10 Year Old Explains The Truth about Where Money Comes From...

Have you ever tried to do a jigsaw puzzle but one of the pieces was missing? Well, the financial crisis and all the trouble since then is a bit like that. No matter how many economists are working on the problem, they’ll never solve it because they’re missing the most important piece of the puzzle. That missing piece is money. Our guest today is the chairman of a major financial institution. Money money money. You either have it or you spend all of your time trying to get it. But where does it actually come from in the first place? I’m afraid that’s the wrong answer. Let’s start at the beginning. Every bank note has “The Bank of England” printed on it. But the Bank of England only creates 3% of all the money in the UK. Where does the other 97% come from? Don’t be silly! It’s just numbers in a computer system, electronic money created by high street banks. I know. I was surprised too. When you borrow money, it doesn’t come from somebody else’s savings. The amount you borrow is actually brand new money, created by the push of a button. You look confused. I’ll let Martin Wolf at the Financial Times explain: The essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending. See?! We need money for everything we do, but the only way we can get it in the first place is to borrow it from the banks! That’s why the government wants to get banks lending again – to get them to create even more money. But the whole problem is there’s too much debt. So how can the answer be for us to borrow even more? Exactly! It can’t! As long as banks create money by lending it to us, we’ll always be in debt! Why should the same banks that caused the financial crisis be allowed to decide how much money there is and where it goes? I wasn’t allowed telly for a week after I broke that plate. Dinner’s ready!Coming, mummy! At Positive Money, we're working to get the people in charge to understand why our current money system is broken and how we can fix it. NOW, Holly! With your help we can make it happen faster. Subtitles by the Amara.org community