Where do the banks put their money?

Here’s a really important graph from the Positive Money campaign. Banks have the power to create money, and they have a choice about who they make that money for. Here’s where their money has gone in the last few years:

To hear a politician speak, you’d think the bottom one was the most important – we don’t regulate the banks because we don’t want to get in the way of them funding business and creating wealth. The reality is somewhat different. The two biggest sectors here are the property market, and the financial sector. Financial intermediation, the orange one in the middle, is the bit where people play with money to make more money. It includes speculators and the guys who collapsed the global economy.

Considering this graph, and the fact that we now have to fix the economy somehow, where should we focus our attention? Bringing down inflated house prices in a controlled manner perhaps? Regulating speculation and the financial sector? Both of those would be more important than what we’ve chosen to focus on. All political attention is on the slim purple section at the top – public sector debt.

What that means is that despite all the austerity, we haven’t dealt with the biggest problems. House prices are still too high and are being kept aloft my artificially low interest rates. The financial sector is still under-regulated. Public debt is a problem, but we can pare government budgets to the bone and the economy will still be broken.

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