Martin Wolf remains on top form. This is from his FT comment piece this morning:
[I]t is astonishing how little this crisis has shaken conventional wisdom. On the contrary, it is widely believed that it is safer to rely on private borrowing than on public borrowing as a source of demand. An expansion of private borrowing to buy ever more expensive houses is deemed good, but an expansion of government borrowing, to build roads or railways, is not. Privately created credit-backed money is thought sound, while government-created money is not. None of this makes much sense.
There's not much can be added to that, except suggesting reading the rest.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
None of this makes sense to anyone that has the well being of the many as opposed to the well being of the few at heart.
Neo-liberalism is a cult, its followers like those of the “Unification Church” have lost the ability to perceive the real world.
The carney quote reveals the utmost economic illiteracy: ‘“this has led households to save less and spend more, and has prompted a strengthening in the housing market.”
What! Strengthening! This is Alice in Wonderland logic. Inflation/deflation is being masked with household debt at 1.4 trillion (more than the bank bailout!).
Aristophanes’ Cloud Cuckoo Land is alive and well!
Back in 2007 I remember some journalist tentatively suggesting to a housing-pimp, er sorry, member of the banking fraternity, that people were borrowing insane amounts that they could never repay to buy houses & that this was a bit of a cause for concern.
He assured her; no-one should be worried. Our lenders may be rather highly leveraged but the loans are all secured.
Well, a Co can be ‘highly leveraged’ but a human being can’t be, & the fact that the loans are all secured gives assurance to the lender, but nothing but grief to the borrower.
We’re all going to lie & skate over this one aren’t we? The banks have made gigantic property loans to people who have not a hope in hell of ever repaying them. Those people are, essentially, slaves to the bank.
Are the banks reflecting the absolute impossibility of repayment in their Balance Sheets by impairing those assets? Are they boggery!
How did the old Country song go ?
“I owe my soul to the company store”
Indeed! -Have you noticed that NO politicians talk about this?
Vince did, back in the day, but not any more. I assume Nick had a word.
‘None of this makes sense to anyone that has the well being of the many as opposed to the well being of the few at heart. – See more at: http://www.taxresearch.org.uk/Blog/2014/02/14/wolf-for-the-day/#sthash.r00XHNhf.dpuf‘
Ergo – neoliberalism/neofeudalism does not have the well being of so many at heart.
Dear Richard Murphy
you appear to rate highly this Martin Wolf, how did he perform in the run up to 2007 credit bust ? did he “see it coming”
No
I did better than him then
thanks for the response.
I thought he did pretty well. He was one of the very few people to call out in the late 2000s that an ever increasing spiral of house price inflation & consequent household debt was unsustainable. Remember, no-one in Parliament, on either side, except Vince, even mentioned this as a risk.
He also mentioned the dangerous consequences for the banks & how they were under-capitalised, underprepared & over eager to splurge money.
I don’t recall whether he really picked up on the danger of derivatives. I honestly don’t think many did, outside Warren Buffet of course.
He did pick up on the point, which still hasn’t been sorted out, that the relationship between the US & China is weird & owes nothing at all to classical economic theory. I.e China is happy for the US to run a gigantic trade deficit all night long & will never let the Remninmbi rise against the $.
I think a lot of it depends on the situation. Recently we’ve seen government borrowing increase and increase until hundreds of billions are being added on to government debt per year. There comes a point when you have to stop and try to pay some of it back.
If the government of the last ten years had been running surpluses and paying off it’s debt, people would be a lot happier for big projects to go ahead, but right now they’re starting to wonder if it’s ever going to be paid back, and just how much tax will be taken from them to pay it.
There is no reason why any government needs to repay its debt
You are making the mistake of assuming a government behaves in the same way as a household, and it doesn’t. It can issue cash, for example
And the government not repaying its debt actually harms no one
There are limits though, otherwise why collect tax at all? Why not just print all the money you need?
Current public perception is that we’re nearing those limits. Politicians won’t do anything that may cost them votes, and as long as the public perception is that we’re spending too much (whether it’s true or not) the politicians are going to be hesitant about increasing spending.
It’s one of the flaws with democracy, sadly.
We collect tax to ensure balance in the economy
We haven’t got that balance – but in the wrong way
You still seem to be suggesting that there are no downsides to printing money or to the government having large amounts of debt. I’m not saying that government should never print money, or that it should have zero debt at all times, but I think there are limits, and there is a good discussion to be had around what those limits are. Consider:
If there’s no consequence to running the printing presses/government going further into debt, we could solve the issue by just giving everyone money.
Imagine two men, one with £80 and one with £20. We could tax £30 from the richer to give to the poorer, or print £60 and give it to the poorer man. Either way, both end up with the same amount. Would you consider these two outcomes to be equal, and to have no downsides?
There are clear limits to printing money. That is why we have tax. I stress, that’s the reason above all else
But, we are not at those limits at present
Rational Anarchist
unfortunately with Quantitative Easing we have the worst of all worlds as we create money for banks who use it to create asset bubbles. It would’ve been far better had the Govt printed some gelt & used it to do something useful like, er, build a lot of housing in urban areas.
The effect of QE, to use your example, is that the Govt buys £60 of bonds from the bank which gives it all to the richest. He now has £140 compared to his unfortunate counterpart’s £20. Needless to say, his poor counterpart can’t begin to compete in spending power in certain important areas, like finding somewhere to live in London.
In recent years George has been following austerity, & it hasn’t worked, has it? It won’t work because, as Keynes said, while there are so many unemployed the economy won’t fire up. Look at the US. Obama followed a completely Keynesian policy & their economy is now firing.
Now, there is a problem here. We know, which Keynes didn’t, that continuous economic growth is neither desirable nor sustainable, so simple Keynesianism isn’t the answer.
What is ? Some version of Richard’s Green growth plan. We can argue about the details.
“I think a lot of it depends on the situation. Recently we’ve seen government borrowing increase and increase until hundreds of billions are being added on to government debt per year. There comes a point when you have to stop and try to pay some of it back.”
No government debt has ever been paid back…ever!
“f the government of the last ten years had been running surpluses and paying off it’s debt, people would be a lot happier for big projects to go ahead, but right now they’re starting to wonder if it’s ever going to be paid back, and just how much tax will be taken from them to pay it.”
There is only one or two ways for the government to run a surplus. One is to have your own oil supply, but ours was squandered. The other is to have full employment and a very strong manufacturing base, but we would have to run a very large deficit to attain this. The government could just issue the money directly, but that is politically unpalatable.
If a government tried to run a surplus, or a zero deficit, they risk crashing the economy. Say the deficit was 110 billion – if the government ran a zero deficit or surplus, the economy would be short of £110 billion. To make up that difference, the money would have to be found from somewhere. They could keep chopping away at public spending, but that would have the effect of reducing the tax base, shrinking GDP and leaving the government needing more money. In effect, the debt will grow, not decrease as the government tries to find the money to fill the spending gap. If it will not borrow, the economy will be tipped into a deflationary spiral as the cutting of spending shrinks the money the government needs to keep things running and will eventually grind to a shuddering halt.
The government never pays this debt back, except for the interest. Indeed it can’t without totally crashing the economy.
There is nothing wrong with running a big national debt. In fact, if we want to get out of this mess, it is essential.
Sovereign Money creation is now being advocated by the Positive Money team in a new publication:
http://issuu.com/positivemoney/docs/sovereign-money-final-web
Apparently Milton Friedman supporting money creation in 1948!