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gruffydd

Why Don't Governments Act As Bankers?

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Ain't that what Abraham Lincoln proposed, or was it George Washington? Anyway, why do Governments borrow money from banks and pay them interest? Why don't Governments run their own banks.

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It was Abraham Lincoln. He proposed, among other things, off getting rid of fractional reserve banking and some say got assassinated because of it.

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I think the idea is that the bankers are more honest than the politicians. Politicians are prone to printing money to win votes. If the banks issue too much money (i.e. lend it into existence) they make losses on bad loans. This helps to ensure that an appropriate amount of money is in circulation.

That's the theory anyway......

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Governments love to govern (and that means spend and even borrow) , just like consumers love to shop. Can you imagine a government wanting to lend!! Can you imagine collecting all those taxes and then letting somebody else spend them? Where's the power and prestige in that?!

Think about it. When Tony says "We've doubled the number of xyzs in hospitals", he means he has, even though it is your taxes he's using. To a politician getting one's hands on that sort of cash is like giving a chav a platinum card. Why would he deny himself the pleasure of all that spending in favour of lending money to somebody else??

Edited by Sledgehead

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Isn't National Savings a form of government "bank"?

Good question (as it gets people thinking about money flows, the banking system and government and its agencies)

I think you'd find that The Bank of England (BoE) would be a better candidate, although it would claim it was "The Government's Bank", rather than "The Government".

NS&I is really just another way for the Government to raise funds, much like the Debt Management Office (DMO). The funds are chanelled, via the BoE through HM Treasury - ie Gordon, to the various branches of government, where they are spent.

The DMO, raises funds by issuing gilts, the NS&I by retail (members of the public ) deposits. Both NS&I and the DMO are part of government, but, being executive branches (bits that actually do rather than decide - the legislature) , are termed "agencies" and act at arms length from government.

In this way the DMO and NS&I are acting in the same role as investment and retail banks raising money for investment in a company. The only difference is the company is the country, with Tony as CEO and Gordie as CFO.

If you are interested, these links provide short explanations of roles:

NS&I background

BoE background

Debt Management Office background

Edited by Sledgehead

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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