Chapter Four

If the government can just create money, why does it borrow?

First, the bond market (government-issued interest-bearing money, a savings account for us) does not need to exist in a fiat currency like ours.

It’s just that former laws demand this route from the period when Gold as a finite metal was the currency guarantee. So when under what is known as a ‘Gold Standard currency,’ the government of the day wants to spend it would have to ‘borrow’ from the goldsmiths (who owned the gold), who, in return for lending the gold, would issue a receipt that bound the government to repay by a certain date with interest, this document became known as a gilt-edged bond. The gold never moved from the private bank of the goldsmiths, but the bond guaranteed the gold being lent. As gold is finite, it inflates very easily, thus following many booms and crashes whenever we had a finite base metal for a guarantee.

Now, licensed banks issue money out of nothing (subject to a bank reserve of 1-5%) to ‘lend’ to the government’ via bids based on Bank of England-set interest rates (interest rates are used to control the ‘value’ of money). The government sends a decree (fiat) that it needs x, and the banks bid as if they have gold to lend, which they don’t.

We have a fiat currency based on trust, not a finite gold standard.

Why does this continue? It is argued that banks act as gatekeepers to stop rouge governments from issuing too much money. This is bogus, as the Bank of England sets the interest rate the banks have to get close to in bidding for interest to be paid for the bonds. Also, the government subverted the banks to rescue them from 2009 to 2020 by ‘Quantitive Easing’ (QE) acting as a guarantor of last resort—which they have always been as the original issuers!

We have a fiat currency based on trust (via the rule of law), not a finite gold standard based on a finite amount of gold, which becomes more expensive as economies grow. Those holding gold always want to return to a gold standard. They are just greedy rentiers, also known as ‘gold bugs’.

Quantitive easing (QE) legally subverts the bond market; in the US, the issuance of coins also subverts. Thus, during the pandemic, many lobbied for a $1 trillion platinum coin to be issued. Also, as a failsafe against a financial collapse, the Bank of England has £100 million in notes if digital money fails, which has never gone through the bond market.

Fiat is just a promise to honour the debt issued. ‘Government Debt’ is ‘Our Surplus’. And as it’s issued out of nothing, it’s just a record of money in the economy.