Only through a public monetary system can a financial crisis be avoided

The politics of public money. These concrete alternatives show that the pathways towards economies of well-being are plenty. We can use transformative state funding, banking and procurement strategies to build strong human development and community wealth from the ground up. Yet, under a global, debt-driven financial system, we need to ask where the money comes from. Most new money is issued by commercial banks in the form of private and often high-interest loans, perpetuating the cycle of reckless economic growth. This type of money can be better understood as finance, as it is always based on creating debt and indebting people and entire populations. Even the IMF and the Bank of England now acknowledge that this is how new money is created. That most of our money is based on debt is not a given: it is a political situation that people and policymakers can change. In the neoliberal era, as central banks in many rich countries became apparently independent of government, their primary duty was to guarantee price stability and limit inflation by setting interest rates and producing cash (notes and coins). However, governments’ continued power to issue debt-free money was shown by the €2.6 trillion that the European Central Bank created and the US$4.5 trillion that the Federal Reserve issued after the 2008 financial crisis, a process also known as ‘quantitative easing’. Most of the new money went to rescuing the financial system, including the big banks. The underlying approach was tied to trickle-down economics, believing that buying corporate and government bonds would in turn push up share prices resulting in short-term spending and long-term investing in which everyone would prosper. This obviously never happened, as shares are predominantly owned by the wealthy who know how to make more quick money through the financial sector than through more productive sectors. Hence private finance and financial markets have been relying, more than ever, on governments and public money to regain temporary stability, while being largely left unregulated to maximize profits through speculative financial vehicles. This approach, according to various political analysts such as Walden Bello, will almost certainly provoke another financial crisis. Governments still have the power to spend money rather than lending it, but the way they have used it has led to more and not less concentration of wealth. The 2008 global financial crisis showed that banks were saved through public bailouts and the financial losses were socialized through austerity measures on the backs of ordinary people. Given that the public is ultimately liable, this illustrates that even credit or debt-driven money issued by commercial banks should be considered a public good and therefore should be in public hands and democratically controlled. It will take a ‘politics of public money’, as opposed to a politics of privatized finance, to stop the growth juggernaut. This can be done only by reasserting the powers to create new money in 8 | Public Finance for the Future We Want order to fundamentally democratize our money systems. This public money should be spent (rather than lent) to address the many great challenges of our time rather than diverted and lost in the financial markets. With amassed counter-power, we can reclaim the state and create a new monetary model. To give an example of what such a model could look like, Mary Mellor, emeritus professor at Northumbria University, argues that a new model could allow people to democratically and collectively decide the amount of public money that should be created. Any publicly created money that turns out to be superfluous would be retrieved through taxes in order to keep inflation in check. While the trillions created by central banks after the 2008 crisis through speculation dangerously pushed up real estate prices, the fear of hyperinflation – when the prices of goods and services rise more than 50 per cent a month – seems largely unsubstantiated. With so many jobs, goods and services needed to restore the ecosystem, and to keep inflation in check, the new money should not be speculated with but put to societal use. In order to restore ecosystems and put an end to extractivism, we need to confront the power of big business, in particular the fossil fuel oligarchy. Carla Skandier of the Next System Project argues that the United States, whose energy industry is responsible for a large share of the country’s greenhouse gas emissions, could use its sovereign monetary power to buy out fossil fuel companies. A public buyout would enable society to shift control away from private, profit-driven shareholders and towards democratically decommissioning fossil fuel operations. With popular pressure, these entities could be transformed into climate-friendly public companies that prioritize the needs of displaced fossil fuel workers and communities, as well as other disenfranchised groups. While these proposals may sound too radical to many politicians, creating new public money in the people’s interest is gaining significant momentum as it could effectively finance the Green New Deal. This plan, most recently put forward by Congresswoman Alexandria OcasioCortez in the US, seeks to rapidly decarbonize the economy while also tackling social and economic inequalities. Public support for massive public investment, powered by publicly created money and democratically organized banks is growing, as these might be the only big guns with which we can actually fight climate change to foster collective well-being.