We’re told there’s not enough money around—and that it might lead to a full-blown global recession. It’s true that in 14 leading economies the amount of cash in circulation has dropped by three quarters over six months.
So where did all the money go?
The answer is that its all still there—but the banks aren’t lending it and the bosses aren’t spending it.
Firms are hoarding vast stockpiles of cash. In Britain corporate cash reserves now amount to half of Britain’s GDP—the value of all goods and services produced in a country over a year.
A decade ago it was a quarter.
They don’t think they can make as much profit by investing now as they will if they wait.
And the bankers who bosses rely on to provide cheap credit are refusing to do it.
Bankers in Europe are bracing themselves for the collapse of the Spanish banking sector, or from Greece leaving the euro as its workers reject austerity.
And across the world they are terrified of becoming the next bank in crisis—Bankia or Lehman Brothers. They are calling in their debts or jacking up their prices.
All this has led concerned economists to prescribe “quantitative easing”.
That’s when governments create money from thin air and spend it on the banks.
It’s something both the US Federal Reserve and the EU’s bailout fund are considering.
It’s a bank bailout by another name. Yet bailing out the banks is what got governments into so much debt in the first place.
Throwing more of our money at the institutions that sparked the crisis will not solve it.
That’s why even Britain’s credit rating has now been downgraded by the credit agency Egan-Jones.
This means it might cost more for the state to borrow money.
Interest rates on the British government’s debts are low compared to others in Europe.
But the economy isn’t growing and the banks could be dragged down by the eurozone crisis.
Workers have no interest in paying to put these banks on life support.
They should be nationalised and brought under democratic control. The billions in corporate stockpiles should be seized for welfare and public services.
The only capitalists who do seem confident that they have an immediate solution are accountants Ernst & Young. They say the recovery is being held back by “financially undead” companies that should have been allowed to collapse.
They want more firms to go the way of Game and Clinton Cards—the high street companies that collapsed into administration this year.
Their bitter medicine is more unemployment and poverty for workers. Instead we should be putting the bosses’ rotten system out of its misery.