Banking System Controlled by Government

johnmcdnl

OK first off I don't study economics or anything like it so I'm really looking at it from a very joe soap perspective....

but why does there always seem to be such disdain for the banks being owned by the government... anytime it's on the news that the government are buying more shares in BOI or whatever bank the first thing the politicans say is that it's only going to be temporary and short term etc etc... why is this the case... why don't the government want control of the banking sector when any mistakes that happen in the system make such a mess in the rest of every single thing that happens in any country.. why is the monetary system controlled by a group of private institutions and why is it encouraged...

I dunno if any of ye have watched the Money as Debt videos on youtube but they really got me questioning the monetary system we have today. The way the system is based on promises to pay and the way that debt is created even though there isn't that much money in the world to pay hence inflation is constantly needed... i dunno how accurate these videos really are but they put up a very convincing argument against our current banking system..

the videos also suggested a monetary system where governments controlled the money and could borrow money interest free when they needed to build new schools or roads etc etc... but to curb excessive inflation or devaluation of the currency our taxes would be removed from the monetary system so the total amount of money in the system would remain the same so the currency wouldn't loose value...

now that there seems like a good simple idea that could work in theory... and the day to day lives of people doesn't really change as we'd still pay taxes etc etc but the government wouldn't have to wasting money on interest repayments etc etc and that money could be used to further improve our country,,,, I'm not sure how a normal person could get a loan in this system (do the banks still operate at lending promises of money or do they actually have to have to lend money that they own)

Like I said I'm not an expert but this idea just sounds sensible to me and makes a hell of a lot more sense than basing an economy on debt creation that requires constant inflation to be sustainable.... can someone just explain why this system wouldn't work or whatever

andrew

johnmcdnl wrote: »

OK first off I don't study economics or anything like it so I'm really looking at it from a very joe soap perspective....

but why does there always seem to be such disdain for the banks being owned by the government... anytime it's on the news that the government are buying more shares in BOI or whatever bank the first thing the politicans say is that it's only going to be temporary and short term etc etc... why is this the case... why don't the government want control of the banking sector when any mistakes that happen in the system make such a mess in the rest of every single thing that happens in any country.. why is the monetary system controlled by a group of private institutions and why is it encouraged...

I dunno if any of ye have watched the Money as Debt videos on youtube but they really got me questioning the monetary system we have today. The way the system is based on promises to pay and the way that debt is created even though there isn't that much money in the world to pay hence inflation is constantly needed... i dunno how accurate these videos really are but they put up a very convincing argument against our current banking system..

the videos also suggested a monetary system where governments controlled the money and could borrow money interest free when they needed to build new schools or roads etc etc... but to curb excessive inflation or devaluation of the currency our taxes would be removed from the monetary system so the total amount of money in the system would remain the same so the currency wouldn't loose value...

now that there seems like a good simple idea that could work in theory... and the day to day lives of people doesn't really change as we'd still pay taxes etc etc but the government wouldn't have to wasting money on interest repayments etc etc and that money could be used to further improve our country,,,, I'm not sure how a normal person could get a loan in this system (do the banks still operate at lending promises of money or do they actually have to have to lend money that they own)

Like I said I'm not an expert but this idea just sounds sensible to me and makes a hell of a lot more sense than basing an economy on debt creation that requires constant inflation to be sustainable.... can someone just explain why this system wouldn't work or whatever

There are a couple of reasons as to why it's a bad thing for the government to have ownership of banks, and to control to banking system to too large an extent. Some of the bad eventualities which arise from government ownership can and have arisen from private ownership, however this doesn't change the fact that government ownership leads to these eventualities too.

Firstly, government ownership of bank politicises the loan making process. When private banks don't make a loan, they can cite their own business interests as being the motivation behind not giving you that loan. But if the government owns the banks, then people begin to believe that banks should give them loans/that they deserve loans, by virtue of the fact that as taxpayers they're the ones who own the banks in the first place. At best, this just leads to resentment of the government and banks. At worst, this leads to banks being forced to make risky loans by the government, loans which subsequently fail and cause losses for the taxpayer.

Secondly, monopoly. If the government owns all or most of the banks, then this obviously reduces the number of actors in the market. This harms consumers as monopolies tend to restrict innovation, increase costs, and in general are just really crap.

Thirdly, government stagnation. There's probably a better name for this. This is a more broad point. Think about the government owned businesses you know of; the DAA, the Ports, Aer Lingus, the ESB etc. While not all bad, most are hardly paragons of innovation. The exact reasons as to why governments are bad at running businesses are varied. In a general sense, it's because the bureaucratic system inherent in running a government is at odds with the kind of system which produces innovation in business.


So, those are some reasons as to why it's bad for government to control commercial banks like AIB, BoI etc.



To talk a bit about that money as debt documentry:

Government control over the money supply is a bad thing. While in general the money as debt documentary is wrong inaccurate and misleading (more on that in a minute), from watching it you'll at least know that the money supply and monetary policy in general can and do affect the real economy.As it currently stands most central banks (who control monetary policy) are independent. This means that, aside from some political nudging, they do what makes sense economically rather than politically. Or they try to at least. Why should this be the case?Because political control over the money supply is likely to be abused. Firstly, politicians are self interested. As you saw with the housing bubble, politicians are perfectly willing to engage in economic policies which lead to short term economic growth even if it screws things over in the long run. Thus, politicans would have a strong incentive to use monetary policy incorrectly in the short run to boost their election prospects, while screwing things over in the long run.

Secondly, politicians are politicians. They're not economists. And whilel it's easy to think that economists are basically just guessing when they say things about the economy, they're not, and there are very clear circumstances under which expansionary or contractionary monetary policy would be a bad thing. I wouldn't trust politicians to either recognise these circumstances, or listen to economists.

In a more general sense, however the money as debt documentary is crap. It's mostly just convincing sounding conspiracy theories. It's the economics version of creationism. To the non biologist creationism sounds convincing, but in reality it's a load of ring. It'd take a long time to rebut everything that money as debt says, but to just bring up a two things.

Firstly, it's mostly set in america, and focuses on the fed. Obviously, not every central bank operates in exactly the same way. Secondly, inflation is not as big an evil as that documentary makes out. This is because what really matters is real purchasing power. For example, if I recall correctly, the documentary makes the point that a dollar today is worth less than a dollar 50 years ago. But this doesn't matter, because people now get paid more dollars. The average pay packet still buys the same amount of stuff, which is what really matters.

I could go on, but I don't want to. Those are just two examples which I hope will lend authority to my claim that it really is a load of crap. On that note, anyone who tries to claim otherwise had better do so in a way that speaks directly to economic theory. Any conspiracy theory posts will be deleted.