The FT has a number of headlines that suggest a new consensus in economic thinking is emerging. The first is this:
The message from the IMF is that we should now expect economies to fail and be ready for the fact that this leaves major international banks seriously exposed to risk.
Martin Wolf is in downturn mood:
In all but name he is calling for People's Quantitative Easing, and quite right to: it will be the only viable show in town.
And then there is Gillian Tett:
I have commented on the same theme, of course, recently, but Gillian takes the argument further, noting that in addition to the obvious advantage that taking cash out of the economy has in restricting the opportunity for crime it also helps enforce the negative interest rates that are almost bound to be a feature of the worldwide economy in coming years. She has a point, although I can still see a role for small denomination cash.
The links are obvious and should be noted: this is the time to make preparation whilst we still can.
I hope the Bank of England is taking heed, although yesterday was not a confidence building performance from it.
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Tett does point out that the use of cash HAS been increasing in recent years. On thing that worries me about a cashless society is that it has to be contextualised: Cashless society + what type of Government/banking system?
A cashless society with poor welfare system and an unreformed banking system would be a nightmare and the idea that criminals/terrorists/tax evaders would not outwit it is risible without the reform of the institutions controlling it.
Many trying to live on £73.10 a week also rely on the odd ten or twenty quid cash in hand doing a neighbours garden – I for one do not resent them doing that (I’m not referring to those in full time work who claim as well and the numbers are small). A cashless society with inadequate welfare would cause more suffering.
It’s all very well for a CEO of Deutsche Bank to posit this as one of the helmsmen living in a parallel universe of wealth syphoning -how many would trust him enough to buy a second hand car from him?
Given what I’m sure we’re all expecting, I don’t think the people in charge at Deutsche Bank are really in a position to be offering advice, particularly on matters of finance 🙂
“it also helps enforce the negative interest rates that are almost bound to be a feature of the worldwide economy in coming years.”
That is certainly an interesting way of putting it. If you have no cash you either have to spend your money as soon as you get it, leaving no scope to save anything for an emergency, or effectively pay a tax, unless (like Fred Z) you are wealthy enough to be able to horde your surplus to daily requirements in a swimming pool on the Cayman Islands.
Perhaps there is a cunning plan to introduce such a system to collect what is actually owed on Corporation tax? Though I don’t think I’ll be holding my breath on that one. More likely it will be another ratcheting up of the process by which us serfs, peasants and wage slave classes get even more of our meagre earnings trickling up for the benefit of those who will never ever be satisfied even when they own everything and nobody else has anything.
Ideas like this really are scraping the earth six foot underneath the barrel, indicating that those who have effectively trashed the economy have run out of options and ideas and have decided to go straight to blatant larceny. Expect brown trousers to be the new must have fashion item for oxygen breathers and their many courtiers, particularly in political and media circles.
“scraping the earth six foot underneath the barrel”
I think it’s lower than that Dave-we’re ‘touching magma’ – and you can be sure Osborne and his mates won’t be ‘touching cloth’ over it.
Indeed. The banksters don’t want money that can’t be bailed-in. It has to be in a form and a place where they can steal it. Taking cash out of the economy might restrict the opportunity for small-time crime (though substitutes will no doubt rapidly be discovered) but it increases the scope hugely for gigantic, national-level crime. That would seem to be the ultimate point. Tick tock! 🙂
Some say we are still in the same recession…
It’s far more likely that will continue to see subdued growth rather than outright recession [two successive negative GDP quarters]. Unless we get another banking implosion. [possible but unlikely]
Negative interest rates probably won’t be any more successful than QE either, except that it may well fuel share price and property speculation some more [see Sweden for example].
How do ordinary people prepare to weather this coming “storm”. You are not along in your warning of an imminent crisis and we further wonder does Osborne ever wake up and try to understand what his austerity caper is fuelling ?
Nigh on impossible to stop such a storm I am afraid
Sorry
Agreed, in fact years back I did a page on being prepared, one which now languishes on the second page for a UK Preppers search. But there are other worthy pages and sites to consult. https://www.google.co.uk/search?q=uk+preppers&ie=utf-8&oe=utf-8&gws_rd=cr&ei=ns60VpbTMsiNasC9nOgD Now might be a good time 🙂
Osborne doesn’t give a flying thingy-ma-jig, those of the one percent couldn’t careless if the rest of the world goes to hell as long as their corner is protected. He will be insulated and the neo-libs already have their excuses planned using phrases like:
‘Troubled world economy’
‘Cocktail of problems’
‘Naffin’ to do with me Guvnah’ (or demotic variations on this)
‘Difficult economic climate.’
‘ Just another one of those banking collapses that happens in 7-8 year cycles.’
They talk about economics as if it were the weather or an unavoidable natural disaster which is an 18th Century (Edmund Burke) view that al these things are ‘natural laws’ (God’s Laws as Burke described them though even the Tories can’t do God anymore).
Osborne will still have his oleaginous smirk while the poorest take the hit.
Osborne is not stupid.
He has a legion of civil service advisors, and an army of business hangers-on to inform him.
I doubt he wants to destroy state organisations, but transferring the money to private organisations is doubtless his plan.
He doesn’t do economics.
Withdrawing high denomination notes is fine but taking cash out of the economy in the hope of reducing the opportunity for crime is nuts. There is already evidence that drug money has used HSBC and suggestions that terrorist money is not unknown in the City of London. Identity theft will become ever more rife.
I’m unclear whether negative interest rates, normally thought of as just a penalty for banks, are now to be inflicted on everyone? But to think that just because there is less cash in circulation the general population will be happy to pay banks to take their savings off them is bizarre. Mind you, if it happens, I can’t see the beloved pensioners and middle classes voting Tory next time!
And as sterling cash is a fiat currency, local economies may respond by using their own local fiat cash currencies on a wider basis. After all even Plcs already accept some local currencies.
“I can’t see the beloved pensioners and middle classes voting Tory next time!”
Depends how many ‘Boxers’ there are amongst pensioners and the middle class. After all, Comrade Napoleon is always right. And even if they do not vote for the Conservative and Unionist party the loyal opposition may well not offer any alternative way forward if the self styled “Progress” cult of Blair and Thatcher worshipers get their way. If they don’t wrest it back from the real Labour people currently at the helm they will flounce off SDP style to offer continuity neo conservatism and neo liberalism in the guise of “moderation.”
Given that rational evidence based information and argument is not on offer from today’s corporate run media, including the BBC, and is actually discouraged the number of people one encounters who can only parrot what they are told without actually engaging any critical faculties suggests that for too large a percentage of people only an actual apocalypse would get them to reconsider their naive trust and faith in much of the rubbish they are fed.
Yes I also read Martin Wolf as advocating PQE when the next recession hits, so we can add him to the growing list of established economists (including Summers and Blanchford) who have made similar comments.
Of course they don’t call it that and see it as driven more by central bankers rather than by elected governments. But nonetheless the widening acknowledgment that this is a serious (perhaps the only) option is welcome.
I see a couple of challenges for us out of this. One is presentational: PQE is fine within the left but it will never gain broader acceptance as a term even when economists advocate what is much the same. So we need to find a packaging that establishment economists can buy into. I’m not really bothered what that is (a rose by any other name etc.) but we’ll have to do it.
Another is institutional. Economists often have a deep preference for technocracy that expresses itself in the vehemence with which they defend the ‘independence’ of central banks. Politicians accountable to electorates are not really trusted. Never mind that it was the technocrats who brought us the biggest crash in 70 years. That said, we do need institutional arrangements that can demonstrate that PQE will not lead to excessive debt monetisation over the long term. I believe that can be done within a democratic framework but we need to give this question some attention.
I accept the packaging point
I suspect Osborne will do it for us….
By that preparation we should mean realisation of fiscal policy. If that fails, then the real worry begins.
How does printing money and spending it help the economy? In the short run whatever you spend the money on does well, but what happens when you stop the free money?
The issue macroeconomics ignores is that recessions are due to imbalances in the economy that need to be rebalanced. Printing money doesn’t fix that as we found with QE. It just makes it worse.
Go and read about money
You just reveal your ignorance
What books on money would you recommend?
Start with Ann Pettifor
What is the limit to money printing? What is the downside? Is there a free lunch, by which I mean we can become net richer with no cost simply by printing pieces of paper. How can that be possible, it sounds like magic.
In Japan 70% of government debt is state owned due to money printing
Inflation = 0%
Oh, and money is costless
It’s inactivity for lack of it that costs
And failure to tax to stop inflation that costs
But money is costless because money is credit and in theory anyone can create that for nothing
The argument that printing money creates inflation above 0% is not necessarily the main argument against it.
The argument against it is that it redistributes purchasing power. Those who get to spend the money suddenly are richer than someone else. This arbitrarily favours some sectors of the economy more than others resulting in bubbles. We saw this with housing when some people got access to huge credit to buy houses. And with QE where the bankers got it to spend.
So we are deliberately aiming to make sure that the spending power gets to ordinary people
That’s why it is called People’s Quantitative Easing
Which is very different from QE
Why not do some reading?
You say there is inactivity due to lack of money.
Isn’t that precisely what the price mechanism is for? Prices fall and rise in order to allocate resources. The total amount of money is irrelevant to this process. To argue that the price mechanism should be fixed by printing money kind of makes money pointless. It only works because there is never enough of it. Choice must be necessary. Having more money is an attempt to fix the feature of what makes money money.
Oh grow up: your belief in market based price mechanisms requires a range of assumptions to hold true that never happen in the real world
If you want to write about your fantasies there are sites that let you do it, I am told
This is not one of them
Finally. How do you know when you have the right amount of money? Or should you keep on increasing it until some arbitrary target met? How do you know the rate at which you print money?
You guess
And informed guess, but still a guess
It’s how all human decision making happens
We always act in conditions of uncertainty
So guesswork is all we have
All we can do is improve the quality of our guessing, but we never change the fundamental fact that guessing is what we do
“What books on money would you recommend?”
This is very good.
L. Randall Wray: Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems
I am not convinced
I thought you believed in a mixed economy. Does that mean you don’t think markets and prices have an important role to play?
Some
But let me assure you, if you think things work pin the real world like microeconomic theory suggests you are deeply mistaken
And since your faith is based on that theory not practice you arguments are just wrong
We have a market still in our local town, you know the real sort that honest people still think exist somewhere but don’t really know how they work but intrinsically think they must be good and fair because they’ve been there for ages.
I can choose to go to that market, or not. I can choose to buy from a particular vendor, or not. I can choose to pay the price a vendor asks, or not. I could even try haggling with a vendor if I felt the price was not fair, and do my best to play one vendor off against another.
But that still doesn’t mean it’s a “good system” or the “best system” for a whole host of reasons including such things as whether the produce is sourced locally, whether any harm has been done to the environment or people in producing the products, whether the workers are paid fairly, whether the vendor is “for profit” or “not for profit”, who the vendor shares the profits with (e.g. shareholders, workers, customers or nobody), whether the vendor has monopoly control on the products and prices, etc etc etc etc….
So what on earth does the theory of markets or prices have to do with the real world?
Absolutely nothing in my view, it is just a myth in the minds of economists to try to rationalise the infinitesimally complex natural and physical world which will constantly prove economists and other social scientists wrong because they fail to fully take into account the drivers of human nature (e.g. survival, reproduction, companionship, family, greed, ego etc etc) and the things around us that really control the limits of our behaviour and the planet itself such as the physics, chemistry, biology, geology, etc etc etc..
If I am starving, hungry, homeless, ill etc etc – do you think I care about the social norms of economics, law, politics etc. That would depend on my values but in reality I am far more likely to kill, steal, beg, borrow, become a squatter and do everything that is deemed “bad” – because I am driven by one human factor – survival.
If I am wealthy and with a large surplus income, do you think I care about the social norms of economics, law, politics, etc. Again that would depend on my values but in reality I am far more likely to spend/invest my money in things that appear to have prestige, rarity, desirability, pleasurability etc etc – because I am more driven by other human factors – ego, status, sex to name but a few.
Keith
The theory exists for but one real reason: to reduce the world to identities that can be mathematically managed
The fact that the identities bear no relationship to reality is ignored when it is then said that the resulting model predicts certain things that are used to promote action. Eevryone is then surprised when things do not turn out as forecast. Heaven knows why
Richard
I agree totally Richard, it is the myth of theory and ideology to suit one group of people’s vested interests – presented to the general public as some sort of mathematically proven science to blind most people to the everyday reality all around them.
It is like the myth of the free market, liberal democracy or even dare I say the mixed economy, when in reality most “modern western democracies” are almost entirely now (or at least moving rapidly towards) centrally planned command economies looking after a single interest group (that of financial capital, hereditary and vested interests).
Everything else that was once perceived as socially good and morally valuable is now a semi-financialised sideshow. The only reason some elements of the welfare state have been left behind is for the purpose of disguising the true nature of financial capitalism and avoiding only its very worst excesses.
All that really remains of political or economic democracy is a thin facade of institutions, regulations and media outlets which do their best to make the nation state and UK society appear otherwise than what it really is – a giant financial exploitation machine for the haves at the expense of the have nots.
It is becoming so Orwellian that it is no longer the slightest bit fictional but a real life nightmare. There is such a huge deficit of real world thinking and observation that has not been clouded or polluted by years of political and economic gobblydegook and PR spin – that it is like finding a beacon of light when discovering those academics and politicians that dare tell the truth (or at the very least question the “established wisdom”).
Well done – keep at it!
Well what would happen if we stopped printing money? Osborne has had a sort of go and the deficit has more or less doubled in spite of his promises.
Good luck with your ‘rebalancing’.
We’ve never stopped printing money, in essence
Printing money both caused the Weimar hyperinflation and played a significant part in amending matters too. Read the book by the man who did it, the man they called Hitler’s Banker, Hjalmar Horace Greeley Schacht, ‘The Magic of Money’,available in Google Books these days https://docs.google.com/file/d/0B4CffaGCe1TpRlE3LWZVMkRjU0E/edit?pli=1 It ain’t what you do, it’s the way that you do it 🙂
Weimar Germany was on the hook for punitive debt denominated in gold.
Hence printing more marks could only be hyperinflationary.
And was all part of the plan to escape the Versaille treaty, which Churchill believed sowed the seeds of WWII.
Essentially you cannot yoke any peoples indefinitely. They will realise.
Let’s be clear as well: that was debt without benefit. Utterly different from usual gov’t debt
Schacht did something clever though-he insisted that the debt be converted into investment in the German economy which, I think was a big contributor to getting out of the depression.
Although Schacht was known as Hitler’s banker he was eventually imprisoned by them in a concentration camp.
Even though there seems to be some sort of welcome wider realisation that PQE is worth trying I remain deeply concerned when I see someone like Larry Summers advocating it.
Summers is a well known supporter of deregulation – especially in derivatives – which could be said to have been the instigator of the 2008 crash. He is on record as resisting such regulation. Listening to Summers advocate PQE is like listening to Hitler denying there was a final solution to the Jewish question in WW2.
If we look at the way in which the Tories have managed what Gillian Tett calls the ‘cognitive map’ (see the film ‘The 4 Horsemen’) they have this way of taking good progressive ideas and perverting them for neo-lib/free-market objectives.
I think the PQE will actually be packaged as ‘for the people’ but no doubt end up in the Banks and Corporations again.
As some may recall I work in the field of housing development – for social housing. We recently met the Homes & Communities Agency (HCA) and they have told us that the latest definition of affordable housing is affordable to buy. Therefore the millions of pounds that they used to allocate to build homes to rent affordably is now going to be used to discount homes to buy on the open market.
Homes for rent will have to stand on their own two feet – there will be no subsidy. As a result we will be building fewer affordable homes. Even the HCA concedes that homelessness will go up.
I could go on all day about what a waste of public money this is because the market fails to price housing to buy properly anyway – it essentially over-charges for the housing for all sorts of self interested reasons. We are subsidising home buying because the market has failed to price housing affordably.
And even with a subsidy, if the recession does come, many homes will be lost as the jobs that essentially pay for the mortgages go down the toilet.
But I go back to my original point: once again the Tories have twisted the meaning of a concept (‘affordable’) and essentially marketised it by appealing to a low common denominator. Expect to see more of this stuff.
There is a dark genius to this. There is also a hint of desperation as we can now see that the UK’s No.1 industry is property and the Tories are trying to keep the boom afloat. So much for the ‘march of the makers’.
As for me, I will survive by watching my spending, working harder to keep my job and dreaming of social justice.
I cannot help but feel that we are seeing the last days of this form of extreme, north American capitalism.
I share your concerns
The end days? Who knows?
Richard
When I talk about the end of days for this style of capitalism I say it in the context that this will be a very ‘long run’ decline – not a short and fast one.
It will not be sudden. But I feel the end has begun – at 2008 really and also because we are now seeing the amplification of greed – for example corporations not wanting to pay tax. This increasing lack of restraint in accruing money is to me almost a desperate last grab before the inevitable happens.
And there is of course the younger generation who at this moment in time do not stand to build up their wealth as those did before them. They will not tolerate that I am sure.
But it will not be quick or easy and we may not see the results in our life time either.
I can live with that
Even the not in our life time bit
If I have to
The Housing situation is an appalling disaster for this country-now we can expect the financialisation of social housing after the Tories turned social housing tenants (like me) into pariahs all because they weren’t on the rack of the housing market-it’s beyond disgusting and combined with Labour’s 1000% failure to clarify for the public what was going on the Tory manipulation worked.
End of the ‘scourge of monetarism’? I hope we are seeing signs. I note that in Iowa the vote for Sanders amongst 17-29 year olds was 84%-that’s where our hope lies.
That last stat is amazing
Richard Wolff touched on Bernie Sanders amazing level of support amongst the young people of Iowa in his monthly video update, nothing short of astounding in a country where socialism has been a taboo word for centuries.
Labour is also starting to get positive vibes from him with their increasingly overt support for co-operative rather than state solutions to many of our social and economic problems.
http://www.rdwolff.com/content/global-capitalism-february-2016-monthly-economic-update
Strange days indeed
(J. Lennon)
Arguably the most salient point, amongst many salient points that Pilgrim makes, is the way in which words and concepts are redefined beyond all rational sense and ideas appropriated and used for the exact opposite ends to their itentions.
In this regard Pilgrim is surely right to counsel caution when decision makers in the establishment, with a vested interest in maintaining and extending the current status quo and the system of unequal relations it supports, decide to use ideas like PQE.
The now well known quote allegadly attributed to Karl Rove about reality based communities is clearly at work here and trusting people like Osborne et al with such ideas is like giving a pimp the keys to the convent.
Given Osborne’s colleague Phillip Hammond has recently redefined what constitutes a qualified lawyer and legal practitioner to suit a particular agenda
https://www.craigmurray.org.uk/archives/2016/02/kafka-2016/
it might well be prudent for people with economic qualifications to polish up their award certificates etc for when the Government decide to redefine what constitutes a properly qualified economist or even a tax expert.
Governments have always hated independent minded people
Richard
As a relative late comer to your blog it is easy for me to comment on what might happen in the future and I hope that my comments have not ‘rained on your parade’ so to speak because you are so passionate and driven (as well as demonstrably effective).
With regard to my comments above, even if you do not see any real change before you (we) bow out, I firmly believe that you will have done more than your bit to get the ball rolling and lay firm foundations for change that I feel will come eventually – usually from the hardest of lessons to come.