is bad for businesses
It’s difficult to run a business well when recessions are caused by the banking system every few years. Most businesses need a stable economy so that they can grow, rather than debt-fuelled booms followed by busts.