“Politicians of all shades seem united on one thing at least: the need for banks to keep lending. Since the financial crisis, getting credit flowing has been the main goal of financial policy.

“And policy makers have pursued it with energy and ingenuity. The Bank of England’s Funding for Lending programme, which gives banks incentives to extend new loans; the European Central Bank’s long-term refinancing operations; the British government’s Help to Buy scheme, which caps lenders’ losses on certain types of mortgage – the list goes on. All are products of the same belief, that credit is the elixir of recovery. It is a premise that no mainstream politician seems to doubt.

“However, would they be quite so united, left and right, if they could see how the proliferation of credit has contributed to sharpening inequality? The link is real and damaging. Even if credit creation did boost employment for a while, this approach will deny most of society the returns to risk capital – the rewards of economic progress. We seem to be rushing into another credit-driven boom, with huge rewards for a few, and social and economic exclusion for the many. It is as economically destructive as it is socially poisonous.

“Over the past 30 years, the ratio of bank assets to gross domestic product in advanced economies has roughly doubled. At the same time, inequality has become more pronounced. The income of the richest 10th is now more than the income of the bottom half combined – which puts inequality at the highest level for 30 years.”

***

Read full Financial Times article here.