Sordid Tales of the 'Magic Money Tree'

Central banks can effectively "print more money" for the financial sector. Should they hand the money to the people instead?

Joyce Nelson

Photo by KMR Photography, CC, cropped from original

At first, viewers and listeners might have thought British Prime Minister Theresa May was dreaming up her own Harry Potter-esque fiction series, perhaps as relief from the gruelling demands of the 2017 election campaign.

During an election special on BBC radio’s “Question Time” in June 2017, two public sector nurses brought up the issue of pay. One said, “My wage slips from 2009 reflect exactly what I’m earning today. How can that be fair, in the light of the job that we do?” Another nurse said that the cap on pay raises since 2010 had actually meant a decrease in his salary of 14%, “So don’t tell us we’re getting a pay rise,” he said.

While promising to put more money into the National Health Service (NHS), May answered that “there isn’t a magic money tree that we can shake that suddenly provides for everything that people want.” Then another audience member accused May of “cutting NHS spending while cutting taxes for the rich.” To which May again replied, “We have to make sure that we are managing our money carefully because at the end of the day there isn’t a magic money tree that suddenly delivers all the money everybody wants for the spending everybody wants.”

Of course, social media had a field day with this, asserting that there was also no magic nurses tree, no magic doctors tree, etc., but the best retort came from someone named Richard Murphy, who responded: “I have to tell Theresa May that there is a magic money tree. She knowingly used it to fund 435 billion pounds sterling of QE [quantitative easing] to bail out banks.”

While others have quoted a slightly smaller figure of 375 billion pounds, Mr. Murphy raised an important point.

There is a “magic money tree,” and the financial sector has benefited greatly from its shakedown over the last nine years. Quantitative easing has rarely been explained to us serfs, but it is basically the creation of money by a central bank (like the Bank of England), ostensibly to shift the economy in a desired direction.

“Banks lend mainly to other financial institutions. They don’t lend to factories that are creating jobs. The whole economy has turned into trying to make money on speculation and arbitrage, not producing goods and services, not on hiring people to actually do work.”

Central banks in the G7, including in Canada, have been using QE throughout the decade since the 2008 crash and Great Recession. There is a similar “magic money tree” in the US. Economist Michael Hudson observed in 2017, “$4.3 trillion has been provided to the banks by the Federal Reserve in quantitative easing to keep the interest rates down. So if you’re a good bank customer, you can borrow from the bank at two per cent, you can borrow to take over a company or to buy stocks or to buy risky bonds that are yielding more, and you can make an arbitrage. That is, you can make in dividends or interest more than you have to pay” back to the Fed. The Fed shook that “magic money tree” and simply created the money needed for quantitative easing, providing it to the private banks.

As Web of Debt author Ellen Brown noted, “When that program was initiated, critics called it recklessly hyperinflationary; but it did not create even the modest 2% inflation the Fed was aiming for. Combined with ZIRP – zero interest rates for banks – it encouraged borrowing for speculation, driving up the stock market and real estate; but the Consumer Price Index, productivity and wages barely budged.”


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That’s because the QE cash didn’t go into the real economy, it went into tax havens and private vaults, after being used by the banksters and their corporate cronies for stock buybacks, paying down loans, buying real estate, and mergers and acquisitions.

As Hudson noted, “Banks lend mainly to other financial institutions. They don’t lend to factories that are creating jobs. They don’t lend out for goods and services. They lend to other financial institutions. The whole economy has turned into trying to make money on speculation and arbitrage, not producing goods and services, not on hiring people to actually do work.”

“People’s QE”

The amount of QE is astonishing when you add it all up: at least £375 billion from the Bank of England to UK banks; $4.3 trillion from the US Fed to Wall Street banks; €1.34 trillion from the European Central Bank to European banks and corporations. When you add in QE by other central banks – like Switzerland’s, Sweden’s, and Canada’s – the figure comes to about US $20 trillion as of summer 2017.

In 2016 when I wrote Beyond Banksters, it was being reported that eight obscenely rich men owned almost as much wealth as half the world’s population. By summer 2017, so much money had gushed-up to the super-rich that the new figure was five men owning that much, with the middle class in a rapid downward spiral.

In big cities, you can see it in the stores around us, where the choices seem to be Saks Fifth Avenue or Dollarama – or more likely, Saks Fifth Avenue and second-hand thrift shops with lots of shuttered stores in between. One consultant calls it the “high-low” – meaning that high-end and low-end stores “are doing better than ever, and middle-income stores are collapsing.”

[With “people’s QE”] new money would be created by central banks, but would be spent into the economy by the government to boost investment, employment, and incomes.

Some economists have been seriously discussing the equivalent of a “magic money tree” for the rest of us. Under this proposal new money would be created by central banks, as with QE, but instead would be spent into the economy by the government to boost investment, employment, and incomes. (British Labour leader Jeremy Corbyn even proposed a “people’s QE” during the 2017 election.) Some call it “helicopter money,” or “people’s QE,” or “cash for the undeserving poor” (according to the angry rich).

But as British journalist Simon Jenkins noted, “Why not try it? All else has failed.” To prevent another giant recession, he urged in 2016, “Just give people the money … hand it to those most likely to spend it: the poor…. Whatever you do, don’t give it to banks. They will just hoard it or use it to boost house prices.”

If all this sounds familiar to Canadian readers, it is likely because the issue of taking back the money-creation function of Canada’s central bank (a focus in Beyond Banksters) has become a major discussion point for many. The movement for federal governments to take back their own sovereign powers of money-creation is growing around the world.


Condensed from Chapter 3 in Joyce Nelson’s latest book, Bypassing Dystopia: Hope-filled challenges to corporate rule, available from Watershed Sentinel books. Read or download the full chapter here.

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