People's Quantitative Easing (or green quantitative easing, as I once called it) is now considered a part of Corbynomics. I have a feeling that will not remain the case for long.
This morning there is news that the Chinese stock exchange has fallen by 8%. It fell 11% last week. Other markets are falling too. And yes, I know that in some senses stock markets are deeply unrelated to real economic activity, but that disconnect appears to have little economic consequence for most people on the up side of a stock market bubble and has a great deal to do with their well-being on the down side. Markets rise for all sorts of reasons, from conventional quantitative easing onwards. When they crash - and China's is crashing - they do so because there is a stark and sudden realisation that there is something deeply wrong in an economy and a period of economic adjustment - call it a recession, slump or even depression - is going to happen before it is put right.
Such a correction in a small state can, to some degree, happen without ripple effects. China is no small state. It is the second largest economy in the world. It has been the source of most economic growth since 2008. And there is every sign that it will not be for some time to come. This will ripple, as will the political impacts, which cannot be ignored. Those in charge in China will pay the price for what is happening: that is the Communist Party way. Political disruption and an uncertain new path will follow. The ramifications of the failure of neoliberalism in China could be huge.
What is undoubtedly true is that George Osborne's optimistic growth forecasts are going to look wildly wrong in the light of all this. We are not going to see export growth to the Far East, as he assumes. And whilst imports of some goods and oil will be cheaper, what we will also get is deflation and the threats that go with it inclduing a decline in market confidence here and a lack of investment that will follow from that and so falling growth rates that will threaten us with a recessionary environment quite soon.
All we can say that might be good is that interest rates will not be rising.
But if, as I expect, foreign inflows of funds into the housing market cease then the house building surge in London will end and some banks may be at risk as a result, and negative equity will be a possibility again, especially for recent entrants to the market.
As Larry Elliott has put it (all is forgiven Larry):
And so it begins. Shares are falling, currency markets are in turmoil. The price of oil is going through the floor, burning the fingers of speculators who have made the wrong bets on borrowed money. Welcome to the crash of August 2015.
And what will get us out of crisis this time? My suggestion is that sometime, very soon, People's Quantitative Easing will be on the agenda of every government with a crisis on its hands as they desperately need to get people to work again and central bank money printing has, this time, to deliver direct economic activity to ensure the world stays economically upright. I may, of course, be wrong (any wise person has to consider that possibility) but right now there is not much else new and waiting on the blocks to keep the world afloat.
Jeremy Corbyn may find Corbynomics is mainstream, long before he gets to power.
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Corbynomics will change soon enough to Osbornomics if there is money for The City in it. Watch how the always-subservient “free” press very rapidly forget “Corbynomics” and embrace the new, improved and whiter-than-white “Osbornomics”
No longer “Peoples Quantative easing”, it will be “Ozzies city-boosting quantitive easing”, and the bankers will be rolling in it again…
The fall in global economic output can only be linked to increased uptake in Peoples QE because of the work you have done in the UK in pointing out and publicising the contradiction in pretending that a sovereign government like the UK’s should need to budget just like a household or business when in fact the two latter entities don’t have the special power of being able to create money from nothing as the Bank of England displayed (an arm of government) in its QE programme. Of course, as you have rightly pointed out this is a mainstream Modern Monetary Theory particularly in reference to the Functional Finance theory part it incorporates. We should be mindful that China operates on the basis of both Functional Finance and mercantilism whereas many of the world’s other countries operate on the disfunctional Neoliberal theory of a sovereign government needing to balance its budget and “better” run a surplus together with a form of mercantilism based on “barge economics”. Clearly to increase global economic output there has to be a re-think of the Neoliberal paradigm that sovereign governments must treat their budgets like households or businesses and beggar thy neighbour and country mercantilism.
I share your optimism.
In my view major players in markets like nothing more than crashes because it enables them to hoover up assets at reduced prices. This is after all ‘disaster capitalism’ right? After this crash, how many USA/German vulture funds will be dipping their beaks in?
So we not only need PQE, but a new attitude to investment growth in the markets too that is founded on real growth through real transactions and not asset prices pumped up by credit financed so-called investment. My worry is that the ‘old dog’ that is the current financial system might act as a spoiler for PQE.
Correct. The owners of real production care little for share prices.
CEO’s come and CEO’s go, but the genuine assets remain the same.
CEO’s care great;ly about share prices
Bonuses can be linked to them
People’s QE will provide added liquidity but that is only half the battle.
It’s still money that’s lent into existence as debt.
This adds to the debt mountain. That is unsustainable.
What I believe will materialise will be a new people’s currency but not people’s money. It will be a currency that will be earned into existence by those that have time and no money and that time will be employed to solve social, environmental and economic problems.
It will be a counterpoint and counterbalance to money.
It will hedge investors and enable the transition to a steady state economy where everything is recycled.