In a similar way to Quantitative Easing, Sovereign Money Creation relies on the state creating money and putting this money into the economy. But whereas qe relied on flooding financial markets and hoping that some of this money would ‘trickle down’ to the real economy, Sovereign Money Creation works by injecting new money and spending power directly into the real economy. Depending on how it is implemented, the policy could be many times more effective at boosting gdp than Quantitative Easing.
But even more importantly, whereas the government’s current growth strategies all rely on an over-indebted household sector going even further into debt, Sovereign Money Creation does not require that either the government or households increase their debts. In contrast, SMC can actually reduce the overall levels of household debt. It also makes banks more liquid and makes the economy fundamentally safer.
And by setting a precedent for sustainable creation of money for the real economy, in the public interest, the policy would show that there are other ways of fuelling the economy than simply relying on banks to create money for property bubbles and financial markets.
We believe that ultimately, it is a matter of when, not if, this policy will need to be implemented.
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