If you were to ask people on the street how money is created, most couldn’t give you a decent answer. For some reason, everyone uses money, but few people actually question how or why it was created. A recent survey conducted among British MPs showed that 85% of them have no clue regarding the origin of money either. That is a worrisome figure, considering these are the people who tell consumers and banks how to handle money properly.
British MPs are Clueless About Money
Most consumers don’t hold politicians and elected officials in high regard these days. Ever since the financial crisis which began in 2008, the level of trust between civilians and their leaders couldn’t be lower. Regaining that trust will be rather difficult, if not entirely impossible. That’s especially true when surveys such as the one conducted by Positive Money placed political leaders in an even more negative spotlight.
To be more specific, the Positive Money survey was conducted among British Members of Parliament. One of the questions pertained to how commercial banks create new money every time they extend loans. Surprisingly, 85% of MPs indicated they were not aware of this situation or how it affected the country’s economy. More ominously, 70% of MPs thought that governments were the only entities capable of creating new money.
It seems these British politicians are well behind the curve right now, as central banks have used helicopter money as a strategy for a few decades now. Central banks do not need the permission of a government to create new money either, as they do so almost every day. Mass ignorance on the part of British MPs on monetary matters has been a problem for several years now. A similar study conducted in 2014 yielded almost identical results.
The topic of how money is created has always been touchy material. It is not something people like to think about, mainly because they think it is complicated. That isn’t entirely true, as most money is created during times of financial emergency. Around 97% of “money” around the world is created when commercial banks extend a loan. This may not seem like a big problem to the uninformed, but it serves to put more wealth into the hands of the wealthy. Moreover, consumers consequently remain in debt longer than they need to as well. There is no such thing as a magic money tree by any means.
All of this further confirms that most money is created out of thin air. The last time anyone checked, thin air had no financial value whatsoever. None of the money we use today is backed by anything other than a promise by a bank or government to honor the value of a paper or coin. If everyone were to ask the powers that be to make good on that promise simultaneously, the entire economy would collapse in a heartbeat. Ever since the gold standard was dismissed to give money its actual value, things have unraveled pretty quickly.
When MPs are unaware of how money is created, one knows things have hit rock bottom. Banks seemingly have very few leaders they must report to whenever new money is created, and this has been a problem for quite some time now. It is doubtful this situation will ever change, though. The Positive Money survey is quite worrisome, but it highlights some of the many issues associated with money as we know it today.