This letter was in the FT this morning. I know Rod Dowler, who is a former KPMG partner:
Your excellent editorial “How central banks can tackle climate change” (November 1) left me, and possibly other readers, puzzled that quantitative easing for banks should be less political than QE for a green energy transition.
When the banking crisis struck in 2008, governments and central banks recognised that, as the lenders of last resort, the central banks needed to use QE to support commercial banks. This has had a strong effect of inflating asset prices, ie benefiting people and organisations with assets at the relative expense of those dependent primarily on income. It was political choice borne of necessity.
Faced now with another enormous financial problem, the climate emergency, politicians are clearly struggling to find ways to fund the inevitable transition to renewable energy. Green QE, at a sufficient scale, will provide a big economic stimulus, create jobs, help the environment, and help avert serious long-term risks to the financial system. In so doing, it may jolt the world economy out of the current doldrums by funding a big industrial transition programme.
This looks like an appealing option that will help many who are primarily dependent on income. Is it any more political than QE for banks or avoiding brown assets to protect the interests of those who are already asset-rich?
Rod Dowler London N8, UK
There is some disagreement on the role of Green QE, even in the Green New Deal Group. My own view is that we need it as a backstop. It also will guarantee the liquidity of the market for green bonds, which are an essential mechanism for funding the Green New Deal, in my opinion.
Rod is right to say it is important. I was delighted to see this letter.
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” the role of Green QE, even in the Green New Deal Group. My own view is that we need it as a backstop.”
I’m sure you ‘should’ be right about that, Richard, but I think it more likely the role will be to kick-start. Once started the process ought to be self-financing and provide safe-haven investment for the private sector funds that currently lie idle.
Private sector funds are timid. They won’t enter the game until it looks risk free.
Let’s be clear – I am calling it a backstop
The GND can be funded without Green QE
But we might need it in the event of a downturn
“The GND can be funded without Green QE… we might need it in the event of a downturn”
Labour’s Green Transformation Fund spending will arguably be more transformative than the US’ New Deal ever was. It will fundamentally alter governmental and market roles for resource allocation (which terrifies the neoliberals) and will, therefore, require a fundamental rethinking about the role of government. Perhaps, then, you are right to consciously restrict QE in the early days to a ‘backstop’ role where it only fills the gaps in the event of a downtown.
Are there any other reasons, Richard, for only using the money and buying-power that MMT can provide as a ‘rainy day’ reserve? Are there good reasons for not using QE more extensively as money source?
Could be a very significant letter though 🙂
The issue is that the public can’t be allowed to realise that QE can replace borrowing on bond markets as that would be disastrous for financial elites.
That is nonsense
Savers are not just the financial elite
Stop being silly
Wow?!
Is this the beginning of more variety in political and economic discourse? I hope so.
One can hope