I am at present working on the draft of an academic paper on the accounting for quantitative easing. Like all such papers, it will be some time before it sees the light of day.
I did, however, notice this in the letter from the late Alistair Darling sent to the Bank of England in January 2009 that set up the Bank of England Asset Purchase Facility that managed this fund:
The one thing I can guarantee you is that this is the last thing that we got from the Bank, the Treasury, the Office for National Statistics, or anyone else on this issue. Opacity, denial, obfuscation and misinformation have been the order of the day and still are.
There were good reasons to use QE when it was in operation. I have little doubt that it will be needed again in the future. But the deliberate policy of denial - even to the extent that politicians still claim that it is not possible for the government to create money when they do so every day, without fail - that has surrounded this issue is profoundly harmful to the use of this essential tool.
I am going to presume Alistair Darling wrote in good faith. No one ever since seems to have acted in that way. It is a shameful episode in the UK's economic management, which is why the paper is worth writing.
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Looking forward to it. Happy to cast my eyes over any draft if you wish.
You might get asked….
I know I am off thread and perhaps being a mere irritant, but BBC Scotland’s phone-in has turned to the revival in cash use as an issue. This is reported by the British Retail Consortium; who explain it as a post-Covid bounce-back (from 15% to 19%), but also a function of the cost of living crisis.
In England, only notes and coin are legal tender (in Scotland, few realise only coin is legal tender). This last may seem trivial, but it isn’t. Notes and coin are the only forms in which the government, as sovereign issuer of money transacts directly with everyone over which it rules. All other forms of ‘money’ are vitiated by middle-men (redundant rent seekers), inserting themselves between issuer and user of money, simply in order to make money out of the transaction. So perverse is this distortion, that the Government guarantees every UK qualifying bank account with an £85,000 free guarantee to all High Street commercial banks, in order that the public can trust using the banks; after the whole wretched system was spectacularly bust less than twenty years ago (and left the public to pay the bill, and are now trying to squeeze cash out the system by trying to make it impossible to use cash, wherever they can – the banks dreams of avarice and monopoly realised!).
People are waking up to the technical problem of no cash, if “the (technical) system goes down”. The BBC phone-in participants are giving little thought to what happens if it is the bank that goes down. If it does, and there is no cash; all you have is the government guarantee. Oh! Hang on, if you do not have a bank account, what do you do then?
“Adrian Buckle, head of research at UK Finance, said the trends appear to be following ‘the kind of pattern that we saw after the financial crisis of 2008/2009 when there was a bit of an increase in cash use but then that tended to drop away again over time.'” (The Independent). This simply means that people forget far too easily how our financial system really works; or doesn’t. They are easily seduced by the marketing skills of banks and Big Tech; a lethal combination that are in the business of seduction. Their intersts are not necessarily ours.
This link on when banks did actually close in Ireland may be of interest.
https://bankunderground.co.uk/2016/01/20/the-cheque-republic-money-in-a-modern-economy-with-no-banks/
Thanks for that. With sufficient circulating legal tender the Irish recourse to cheques could have been avoided. Interestingly, however perhaps we may speculate that what the Irish were doing, confronted by bank closure, was ingeniously improvising, by re-igniting the Bill of Exchange as a universal currency, using the pub as a clearing house or bank.
In any case it should be a reminder that banks are not there as servants of the public. The banks are given a licence by Government. In the past that came with stringent regulations, they handled legal tender and they had a branch network that srved a community. if they failed they went to the wall.
Now banks do not fail. They are protected by Government wholesale, and indeed the deposits of the public are protected – by Government. Digitisation and 21st century banking has transformed the position of commercial banks. They make it expensive for businesses to transact in cash, and difficult for individuals to use cash. They close branches. They oblige everyone to operate online (including the elderly, the disabled and even the blind – who do not have the technology to cope with it, even if they live in a rural area without a branch).
The banks are determined effectively to eliminate the role of legal tender, and insert themselves into the dominant position in finance for the public. They turn legal tender into mere deposits (lower hierarchy and therefore riskier money); they can monitor all transactions; they can determine the public’s access to an account. They can even determine whether you present a card, or require a pin; or how much you can spend. They can suspend the depositor’s access to his/her money in an instant. All this is the thin edge of the wedge.
The commercial banks have transformed the licensing regime. The regulations over their licence with Government has been degraded and devalued. Meanwhile they have effectively set themselves as giving a conditional licence to the public to access money, in a digital, de-monetised financial economy. This is the path we are now on, and already far down the turnpike.
May I give an example drawn today from BBC Scotland’s morning phone-in (as I recall the story)?
A couple go into a pub, and order drinks. The drinks are served, and a sip is taken by the wife of the customer who is now offering cash. The cash is refused. Only cards are accepted. The customer says he doesn’t have his card with him, offers cash above the price of the drinks, and no change in return. The bartender takes the cash but demands the drinks are returned, and pours them down the sink.
That transaction, i submit is the product of modern banking. The Government is not lifting a finger to stop the banks taking over our lives.
Would be very keen to see this and also willing to perform a review.
That is some way away as yet
This is very interesting to know, but also quite worrying in that the BoE has not seemed to have done what it was instructed to do by a publicly elected official.
It would be nice to have somebody made accountable for that.
You seem confused by the difference in the two statements:
1) the government (bank of England) cannot create money
And
2) the government (bank of England) cannot create money without consequences
No-one has claimed the former, despite what you are saying. However, the difference with the second statement is quite important, but something you are keen to avoid.
Politicians deny the former
I fully understand the latter
I strongly suspect you don’t
The government can create money, it doses so, when it prints bank notes.
You also create money when you buy something using a credit card but at the same time you create a debt wich you have to pay back. When it is paid back the payment cancels the debt and the money vanishes.
Do other countries that have used QE account for it in the same obscure way?
Yes. The rules were created by the UN in 2008 and stopped by the EU in 2010.
[Jeff Muller:]”No-one has claimed the former”
Thatcher did.