In this final video in my series on quantitative easing, green QE and modern monetary theory, I moved towards the practical goals of policy. I am only ever interested in theoretical issues if they can deliver practical outcomes.
I have shown in my previous videos that QE has created an enormous stash of savings for some (but not all) at present and these are not being put to productive use, but are instead being used for speculation. This is creating instability in the economy at a time when there is a desperate need for investment.
But, the debt narrative is preventing the possibility of investment programmes at the scale that we need, and so in this video I explain how we can use the ideas in green QE to re-orientate those savings towards productive use, and so to fund the Green New Deal.
The proposal is pretty dramatic. What I suggest is that by getting people to own the debt, quite literally, we completely change the narrative, and turn what is at present an obstacle into an opportunity to unleash the potential within the economy to deliver the good that we need.
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A grand finale to your 4 part series on QE Green QE and MMT. This sets out a great vision for a future monetary system and is fully in tune with my thoughts on an economy, monetary and banking system and system of government based on the principle of subsidiarity.This is an application of MMT into a decentralised political economy. Pure MMT will result in a centralised political economy and another iteration of welfarism and a dependency culture, anaesthetising the citizenry and recreating the conditions for elite capture of government, economy, banking and money. This vision you present here is the route to escape the doom loop.
Thanks
Can you cover Existing UK Mortgages going over to an iScotland…
And State Pensions in an iScotland..
Others have
I will do so…
[…] answers to these questions. But if it was looking for inspiration I might suggest that it should listen to the video I have put put this morning in which I describe how the state should now be using its power to redirect accumulating savings […]
I watched this video and have a couple of questions.
You say for example hospital bonds should be issued. OK.
But how would they be repaid? The hospital doesn’t have an income stream, apart from government.
So these bonds would need to be government guaranteed, at which point they may as well be issued by central government at the lower rates it would enjoy – without an explicit backstop from the government they would trade as junk bonds, with yields 4%-0% higher than Gilts, typically.
Given this is the case, what’s the point?
Regarding green investment, why does government have to do it or direct it? The financial and investing world is already directly huge amounts of investment into ESG/green projects without being forced to or directed to by government. Most pension funds and all the big fund managers are already heavily involved and have been for years. I’m surprised you don’t know this.
I will address this in a separate blog in the next day or two
I have copied your questions into a draft blog and so will seek to address them
Good stuff – another great advantage of of savings bonds is that they ‘bake in’ their actual purpose and also commit the government to a longer term than the electoral cycle.
Rather similarly to the early Bank of England which Common Law considered ‘invented in Lombard Street to give laws to Westminster Hall’ they can be seen as a proper counterweight to current short term thinking….
http://www.progressivepulse.org/economics/promissory-notes-treasury-notes-and-bank-notes
More than that – they require reporting on the use of funds so that accountability is created
What you offer is an “oven ready” (forgive the phrase) policy that could deliver immediate benefits. I like it – all that is missing is political will. If adopted by Labour it would put clear green water between the two major parties at the next election. Annelise, are you listening?
On the technical details…………
First, do we need a National Investment Bank to do this? Green Bonds could be issued as direct obligations of the UK Treasury with hypothecation of the money happening within the Treasury. Alternatively, it could be administered through NS&I? It is set up for retail accounts and is used to offering fixed rate bonds…. but not sure how it would deal with secondary market transactions (but this would be fairly easily solved, I think… and there are ways that the retail and wholesale markets could be linked… all relatively simple technical detail). I hear you on visibility and accountability and an NIB might be a good idea but set up would take time and it is not essential immediately.
Sunderland hospital bonds, NE regional Bonds, NHS bonds are all possibilities that you offer and there is no clear and obvious correct way. Ask a bond trader and they will say “just issue gilts” but I get your point that savers want their money identified with a particular project. Nevertheless, fragmentation of bond issuance does present some issues; what would you do if the Newcastle hospital bond was over subscribed and the Sunderland one under subscribed? Leave the good people of Sunderland without medical provision? Make them feel second class citizens subsidised by their Tyneside neighbours? I would prefer bonds to all be “national” but I do think that it is reasonable to have separate NHS, Education, Flood Defence (etc.) bonds. Perhaps a list of projects that are being financed could be included with the prospectus of each bond.
Finally, from the MMT perspective, I still think there more to say about the mix of bond issuance (quantity and interest rate) versus taxation to control inflation (CPI inflation AND asset price inflation).
In my view, Green Bonds are a politically realistic way to kill several birds with one stone.
First, (and most importantly) it makes it more likely that these projects happen.
Second, it drains cash and offers a way to achieve a balance between asset price and CPI inflation control that has eluded Central Bankers for the last 40 years. (Although, I would still like further efforts to direct bank lending away from asset purchases)
Third, it will raise rates to a “reasonable” level (I mean close to zero in real terms) which will help pension funds with their liabilities and offer savers a better more productive place for their money etc.
Fourth, signal to Government (by flow of money) what is important to people (well, savers, at least)
Fifth, you don’t need to subscribe to MMT to like this idea.
What’s not to like?
Clive
Thanks as usual
Detailed comments:
1) It could be NS&I but would they have the reporting ability?
2) I would never in practice suggest single hospital bonds. I suspect there should be single issue bonds or regional bonds and then biggish regions e.g East Anglia, South Wales etc
3) QE could provide liquidity if ever required
4) I will deal with the secondary market and why not just gilts in a blog post tomorrow
And yes, what not to like?
Richard
Thanks Richard; I do think this is a great idea to change the narrative; it also may have the advantage of diverting some savings out of the buy-to-let market which seems to be one of the few outlets for ‘grey-haired’ savings.
But can I just recap on something a bit basic, I am someone getting my head around QE as it is now taking place. The purchase of bonds leads to profit on the deal by the seller — how does that proportion average out?. The funds from QE are then released and are at the BoE who are using them to finance government expenditure? – So what proportion of these funds are then used by private banks etc, for speculation on purchasing other assets — housing /stocks etc. If the funds are used for this purpose are they still liquid funds on BoE accounts , or are they ‘gone’ – I say this because I am puzzled as to why there is still £800 billion sloshing around at the BoE ? Thanks
Peter
I have written a long piece in all this, but nit ready to go as yet (apologies)
Around £100 billion of profit has been realised
This money stays in the economy
The accounting of this in the BoE is the issue I am still researching – and I think the correct treatment might ge fairly said to be disputed right now
But this £100 bn or so apart whatever the government and ONS say, these are effectively directly funding the government
But the real issue I am addressing is the impact of the effectively reinjected second round of funds into the economy
Richard
Hi Richard, I have just watched the series and well done! I have some questions on all of them but will focus on this last one:
1) Presumably any particular “issue” (say NHS) would not be limited in its capital investment to whatever bonds were bought by savers? Or would the required investment be set first, the necessary bonds issued, and the APF (or similar) would mop up any not purchased by private investors?
2) Who pays the interest on the bonds? Presumably that’s a government obligation rather than the investment project needing to generate a return to pay interest, so this would go on the government spending books?
3) This doesn’t seem to bypass the political problem of deciding what investments should be made – and of course that’s right. Does it change the locus of political decision-making at all? Presumably it is still the government (and its departments) that make these decisions, subject to parliamentary oversight?
There will be a blog out answering this soon
[…] made a suggestion in a video yesterday that it is now essential to the restoration of balance within the UK economy that the accumulating […]
Thanks. A fresh and interesting proposal! – and excellent questions. I look forward to the answers.
One thought in the meantime: While it’s clearly better that savings support productive investment rather than speculation and wealth extraction, it means that since the distribution of income and savings across the population is so unequal, the interest will go to the already comfortably off. So presumably the proposal needs to be coupled with significant redistribution through progressive taxation so it’s not just the comfortably off who can save and invest in the Green New Deal or whatever.
Agreed, entirely
Richard. Are your rejuvinative ideas and yours and others continually evolving policy formulation gaining any credence in the TUC policy units or individual trade unions as yet?
I have very little contact with trade unions these days, so no
Is there any place I/we can get transcripts of this series of videos — say, the scripts you read from?
That would be great learning material for systematic study.
Sorry, but the answer is that there are no such scripts
And I don’t read them. I just turn the camera on and talk. They are entirely unscripted.