Carl Bildt is the co-chair of the European Council on Foreign Relations. He posted this on Twitter just now:
There is an element of truth to what Bildt says. The EU does not direct how a government may spend their funds. Nor does it set a limit on public spending. What it does set is a limit on deficit spending. But then, Bildt makes that point too, and in a most uncomfortable fashion. What he says is that there is no democratic control, per se, over what governments might spend because that is set by markets who go 'bananas' if they want to borrow to do so.
The far-rights exploitation of the Genoese bridge disaster is unacceptable. So too, I have to add is Carl Bildt's.
The constraint on infrastructure spending within an economy is not the money markets' to prescribe. The constraint is the ability of that economy to find the physical and human resources required to undertake that spending. If that physical and human capacity to undertake the work exists then it is not just reckless, but it is grossly irresponsible, not to undertake infrastructure projects that secure the future well-being of a country.
A company that said it wanted to invest to provide secure future income streams would be the darling of the market, money would pour its way. Apparently, however, when a government wishes to do the same thing it is grossly irresponsible under market censure it.
The truth is that this is absurd. Governments are the best bet when it comes to investment security that there is. And if you want to imagine how good the economy is going to be when the road system has fallen apart, dream on.
So, markets should not be a constraint.
And if the physical capacity to make infrastructure that is for the benefit of society exists - and I think it does because all the standard macroeconomic assumptions on the levels of unemployment the both really exist, and which create inflation in the economy, are being proved wrong, almost daily - then either markets have to get their heads around the fact that this is a good thing, and so governments are going to do it, or governments have to get their heads around the fact that markets are a bad thing, and they are going to have to ignore them by using what I originally called green infrastructure quantitative easing and which Jeremy Corbyn called People's QE.
This is a battlefront. Let's make no mistake about it. The spivs (I use the word with care) in the financial markets whose only concern is with short-term gain maybe wholly indifferent to the creation of long-term viability within our economies, which will require the replacement of large quantities of existing infrastructure with newer, safer, greener and more sustainable assets, but the rest of us have to take this need seriously. There may well be a time when we have to realise that doing so might require us to substitute current consumption for the investment activity that this will require: so be it. But again, the constraint is not money: the constraint is the physical allocation of resources. And we cannot let the belief that markets can dictate prevent us from having the future that we need if our economies, our environment, and our children's world are to be viable.
Let battle commence.
And let Carl Bildt be the loser.
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Absolutely right. What a pity Corbyn McDonnell don’t get it.
Here’s some infrastructure spending China prepared earlier https://en.wikipedia.org/wiki/Under-occupied_developments_in_China
Because it’s either markets dictate or government, there’s nothing in between, right?
Perhaps someone should be reminding Mr Bildt we supposedly live in a democracy and asking him just who he thinks it was elected the markets.
When I read the markets ‘going bananas’ line I was at first astounded.
I was astounded because it seems to me that Bildt has (unwittingly?) just blown the lid off the whole thing in my view.
In other words we are indeed being held to ransom by the private financial sector. We are being held back by at least the fear of what they will do.
It is indeed blackmail. And a high ranking EU person seems to accept that!
If MMT comes to this country, the markets are going to undermine our sovereignty eh?
Well, we know how to deal with blackmail don’t we?
Like we know how to deal with the boy who takes their ball home too when they do not get their own way.
We go and get our own ball don’t we and play anyway?
”it seems to me that Bildt has (unwittingly?) just blown the lid off the whole thing in my view.
In other words we are indeed being held to ransom by the private financial sector. We are being held back by at least the fear of what they will do”
Pilgrim, this is not new. UK chancellors have traditionally tried to instill fear of ‘the markets’, as justification for their supposedly limited capacity to effect positive change for ordinary people. Non more so than Osbourne, the ‘austerity chancellor’ e.g. in this his 2010 budget speech:
”This early, determined action has earned us credibility in international markets.”
https://www.telegraph.co.uk/finance/budget/7846849/Budget-2010-Full-text-of-George-Osbornes-statement.html
This is the cowardly state in action.
Osborne gained us so much credibility we lost our Triple A rating.
What should get Bildt doesn’t get Bildt because the man’s a monetary illiterate fiscal collarite!
Interesting comment on Billy Blog:-
/lasse says:
Thursday, August 16, 2018 at 23:25
We better not avert from the righteous path of neoliberal “truths” on economics, although religious dogmas of the Inquisition seem sound in comparison. Private companies always do it better than the government? Like infrastructure in Italy.
The Beneton family control the company (Atlantia’s Autostrade per l’Italia) that have the concession of 3000 km roads including the Genova bridge. In 2017 it had €3.9 billions in revenue and a gross margin of €2.4 billion. A profitability of 61%.
Although traffic and tolls are on the rise (well above inflation), are employment in the sector declining and investments are falling. Italy’s private “road keepers” have recovered well from the GFC and do good profits but investments are on record low.
It is said that 2 of 3 the bridge constructor Riccardo Morandis large bridges of the same type with his patented concrete construction is claimed to have collapsed, the 3:e in Libya was closed 2017 due to safety reasons. Italy an industrial nation in EU and Libya a failed state in North Africa that close insecure bridges.
What are going on in EU? Not long ago we could read about how Germany (economic engine of EU) are closing bridge for trucks on important infrastructure routes. Not because of environment concerns, due to safety reason so the bridges wont collapse. A part of many neglected infrastructures investments in Germany.
https://valori.it/autostrade-bancomat-benetton-sicurezza/
https://www.libyaobserver.ly/inbrief/authorities-east-libya-close-wadi-el-kuf-bridge-safety-reasons
http://bilbo.economicoutlook.net/blog/?p=40088#more-40088
And Germany runs a budget surplus rather than invest
What sort of corrupted logic is that?
From reading Mitchell I gather the idea is to run the infrastructure into the ground and then claim a German version of PFI is the only solution to funding the necessary rebuilding. This will result in most people in Germany working away to pay taxes to enrich a corporate handful and their political chums. There’s the logic.
It’s German ordo-liberalism, Bundesbank style.
I’m not sure what you are saying is correct, or even true.
There are plenty of cases where governments build infrastructure and it simply isn’t needed, and then sits idle and wastes away. You can look at Spain, Greece and various other countries for great examples of this. Pork barrel spending by politicians is an easy way to try and win votes, but it doesn’t always make financial or economic sense. The cost of those white elephants then acts as a drag on the rest of the economy.
I also take issue with your claims about “the market”. The market will happily invest in government bonds if they think that money will be invested well, and therefore be safe. It is when a government starts spending irresponsibly, running huge budget deficits and the ability to repay (or the risk of default goes up) then markets won’t invest. Do remember that “the markets” aren’t nameless or faceless – the biggest market participants by far are pension funds. Are you saying pension funds should invest in places where they could well lose their pensioners money?
Unfortunately governments aren’t always the safest place to put your money. Would you invest in Italy at the moment, when their 10y bond yields 3.15%??
You are also wrong about financial markets only being interested in short term gain. That might the case for a small portion of the market, but the vast majority of the financial industry looks at things long term. Pension funds certainly do – their holding of assets is normally years, and often till maturity for debt. Banks likewise tend to be very long term. Their balance sheets are made up of long term liabilities and short term assets – rather suggesting they look long term at the investing world.
Your Green QE looks simply like printing money. Which will definitely be a bad idea. Markets can’t be ignored as easily a you make it out. Just look at Turkey at the moment, or Italy, for example.
No one has ever said governments can’t make mistakes
And no one has ever said there aren;t Corrupt politicians
But I can’t be bothere3d to engage with economically illiterate dogma, which is what you are offering
Just rationally tell me why QE to bail out banks was a good thing but to use it build it isn’t infrastructure if you will if you want to continue here. Otherwise you’re wasting my time
What have I said that is “economically illiterate”? What you have said in your article is simply not true, and does not stack up with reality.
You are actually repeating the dogma that all government spending is good – and the government should keep spending more and more without any thought to the possible consequences. You are also repeating the usual tropes about market “spivs” which simply aren’t true, and I get the distinct impression you have no real experience of financial markets.
As for QE – it did not “bail out” the banks as you are claiming. QE lowered long term interest rates by buying bonds. Those banks which sold bonds to the government received cash in return. The net asset positions of the banks which took part in QE did not change, and no “free” money was handed to them. QE is an asset swap.
The only bank bailouts (like RBS) were where the government injected cash in return for shares. Nothing AT ALL to do with QE.
Green QE or similar, is not the same as normal QE. What you are suggesting is that new money can be printed and then distributed into the economy via public infrastructure works. You also seem to be claiming that printing new money like this will not devalue the pound in any way, not cause any inflation, not lead to government credit risk increasing, not lead to higher yields on Gilts etc. Not lead to any adverse effects at all, in fact, but at the same time we could have huge amounts of new infrastructure and create lots of new jobs at absolutely zero cost.
You do realize how ridiculous this is, don’t you? You are literally claiming that you can magic as much “stuff”, be it infrastructure or jobs or pay out of thin air, at will, and nothing bad can happen if you do that.
Surely if it was that easy someone somewhere would have tried it by now?
You are literally making stuff up
I don’t have time to engage with people who do that
If you really think the world is as you like to suggest here continue with your fantasies
But don’t suggest I have said stuff I have not
Jarski says:
“I get the distinct impression you have no real experience of financial markets.”
I do, and you ARE making stuff up.
BTW the hysterical hyperbole style doesn’t help your cause (whatever that may be).
Jarski,
QE may have been an asset swap, but that doesn’t alter the fact that it involved the Bank of England creating new money to BUY those bonds held by the banks. New money! It did not come from taxes or borrowing.
Green QE would work in the same way, but instead of buying bonds it would “buy” infrastructure. A net benefit for the WHOLE economy, not just the financial markets and asset holders.
I see your Italy and raise you an Enron.
A complete argument has to address waste and destruction in private enterprises too.
Jarski
Your are painfully out of depth and living in some sort of La La land my dear fellow. I’m actually embarrassed for you.
If I were you I’d go to one of the many neo-lib blogs there are on the ‘Net and indulge your fantasies/ reinforce what we know now to be wrong in your own time and not waste ours.
Thank you.
@ Jarski,
You ask,
“Would you invest in Italy at the moment, when their 10y bond yields 3.15%??”
That’s an interesting question. But, why are Italian bond rates at 3.15%? That’s maybe even more interesting to ask.
It has to be because that’s what the ECB wants them to be at. If the ECB wanted them lower they’d be buying up more Italian bonds as part of their QE program. If they wanted them higher they’d be buying fewer. The ECB wants the Italian Govt to know who is calling the shots!
In other words these rates aren’t set by the market they are the result of highly political interactions and power plays within the EU. I think everyone else might be wise to keep out of it for now and leave it to those with much deeper pockets to resolve. The ECB has, of course, pockets of infinite depth!
You really think central banks are so good at setting rates?
There really is ample evidence otherwise
I’d really love it if you might try evidence-based commentary
@ Richard,
I’m not sure why this off-hand comment? I thought we were both on the same side! 🙂
Bill Mitchell (the Aussie MMT expert not the US one) makes the point himself in the link below that “central banks can control bond yields whenever they choose”. As issuers of the currency they have just about unlimited power to do that.
http://bilbo.economicoutlook.net/blog/?p=39557
Bill and I don’t always agree
And whilst in theory this is possible the reality is it is not happening
Hear! Hear! Or, for Carl Bildt’s benefit, ‘Överens, helt och hÃ¥llet!’
Excellent piece. This blog has made it to my necessary reading list (I don’t get nearly as much time for blogs as I would like). Keep up the great work.
Thanks
Ditto.
“Outrageous of Italy interior minister Matteo Salvini to try to blame the EU for the Genoa Bridge disaster.”
Not entirely, however, if he were to blame the Eurozone he’d be right on target because it is the EZ members with no central bank and no monetary sovereignty that are vulnerable to “the markets”. Countries that have retained their monetary sovereignty (UK included) can ultimately bring the markets to heel.
https://www.ceps.eu/publications/governance-fragile-eurozone
And “the markets” by the way, can get f…..
RM very spirited start to the day.
Jarski above, Why don’t you just add the recent Argentina run as well? You’ll get away with it old chap – no one here will ask about sovereign currency issuer, non- sovereign, currency user (under Euro/EU arrangements), pegging your currency, or denominating your debt in foreign currency, etc, etc. China won’t exchange goods for our bonds? British, US, pension funds won’t buy UK bonds to stuff in their portfollios as safe bets? Your sitting at the wrong desk in the city mate!
If only there was a macro economic theory that put these ideas front and center, would you buy into it after a quick read? Banks ‘more efficiently allocate resourses’ was always the bulwark against government ‘white elephant’ investment was it not Jarski? I’m assuming banks then, are no longer in your class of efficient market actors ? Or have you just spontaniously erupted into existence as a fully, unimformed, spiv after 2008? Or even, ….do you think a couple of adds on the TV about a kind hearted horse legging it about on the beach, and the serfs have forgotten about the banks already?
Just a case in point. RM and many others are disingenuous when citing QE bailing out the banks. As a previous poster correctly says this money obviously wasn’t given to the banks. The Government “bailed out” the banks by either 1) injecting capital and becoming shareholders or 2) providing a “guarantee” over senior unsubordinated debt. QE was indeed the BofE buying in Gilts with the purpose of lowering long dated interest rates. The direct beneficiaries of lowering long dated rates are individuals taking out mortgages and companies with lower borrowing costs. QE seemed to achieve its purpose of preventing deflation & recession.
And that is the superficial view, as you should well know
Regarding QE bailing out the banks I would add.. c) the liquidity provided by QE into the gilt market and the suppression of long yields prompted trade in some fixed income securities in general which were paralysed in 2008, some of these were owned by Banks..but the common reference stating the money from QE was given to the Banks to bail them out isn’t superficial it is plain wrong.
I know where the money went
Do you?
Precisely
“ you know where the money went”.,,what nonsense
The BofE buy gilts through a market market so the sellers are anonymous other than to the broking firm. But they would be a mix of mainstream institutions (Black Rock etc), wealth managers (Rathbone etc), Pension funds etc etc..a huge number of different entities.. they now have cash to invest – it will have gone into all kinds of things. Are you saying this process didn’t happen?
Look at bank reserve accounts….
Tell me where the money went
And tell me that banks don’t have it
BofE paid their proceeds from gilt purchases into a deposit account of an institution
It is the institution who owns that deposit. How is that bailing out the banks? The institution withdraws and invests elsewhere.
You have clearly not appreciated the answer I have given
You haven’t provided an answer..I explained the process of QE which counters your statement that the proceeds from QE propped up the banks. It injected liquidity to fixed income markets that’s not the same thing.
The funds are on the central bank reserve accounts held by banks
They are the liquidity in the banking system
With respect, I think you are wrong and you are wasting my time
Richard
You would have much more credibility if you actually explained why people like Jarski are wrong, rather than just claim that they are with no explanation. It just makes you look arrogant and afraid of an intelligent discussion.
You would have more credibility if you did not appear here under what I suspect are many names
JarskiJamescTracy,
As I recall, we were discussing your Turkey first post. Right at the very end of this dated argument, you add:
‘Your Green QE looks simply like printing money. Which will definitely be a bad idea. Markets can’t be ignored as easily a you make it out. Just look at Turkey at the moment, or Italy, for example.’
You then later focus solely on the narrow, definitions of QE v ‘Green QE ‘ – fair enough. Ignore what you didn’t like in the replies and move on.
OK, so let’s look the redefined QE definition problem you press RM about.
How about discussing NeoLib-ish Ben Dyson’s definition of bond purchase through QE?
*Briefly, Dyson argues that the ‘QE scheme’ was undertaken by buying Guv bonds, not from banks as stated above, but from pension funds and other non-bank investors – but I guess we all agree on that bit of the definition of your so called ‘normal’ QE was, we are not all pedants after all. But then Dyson concludes:
‘In theory the Bof E will reverse this process… by selling the bonds back into the market….however the likelihood of that reversal ocurring is questionable….The second option is to simply accept the reality that these bonds were purchased through the creation of money, by the QE scheme or note issance, and for the bonds to be cancelled… This will lower the national debt significantly. It does constitute monestising the debt (printing…) which is generally considered to be poor economic policy, but in reality this has already happened as a result of the Bank of England in response to the finacial crisis. ‘ Is that what you mean by QE being ‘just a swap’?
Moreover, ‘poor economic’ policy is fine for the banking system? Or ‘poor economic policy’ was not good for the banking system? Which? Hard to actually know what is right or wrong and thus, what the cornerstone of your NeoLib economic thinking is anymore ? Do you know ? And if you have nothing other than old rules and household, analogy, nostrums, that have had a horse and cart driven through them by government and the City of London – what then?
Just a mere serf asking.
Right on Brother Mike W V0.2, right on?
Pilgrim SL, 🙂
Ian Stevenson :), I like ‘serf’, I feel no shame, it remains our masters we already know what happens when they destroy us as proper ‘citizens’ and corrupt our ‘democracy.
My interest was the list of ‘scary things’ outlined in the first post from the FX chap. It is not my Blog, so quoted just a small bit by Ben later. Yes he discusses more options for the wind down of QE. I just wanted to get over to our humpty dumpty, rightists, that the world changed when we all saw how the old ‘economic rules’ really worked for the City in 2008 and what Government can always choose to do. So I am more interested in the old, tired, Telegraph, bores who come here shamelessly chasing RM about supposed rule breaking . I have no idea why he attracts this sort. Obviously, RM can call his infastructure proposals whatever he likes. Surely? I asssume at the time he expected a wave of ‘but where is the money coming from’ from Blairite, Labour and invented a neat, shorthand answer. I have no more interest than that, and no skin in the Green arguments as such.
IS, Yes I agree with you. ‘Print’ money and have no extra resoures available to use (factors: labour, land, real capital) then you have inflation. Even ‘print’ the same amount of money and contract the productive economy, and its the same problem. So don’t do either.
Yes I believe the QE money is on ‘ice’ at the moment. Not rushing around as cash chasing Ipods, or in our city friends case, Coke, Spliff or H. My thinking about bonds generally, (and why I find a city traders perspective interesting about what she does) is that the saver moves cash from liquid, narrow money, through the banks to broad government bonds. Which effectively lock in, ‘ice’ the inflationary effects of the money. Then on maturity the money moves back down the chain into ‘inflatory’ narrow ‘notes and coins’, M1 etc. So rather than being taxed today, the ‘middle class voter’ can accept ‘icing’of their cash for 2, 5, 10 years etc. They then spend, inflate and pay tax later. Which is what they and guv seem to prefer.
Perhaps our ‘invested’ city rightists could explain more from their perspective, if they were serious ?
‘if they were bought back by the market, would that take money out of circulation and maybe lead to recession?’
Ian, RM, others, perhaps you can help me understand Ben a little more here too, he says, I seem to recall, that if the government now offers these QE bonds back into the market, they will be a huge bulge/glut which will effectively compete and hamper the new issue of Guv debt. Is this correct and a real concern? It seems to me the losers will be those new middle class Tory punters who want a safe haven for their dosh, being forced to go to our city trader and have to buy into his latest, sure fire tip on the penny stocks for their pensions, because guv won’t issue punters the safe, UK bonds they all want that year? Which all assumes, as I do, UK Guv tells the bond market volume and price not bond market telling guv.
There is almost no way those bonds will ever be offered back to the market – they are cash now
Dear Serf I mean Mike
I agree with your post but just trying to get it clear in my mind
Would I be right in thinking that monetising the debt is considered bad because it injects extra money into the economy if no increase in economic activity takes place, it creates inflation?
Here though bonds were purchased and there is a liability to repay. If cancelled, there is no inflationary pressure, no real physical assets are destroyed.
If they were bought back by the market, would that take money out of circulation and maybe lead to recession?
Broadly, you’ve got it
The trolls having been put to flight the central point remains that governments are (I would say “criminally”) guilty of not investing in the future. Italy and Germany have already been mentioned but it doesn’t stop there. In many of the so-called “advanced” nations, such as the UK, infrastructure seems to be crumbling, housing is dire, the poor are getting poorer (thanks to deliberate government policies), money floods into the centre, such as certain parts of London (which also has great poverty in places) and “vanity” projects and buildings, the NHS is struggling and under threat and so on, and so on, and of course there’s the climate change problem which we discussed the other day and which just isn’t going to go away.
This situation, as so many commentators have said, is a political choice, not an inevitability. It’s time we made different political choices. And had different politicians with a social commitment rather than just an imperative to retain power.
Jim Green
I’m not claiming it is new but at least we’ve heard it from a European perspective now that for me reinforces what Wolfgang Streeck highlights in his book ‘How Will Capitalism End’ and his idea of EU ‘consolidation states’ – states that enforce austerity in order to pay down private debt and essentially convert private losses into public ones. For those of us against BREXIT, we must also not forget that there is still a lot of work to be done on Europe.
I wouldn’t mind making private losses public if the electorate also got QE. But we didn’t. We got austerity in which some of us lost jobs or in my case my terms, conditions and pay were altered without my consent (I had to consent unless I resigned or was ‘redeployed’ with no job guarantee but that is not really a consent in my view).
A group of us officers in the public a sector on the same grade worked out how much we had lost in wages since the scum bag Tories got in in 2010. We worked out that we had lost an amount of wages/benefits close to over four fifths of our present gross wage – in less than 9 years. So basically , since 2010, our loses were the equivalent of working for one year for less than one fifth of our current gross wage. Close to working for free for one year since 2010. That is how severely austerity has impacted on us.
That is bad enough but as Krugman says, ‘Every one’s wages is someone else wages’. Everyone I know is cutting back or their debt problems are increasing. The economy therefore suffers from OUR suffering and hardship because of austerity.
And (may I also say) from a national/British perspective, the real barriers to MMT or more heterodox economics (1) are not revealed regularly enough (thus posing the question in public of ‘Who is actually in charge here?’) and (2) also not nearly expressed as prosaically as Bildt does either when one considers Osbourne’s more coded turn of phrase. This is why Bildt’s statement caught my eye.
President Roosevelt’s idea of a nation not being ‘in fear of fear itself’ has never been more relevant than it is now.
And BTW – before anyone wants to wade in and tell me how lucky I have been or that I must have been over paid in the first place let me say that I am aware that there are many people worse off than me. But as we seem to accept now, austerity and modern North America capitalism is eroding the middle class. And as someone from a former working class back ground, the destruction of the middle class will mean increasingly that people from working class will never have the opportunity I have had. And then what happens?
That is not progress my friends – that is not progress at all.
I agree
Thanks for sharing
Pilgrim, we’re totally on the same page. I’m fed up with cowardly politicians who hide behind this pathetic bogeyman justification for austerity by prioritising appeasement of ‘the markets’ over the wellbeing of the people they are elected to serve.
The problem is essentially the euro. Having a single currency shared between 19 countries is just crazy economics. Given that, both Bildt and Salvini are partially right. There has to be some fiscal rule applied but why a deficit of 3% of GDP? That’s far too low and has no theoretical justification at all. It’s probably a number that Germany alone would be comfortable with.
It needs to be at least double that. The ‘market’ isn’t a problem. At present the 3% deficit is funded by the ECB providing the 3% rule is adhered to. Who else but the ECB would buy Greek bonds at ultra low rates?
They could just as easily make it 5%, 6% or 7%.