The following press release has been issued by the Green New Deal group this morning:
Bank of England should use the £10 billion windfall
to kick-start ‘jobs in every constituency',
say Green New Deal Group
The global economy is reeling and the Chancellor's dreams of ‘rebalancing the economy' with a ‘march of the makers' selling to a booming China lies in tatters. In response Professor Richard Murphy, widely credited as the author of ‘Corbynomics', and the Green MP Caroline Lucas have called upon George Osborne to urge the Bank of England to use the £10billion quantitative easing windfall it has received from the Treasury this week to kickstart a ‘jobs in every constituency' programme to help counter the adverse economic effects of global economic instability.
New research by Professor Richard Murphy shows that the Bank of England will this year receive at least £20.1 billion as some of £375 billion QE fund is repaid as the gilts in which it is invested reach their final redemptions dates.
This means that the Treasury will pay the Bank of England £20.1 billion during 2016 and, because the Bank of England has decided to keep the UK quantitative easing total at £375 billion, the Bank will then have to reinvest this sum in further gilts (or government bonds) that it will buy from banks, insurance companies, pension funds and others. This reinvestment will happen in two broadly equal tranches, one this week and another in September. This will happen despite the fact that it is now widely thought that this type of quantitative easing has helped wealth flow into the hands of those already well off and that it has, as a result, helped create the financial bubbles that are now bursting all around the world.
Professor Murphy and Caroline Lucas MP are suggested that this sum should be used to buy bonds issued by a new National Investment Bank (or the existing Green Investment Bank, or both, depending on the intended use of funding) which will be tasked with creating national infrastructure and a sustainable energy future for the UK. This would reduce the threat of climate change and in the short term would create new jobs, support demand and inject funds into the local economy of every constituency in the UK.
Caroline Lucas MP stated ‘the Bank of England's calculations have shown that the £375 billion of QE released into the economy between 2009 and 2012 did little to support the general economy. What it did do was boost the value of shares and bonds by £600bn,with 40% of the gains going to the richest 5% of households. The Bank of England now has an opportunity to use QE much more positively by investing the £10 billion windfall it has received from the Treasury in green energy and retro-fitting of existing buildings, generating secure jobs be in every constituency, reducing people's fuel bills and getting climate emissions down too".
Professor Murphy asserted that “a recessionary environment is once again sweeping the UK. This time we have to tackle it head on. Green or People's QE could do that. The programme could be kick started this week by putting the £10 billion redeemed from the QE programme by the Bank of England on 22 January into new real investment instead of buying government bonds in the open market. That's what a brave Chancellor should propose. It is what a brave opposition should suggest. This is not the time to wait. This is the time to start saving the UK economy. Over to you George Osborne and John McDonnell'.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Could somebody tell Ms Lucas that the £10 billion goes back to the Treasury via the BoE, it is just a smoke and mirrors exercise. In IFRS accounting (real corporate world accounting), the Treasury and the central bank (BoE)are consolidated, they are one and the same. All internal transactions between the two net to zero. Read the Whole of Government Accounts (WGA) if you want proof. (They are not consolidated in ONS National Accounts.)
Likewise, QE is the BoE buying in Treasury Bonds (Gilts), for recreated “reserves” (the cash that bought the bond originally); then it is the same as if the Treasury Debt Management Office (DMO) had never issued the bond originally. We all have to pretend that they do still exist. Beware of the difference between the National Loans Fund’s liabilities and the Central Bank’s liabilities.
We know all that
And what is said is wholly consistent with it
It is you missing the point
Of course you knew all that Richard!!!??? While we think of of it, can you show your working to get the £20.1 billion. We are quite familiar with the DMO Remit http://www.dmo.gov.uk/documentview.aspx?docname=remit/sa251115.pdf&page=Remit/full_details , but we are struggling to get to that number. Particularly as the APF, which gets the cash as a separate entity to the BoE, has to pay it over to the Treasury, not the BoE.
The Treasury decides that QE will stay at £375 billion, not the BoE, which only ever does what the Treasury lets it do. It’s call parliamentary democracy.
The Bank of England gave me the number
They have now, I admit, mildly revised the split: it is now £8.4 billion this week and £12.1 billion in September
All I had to do was ask
Oh, and go and read the Bank of England Act if you really think the BoE is independent
It just shows what an absurd system we have with the faux independence between BoE and Treasury with the Government paying its own money to Bank that ‘pretends’ it is owed.
It also show that ‘We are living too far WITHIN our means.’ Labour needs to megaphone this out at nearly ear-splitting volume (no breath holding).
I am still at a loss as to why any bank that takes deposits from ordinary working people for “safe keeping” should be in private ownership. This is an essential public service and should be in truly “safe hands”. As the only safe hands in a sovereign state is the state itself, the answer of who should own deposit taking banks seems a simple one.
Risk taking through financial speculation is a private capitalist business, which should be performed by capitalists with their own money and/or with others money who understand and have agreed to take the risk in order to seek a reward.
And when private capitalist ventures fail, they should be left to fail – that is what risk taking is all about.
Seperate the two things entirely and the world will be a much better and simpler place!
http://www.theguardian.com/commentisfree/2016/jan/22/bankers-triumph-complete-the-big-short
Great article-thanks for that Keith-I might even try to see the film. We saw this display of the ‘naffin-to-do-with-me Guvnah’ attitude from Bob Diamond and saw Goodwin slink away with a two million bonus and vast pension after scuttling to the Treasury. All this followed by one of the biggest attacks on the welfare state since its foundation.
The article quotes Alistair Darling who I find to be an utterly complaisant and glib. In an interview a few years ago he referred to the banks being in ‘a better place’ but what about the public? he had nothing to say there.
As presented, this doesn’t work. The Treasury is not really redeeming debt just rolling it over, so new gilts will be issued to replace those which expire. Funding an NIB requires additional debt. QE could purchase NIB bonds but that means increasing the QE limit, otherwise the Treasury will just pay interest on new gilts instead.
We need an NIB but there is no accounting short-cut here.
Whether to roll over into gilts or another asset is a choice
This is a moment for that choice
So sure as heck there is an opportunity here
There are two major choices to be made here, not just one.
Government (not the BoE) first has to decide to increase public investment, which could be through an NIB. Unless tax revenues can be increased or other spending is cut, this implies increased government debt, e.g. NIB bonds backed by the Treasury.
For any given level of QE, if the BoE decided on maturity of current gilts to purchase NIB bonds, that would change its mix of assets but overall government debt would still increase by the value of the new NIB bonds. Gilt maturity would not reduce the Treasury’s need for non-NIB debt so replacement gilts would be issued and then remain in private hands, unless the BoE decided to sell other assets such as corporate bonds.
Of course, QE could be expanded to cover the value of new NIB bonds and if we move into recession the case for doing this will strengthen. But we should not try to rest an NIB or PQE on technicalities of debt roll-over rather than on fundamentals of public investment and controlled monetary expansion.
And you think there is no case for investment now when demand is so weak?
I am far from alone in thinking so
Of others who do let’s start with the IMF
Richard, apologies for continuing this but you’re missing my point.
There is an excellent case for expanding public investment ASAP. First we have an urgent shortfall in many critical areas: housing, environment, schools, etc. Second the macroeconomic position is deteriorating and we shall need the added demand from this investment. Expanding QE in parallel with this will add monetary impulse and reduce interest payments.
But linking PQE to arbitrary maturity dates of particular debt instruments is irrelevant and diverts attention from the strong case for an NIB.
Lyn
Apologies for misunderstanding
The PR in this case is about making it clear that the opportunity exists; that’s all
Richard
My current fantasy is that the Greens and Labour form a coalition thus becoming the ‘Really New Labour Party’. Caroline Lucas would be a leading spokesperson for the new organisation. She is very impressive – intelligent, articulate, likeable and genuine.
@acorn – ‘…it is just a smoke and mirrors exercise.’ Well who would have guessed that! Almost everything to do with monetary policy & politicians is smoke & mirrors. George will be able to claim a reduced budget deficit & hence a further step on the road to a surplus.
Caroline is brilliant
There are some good people in Labour too I would add