Banks have two key powers in today’s economy – they get to decide:
- how much money to create, and
- how this money can be spent.
1. How much money have banks created?
From the time when the Bank of England was formed in 1694, it took over 300 years for banks to create the first trillion pounds. It took only 8 years for banks to create the second trillion.
Today cash accounts for just 3% of the total money in the economy (coloured green on the chart below). Money created by banks accounts for the other 97% (red on the chart below).
2. How have they used this new money?
Over the last 15 years the banks have used their power to create money to pump hundreds of billions of pounds into the property market (shown in red below). This has pushed the price of housing out of reach of ordinary people. Lending to the finance sector has also increased greatly over the past 15 years; this sector includes the companies that were involved in much of the speculation which contributed to the crisis.
Meanwhile, lending to businesses has stagnated, harming the real (non-financial economy) economy and lowering employment and growth.