In her report on the Bank of England’s decision to pump an additional £75 billion into the economy by way of further quantitative easing (QE), she said:

“The way quantitative easing works is the bank of England creates a lot of money at the push of a button – the way only the Bank of England can – and then to get it out into the economy, they go out and spend it.”

Oxbridge Economics

Flanders studied Politics, Philosophy and Economics (PPE) at Oxford, so you’d think she would have a reasonable grasp of economic fundamentals. But her suggestion that only the Bank of England can create money at the push of a button, makes you wonder.
 

Anyone who has studied economics to A-level will have learned about Fractional Reserve Banking, the process through which banks are able to create money by making loans to their customers.
 

And it’s not just bank loans that involve the creation of money at the push of a button. New money is created each time someone uses a credit card. Consumer credit lending to UK individuals now stands at £209 billion; money that didn’t exist until payment was made for goods and services that people couldn’t otherwise afford.
 

Hiding the Truth

It’s difficult to avoid the conclusion that Flanders’ false statement to four million or so viewers is part of an establishment conspiracy to hide the truth about the way money is created. To be clear: 97 per cent of the money in circulation is created as debt, repayable at interest, by privately owned banks motivated by the requirement to maximise profits, at the push of a button.
 

By suggesting that creating money out of thin air using QE is somehow an exceptional event, our attention is deflected from the fact that the largely unregulated - but routine - creation of money by banks is the main culprit for the current financial crisis.
 

If banks and other mortgage providers were not able to create money out of nothing without limit, they wouldn’t have been able to make the non-viable home loans that brought about the sub-prime mortgage crisis and tipped the global financial system over the edge.
 

BBC Editorial Policy

Perhaps the BBC has an editorial policy not to reveal the true means by which money is created, or the consequences for the wider economy. Regardless, Stephanie Flanders is responsible for a serious and misleading statement on the BBC’s flagship news programme, for which a correction and an apology should be made.
 

Independent columnist Johann Hari was recently suspended and forced to take a course in journalism after he was found to be economical with the truth. Stephanie Flanders appears to have a similar problem with the truth about economics, but there’s unlikely to be any sanction against her.