Peter May has posted this on Progressive Pulse this morning and I'm sharing it here. Like Peter, I have long been very critical of Positive Money's position - which has been akin to a belief in the gold standard for far too long, but it does seem that they may be seeing the light, at last :
I have long been critical of Positive Money (PoMo)'s ideas on money (although I am a regular Positive Money member).
At last! they seem in favour of ‘Direct Monetary Financing' (DMF). This, it seems to me, is basic so-called ‘Modern Monetary Theory' (MMT): a sovereign government alone issues its own money so, if anyone wishes to use it to pay taxes, or be protected by the issuer's rule of law, nobody can ‘threaten' not to buy it — at any interest rate at all:
It looks to me as though PoMo is finally fully embracing MMT and I'm fine with calling it, in current times and in shorthand DMF….
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Positive Money have always advocated direct financing via their idea of “Sovereign Money “,which has been one of their two main recommendations they have promoted from the very beinning of their existance(since 2010).
I have seen this gold standard accusation put against them before and it is simply not true. They have openly advocated that the government’s spending be adjusted to the prevailing economic need for which you need a fiat currency. You may disagree with the mechanics of their version,but it is about as far removed from having a fixed gold standard currency as there can be. They have never advocated or condoned a gold standard.
I am however also glad they agree with MMT on this,it will be crucial in the coming economic crisis,we need to be singing from the same hymn sheet for sure.
Buy PoMo maintain the government should create a stock of money it then allocates – which is akin to the gold standard and is just wrong – because all money is debt, which is why they have always got this horribly wrong
I’m hoping they have changed that or they’re still on the dark side
I agree all money is debt which makes it simple to understand. However the distinctions between standard fiscal policy, QE and direct money finance are rather subtle and depend a sequence of events in bond markets that most people do not understand and even worse on a set of beliefs or claims about what might happen in the future, e.g. will QE ever be unwound or not?
I guess if there were to be any DMF it would appear as a debt on the BoE balance sheet? Would this be lumped together as the same kind of debt as QE or not? In effect it is the same, it just did not go through the hands of the bondholders? I am interested in your views on this Richard.
Richard,
They do not advocate allocate a set amount of money at all,they have been consistant that money can be created at will as it is needed and destroyed when it is not.Money can be created by govenments debt free,that is money without interest.
I would say they are pushing the direct financing more of late,probably since Ben Dyson left.
I am aware that they have changed – almost to the point of abandoning the old agenda
It would be good if they would say that they have, because it was off the scale of insanity in terms of monetary understanding
Apologies I see that you addressed these point in the next post.
PoMo just need to get their head around the concept of Government sovereignty allied to the ability to create sovereign fiat money. That to my mind is all you need to do to understand what Government auto-finance is.
To not do this is a negation of the concept of national sovereignty, the concept of Government and also democracy – and be replaced with what exactly? The PoMo position does not make sense to me at all.
Where indeed is the difference between government keeping a stock of money at the ready and the new BoE governor saying he needs a stock of money to balance the BoE’s books? Both are failures to recognise that what stands in large measure behind the ability of the country to function economically are not stocks of money but the strength and taxing power of the State.
Agreed..
Direct Money Financing is about selling government bonds to the Central Bank which then issues the money by way of crediting the exchange settlement reserve account of whatever bank it wishes to benefit. It doesn’t have to be done that way because it can just instruct the Central Bank to credit reserve accounts without issuing bonds at all. In the case of the UK, the government operates, (or operated at the last FOIA I made to HMRC), 29 accounts at 2 private banks and it sort of keeps a stock of money by crediting those banks and then paying from them depending on which of 750 or so (according to the Government Banking Service’s website) government departments is doing the spending. It works slightly differently in the US because the Fed operate a retail account on behalf of the US government.
Sticking my neck out here but I do have considerable evidence that is the case. Pistols at dawn if anyone wants to disagree.
Ben Dyson left PoMo to work at the BoE, and as far as I know he still does. He probably understands perfectly well how it works.
Agreed!
In discussions with Bx-based lobbyists wrt the Green new Deal & how to get the Euro-zone back on its feet.
People have difficulty linking the following or indeed answering the following questions:
Central bank can create money out of nothing
If a central bank buys gov’ bonds (QE) – it can in theory tear them up – at no cost (because printing money to buy bonds – costs nothing)
Why do central banks use middle men to buy bonds?
& so on & so forth. People (even my partner) look at me quizzically when I state these things.
Schools have a great deal to answer for.
Nice vid by the way.
If the Positive Money crew have changed as much as some people here suggest then I am only left to wonder what they now stand for or represent and what their identity is.
If our points of difference with them have changed I suppose their is some importance in knowing what differences remain. Were they misunderstood, has anything really changed and are they still wanting to (effectively) eliminate endogenous money?
They now think they’re an environmental campaigning group as far as I can work out