The issuing of credit feeds economic growth. What could the Coalition Government do to promote growth? Professor Werner says that the credit creation which provides the new money needed for an economy is neutral when made, but its uses bring good or bad outcomes. Good outcomes without inflation arise when the new money is fed to productive uses, which might for example use new technology to provide products or services with a greater value that the total value of the inputs used. Bad outcomes arise when the new credit is made available for consumers who use it to buy goods and services and this brings price inflation as more money chases the same goods. Another bad outcome is feeding credit to speculative markets in assets such as stock markets, derivative markets or property markets. Here the flow of funds is merely creating an inflationary bubble which inevitably turns into a crash as prices of these assets cannot rise without new credit creation feeding them. Whilst good productive credit creation produces its own income stream to fund the investment costs, speculative booms produce no such income and are not sustainable. He says that there is need for intervention to allocate money in the right direction and curtail it in the bad. He says that the outcome of letting 'the market' decide such things has manifestly failed as seen in the recent global crash. Unregulated credit creation allocation tends to produce bigger and bigger banks that seem for a while attractive in their profitability but do not serve the needs of smaller firms. Far Eastern economies have shown that allocated credit creation into productive schemes works for the good of all. Letting the market decide these things, as at present, really means that we are letting banks decide who should get the credit created and they obviously put their own commercial interests ahead of the wider needs of the whole economy. Prof Werner says that whilst a Green Bank is a good idea, why stop there when, as in the UK several of the biggest banks are now owned by the government for the taxpayer? Now that ownership is vested in the govenment it is a political decision as to whether the banking system is made to work for the good of all and bring a legacy of sustainability or left just to recover itself and continue working with just the needs of the banks themselves in mind.
Негізгі бет R A Werner: 3 Beneficial allocation of money
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