That’s what he says 4 minutes into this interview. Well true, but whose fault is that? Well it’s partly the fault of Mr & Mrs Average who want government to stand behind or subsidise the private debt creation process. That is, Mr & Mrs A. want government to stand behind the money they’ve deposited in private banks. So in effect, Mr & Mrs A. want private banks to be subsidised. And politicians can always win votes by subsidising whatever Mr & Mrs A. want to see subsidised.
To expand on that, “loans create deposits” as the saying goes. That is, when a private bank extends a loan and the borrower spends the relevant money, that money inevitably ends up as someone else’s deposit. And private banks, quite naturally, want to maximise the size of their businesses: that is they’ll expand the total volume of loans and deposits as far as they can.
So if governments stand behind deposits, they are effectively subsidising the private debt creation process.
Of course, if we abolished the too big to fail subsidy and other bank subsidies, the size of the private bank industry would shrink, the effect of which would be deflationary. But that’s easily made up for by having the government / central bank machine create and spend money into the economy. And that’s “debt free” money, as Positive Money calls it. That way Mr & Mrs A. (and indeed firms and corporations) would have a bigger stock of money, and thus wouldn’t NEED TO borrow so much: i.e. the total amount of private debt would shrink.
H/t to Positive Money, plus please note that the above views are my own: they haven’t been officially endorsed by PM, though as far as I know the above is fully compatible with PM policy.