I was interviewed on the Radio 4 programme World at One today on the subject of Corbynomics.
What I had to say can be heard here.
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I was delighted to hear Richard Murphy despatch the hapless Chris Leslie on World at One today.
Just one comment. Mr Murphy, in his effort to explain how banks create commercial bank money, referred to “money the banks lend to business”. My minor quibble is that of course the banks lend very little to business, at least for the purpose of capital investment. I believe the figure is something around 8%. I know that Mr Murphy is the last person who needs to be told this, but listeners might have got the wrong end of the stick.
Apologies: I was simply trying to make money creation out of thin air sound normal, as it is
Indeed, most of bank lending goes to churning second-hand homes – which used to be undertaken mainly by non-profit mutuals. Even commercial loans are generally secured on landed property.
Your next project should be “Economics for Dummies – why national debt isn’t like the household budget” written using a vocabulary of no more than 500 (preferably monosyllabic) words and serialised in the Daily Mail.
It’s all very well being on Radio 4 or the front page of the Guardian online, but the message needs to get out there to everybody. I’m quite shocked how little people seem to care or understand about tax and expenditure. Headlines are swallowed without question and are written so that the most uncritical can understand (or think they do).
Now there’s an idea….
There is an excellent one here by Bill Mitchell, Randal Wray, Stephanie Kelton and Warren Mosler.
https://www.youtube.com/watch?v=4bXpOUYrr1c
This is a good idea.
Nice answers to a direct question on Green Quantitative Easing under conditions of sub-optimal inflation levels.
Follow up question – how can the goals of Green QE be achieved if by 2020 the economy has rates of inflation that are higher than desirable?
Would you recommend taxation / enhanced collection alone? Or would you suggest increased taxation (recessionary) be matched to increased QE (stimulatory) as part of a redistribution from tax payers to Green Investment goals. I assume the second, but I’m not an economist and might have missed something in the logic. How would inflation be kept under control?
If there is higher than planned inflation ( and I currently think that unlikely) then action depends on likely causes
Monetary policy is the conventional way of dealing with this
It need not impact PQE, but is likely to reduce its appeal
But strict answers are not possible
I’m intrigued by this PQE idea. Conventional QE, of which I’m not a fan, as practised by the US Fed, BoE and ECB involves printing money to buy existing bonds (both government-issued and commercial) from banks and possibly non-financials. The expansion of the central bank’s balance sheet on the liabilities side is matched by the bonds purchased on the asset side. Do you envisage the entities in receipt of PQE – housing associations, hospital trusts, green investment banks, etc. – issuing bonds or something equivalent (or will the BoE be in the business of issuing cheap loans to these entities which will appear on its balance sheet)? Or, perhaps, am I missing something here?
The local authority issues a loan and gets cash
The bank buys it
The bank sells it to the BoE
The local authority now owes the BoE
The bank makes a margin on buying and selling — effectively an under-writing fee imposed by EU regulation
The BoE can charge interest or not — it’s circular then
Hope that’s as clear as I can make it
Are you and the Corbyn campaign missing a trick here Richard?
There is an important fact that seems to be ignored. That the Bank of England already has £375bn of illiquid assets through its gilts holding.
Wouldn’t it be simpler to ask the BoE to slowly liquidate these assets into the marketplace as they come towards expiry. The liquidity gained from the market (so deflating that part of the sector) could then be used for PQE. The beauty is that the UK Government has already borrowed this money so this would just be reusing it for a better purpose.
Cheers.
No!
That £375 bn simply needs to be cancelled and consigned to the bin of economic history where it belings
I think simply retiring the gilts or placing them in a special drawer isn’t sensible usage of the assets.
At the very least, the BoE should be involved in active management of their gilt holding because there is a benefit to the UK government in that currently the government pays no interest on these gilts. Active trading here means gilt swaps with the market so that gilts close to their redeemable date are put back into the marketplace and longer bearing gilts are removed from the marketplace. These will be especially beneficial if/when interest rates increase as it will reduce the amount the UK has to pay for its borrowing.
As it is, these holdings of the BoE are just illiquid assets that can be redeemed as cash by selling into the marketplace. It is in effect a savings account of the BoE. Why print money when you can draw on the marketplace and remove liquidity from it (after all we’re are suppose to be worried about asset price inflation) and use it for PQE purposes.
The money has already been borrowed into existance and sits on the balance sheet of UK ltd. You don’t need to create new money, just use the existing stuff more productively.
I am sorry
Whilst I agree the need for QE replenishment this I consider a technical issue
The rest misses the fact that we are still issuing substantial amounts of new debt a year: the sum is not static as you seem to assume
Hello Richard,
good interview succinctly put. May I recommend listening to an interview on RT Max Keiser 791 with Guy Standing, I found it enlightening, and Max was contained from his normal int-eruptive self !