Deficit Spending

Imagine you are a public relationships consultant hired by some lobbying organisation. Your client explains their predicament:

“There is a thing I do that is very profitable, but I want someone else to not be able to do it.”

I suspect this is the form of most public relations problems. The solution is to alter the public perception of that activity by splitting in two. You cloud your client’s activity in misinformation so that when they do it, not only does the public accept it, they don’t perceive it at all, so can’t even form an objection. Meanwhile you create a new name for when the other party does it. You design that name to invoke negative connotations and attach as much bad press to it as you can.

If you see past this you see a simple and surprising truth:

Deficit Spending is just Banking

Most people don’t know how banking or the monetary system works. I guess they assume it works something like this:

1) The government produces money (with those big machines we see in videos rolling out sheets of bank notes.)

2) Magic

3) We get paid

4) We put the money in banks (which are just big boxes of money.)

5) Banks lend some of it out to make money

Some people might see step 1 differently, perhaps involving more convoluted financial mechanisms like bonds or whatever, rather than cash, but with basically the same structure.

In reality money is not created by governments at all, it’s created by banks. Central banks create money when they lend it out to commercial banks. Commercial banks then create even more money because they can lend out more money than they actually have (through fractional reserve banking) given some arrangement of regulations. I don’t think even printing of money itself is a purely public activity, it’s more like a public / private hybrid.

The key feature you should see here is that money is created from nothing, but only if you assume money is a physical commodity. If you see money as social contract, like a promise, then it’s not such a surprising mechanism. Promises are made out of nothing because that’s the only way they can be made. You can’t make a promise out of gold. You can back currency with a commodity… but you still have to promise to honour that agreement.

Back to the point. Banking is very lucrative. The private sector has very much liked doing it since the crusades. What they don’t like is when possibly democratic government does it. The reason is perpetual: the population can, in principal, participate in the government. However, you can’t tell people that banking is evil because then they might expect the private sector to stop doing it. So you divide banking into 1) an invisible thing no-one talks about or understands and 2) ‘Deficit Spending’.

The threat of Deficit Spending is not economic at all. It’s that it’s inclusive Banking.

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