The Bank of England has issued this press release this week:
It says:
‘Can't we just print more money?' is a new pop-economics book, written by the Bank of England, which will be published this May in partnership with Cornerstone Press. The book addresses ten economic questions, from, ‘Why are all my clothes made in Asia?' to ‘What actually is money?' Along the way, it offers idiosyncratic examples of economics in action: from the City of London to Springfield Power Plant; from Babylonian gold lending 4,000 years ago, to the economic effects of the Covid pandemic.
The book, which will be published on 19 May, is part of the Bank's work to increase public understanding about the economy and the Bank's role in it. The Bank's advance and future royalties will be used to buy copies of the book for thousands of state school libraries and support the Bank's wider education programme.
‘Can't We Just Print More Money?' has been written by Rupal Patel, an economist who works in the Bank's Financial Stability directorate, and Jack Meaning, who works in the Chief Economist's office. It includes a foreword from the Governor, Andrew Bailey.
Andrew Bailey said: ‘The economy – and economics – is all around us, in the decisions we all make every day at home, at work, or in the shops. Despite this, economics is generally not well understood, and nor are economists. We hope that, as well as being an entertaining and informative read, ‘Can't We Just Print More Money?' will help demystify economics and encourage people to learn how we can use it to tackle some of the biggest challenges facing the world today.'
Call me cynical if you wish but I think this is going to say three things.
First, it will say that we cannot just print more money - which everyone would agree with unless appropriate caveats are added. I suspect that the wrong ones will be. In other words, this will be a denial of modern monetary theory rather than something useful.
Second, I suspect it will argue for strong monetary policy.
And third, it will definitely defend independent central banks.
As I say, call me cynical, but the chance that this book will in any way be objective is, I think, close to zero.
And if its explanation of money is as bad as that on the current Bank of England website it will also fail to explain what money is too.
I am looking forward to this.
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I wonder if they will mention Weimar Germany, Venezuela or Zimbabwe.
Is this is BoE explanation of money to which you were referring? https://www.bankofengland.co.uk/knowledgebank/what-is-money
I wonder to..
And yes that is what I am referring to
That answers as if money is physical or at least quasi-tangible which wholly misses the point of money
They already do!
https://www.bankofengland.co.uk/knowledgebank/what-is-inflation
The key to this is the aim of demystifying the economy. This is a simple task, since the public, including innocent school pupils, it seems, only need to know a few basic FACTS. Firstly, as every housewife knows, you can’t spend more money than you have without Armageddon as a consequence. Secondly, we all know what money is cos we all uses it every day. Thirdly, an independent Bank of England, free from political pressures, is obviously the ONLY way to manage an economy in an objective way for the benefit of us all. This keeps politics out of it, which everyone understands is absolutely necessary, as the day to day management MUST be in the hands of the experts.
Your problem, Richard, is you want to complicate matters by asking us to believe that the economy is not like the weather, determined by forces outside of our control. Shame on you!
Amused 🙂
Paul – if you’re handling a counterfeiter’s notes and there are a LOT of them, you will carry on obliviously – thinking that you know what this money is ‘because you’re using it’ – yet clearly now having no awareness of what that money is now doing behind the scenes for the counterfeiter. So are you so sure you know how the currency is working based on your own experience of it?
It’s not a valid scientific answer – ‘I use it so therefore I fully understand it’
But do you know?
I assumed you were writing a satire. Perhaps not in which case you should go and do some research into what money is and what it is not. Or read some of Richard’s blogs.
I think it was satire
I’m looking forward to seeing it too funnily enough.
You have to give it to the powers that be. They really are very well organised and they stick together.
This is agnotology in action – no doubt about it – to extinguish hope – that’s what it is.
The perversity of allowing one sector of the economy to produce unlimited money as debt (the financial sector – and it seems underwritten by Government) whilst depriving another sector (public and wider society) of the money it needs is just immoral, unethical and anti-social.
Let’s see what lies they tell.
If they are describing Babylonian gold lending 4,000 years ago, will they debt cancellations? Then there are other banking systems like Hawala and Islamic banking
I think they could make good use of this : “The UK Economy is Definitely Like A Household”.
https://www.youtube.com/watch?v=jBe8L5AyrfE
I thi8nk that is quite amusing…
I am gobsmacked that it was possible to not realise I was being satirical. There were two big clues. Firstly, Richard wouldn’t have approved it otherwise, since it would have been trolling. Secondly, the colloquial grammar perhaps was suggestive in an otherwise ‘grammarly’ context!
Michael Hudson’s interview here
https://positivapengar.se/event/hudson-financialization-is-suffocating-the-economy/
does a great job of answering some of their questions but not in the way the BoE will no doubt cynically pretend to do so.
One thing I don’t understand is this notion of QE being equated to moneyprinting.
Maybe I’m wrong, but my understanding is that QE is an asset swap of bank reserves for debt/bonds, and that bank reserves are not cash, nor are they deposits, and one of the 24 or so prime dealers can’t just go and buy assets like shares and commodities etc because the bank reserves can only be held by primary dealers, they can’t be given to a broker for apple shares or something, surely?
Yet the BoE seems to say they can, and this blog’s explanation seems to say similar: “ME
The history and significance of QE in the UK
Posted on November 22 2020
The post that follows was written as a Twitter thread. As a result no paragraph is more than 280 characters long. But it grew, and grew, and the issue it addresses – the role of quantitative easing (QE) in the economy over the last decade is vital. Breaking it down into a lot of paragraphs does no harm as a result. So, this is my explanation of how QE works and what results. Much of it is new. It also predicts work that is to come. I hope it it useful.
–––-
There’s massive misunderstanding about what QE is and what it does. So please forgive a long thread on one of the most important tools used in modern economics, which if used properly might provide real hope for a better future.
Outside Japan QE was unknown until 2009. Since then the UK has done £845 billion of it. This is a big deal as a consequence. But as about half of that has happened this year it’s appropriate to suggest that there have been two stage of QE, so far. And I suggest we need a third.
Stage 1 QE started in 2009 and was last used in 2016. It created £445bn of new money. That was used to buy £435bn of government bonds, or gilts, and £10bn of corporate bonds, which we can ignore. There were three goals to first stage QE.
The first was to keep interest rates down. The Bank of England calls QE monetary policy for a reason. Buying gilts in the financial markets pushes up their price. And since the return paid on them is fixed if their price goes up the effective interest rate paid on them goes down.
The second reasons was to provide liquidity to banks and financial institutions. This liquidity froze in 2008. It was solved because QE created money ends up being held by banks and building societies on the central bank reserve accounts they hold at the Bank of England.
Since 2008 banks and building societies have not trusted each other to not go bust, overnight. After all, Lehman Brothers did. So they don’t give each other credit any more. Instead they have to hold central bank reserve account balances to settle their debts to each other.
QE boosted the balances on central bank reserve accounts. In 2009 these amounted to £42bn. In February 2020, when the last audited figure was published, they were £479bn. They have probably gone up by another £400 billion or more by now as a result of QE this year.
So, QE provided the money to make sure that the banking system could still function. It should not fall over again in the way it almost did in 2008 as a result, although it had a good go at doing so in March this year, which is why the Bank of England intervened so heavily then.
Third, it has to be remembered that QE began in 2009. Back then it was still the official line that banks needed deposits before they could lend. That was not true. It hasn’t been since at least 1971. But this was not acknowledged by the Bank of England until 2014.
Given that this ‘old world’ view on deposits and lending prevailed the BoE thought QE would enable banks to lend more to boost the economy. That was nonsense, and the evidence proved it. Creative lending to promote employment remained as rare as ever within UK banking despite QE.
What QE did instead was two things. First, it released money to buy other assets. Speculation in commodities such as oil and metals increased significantly, and even pushed up inflation. But falling interest rates also did something else. It pushed up share prices.
Just as high gilt prices push down gilt interest rates, so too do low interest rates make shares look more attractive and so push up their prices.”
Yet you have people like Jeff Snider in the US adamant and laughing at this notion as a complete misunderstanding.
It seems quite fundamentally important to the narrative… So how, if at all, precisely, are bank reserves used to buy the stockmarket? Where is the credit creation? The “moneyprinting”?
Who is wrong, and why, precisely, are they wrong?
I am working on this – but I admit it is taking time
The fundamental confusion is that there is no asset swap – there is a trade – and that is not the same thing – and that anyone the issue is about liabilities not assets
As I say I will get back to this – but nothing I will be saying is inconsistent with what i wrote above
I am not seeking to exonerate QE, which as it has been done does not work
But it certainly created new money
thanks for your reply.
I just don’t know what words like “money” and “cash” mean any more… they seem to lack specificity. I’m not a financial person, I come at this with no presuppositions, just an engineer’s way of looking at things… and to me, there must be a precise mechanism where all the moving parts and what they do can be identified and described, and what I’m trying to do is dismantle the machine to try and understand how it works, because it seems to me that until one does that, they are doing various kinds of guesstimation about what seems to be fundamental. I lack confidence in later conclusions. I’m not interested for financial reasons, I want to understand what the likely effects are economically and politically, and whether there is supply shock pseudo-inflation or currency debasement seems pretty important question to get right if one wants to form conclusions that make sense.
if you want me to link to some Jeff Snider interviews on websites or youtube, let me know.
the thing is, he speaks with such detail and confidence, but is divergent from the pack, that I am very keen to see his critique, critiqued itself… he (and others) seem absolutely certain that there is no new money created, that bank reserves are something other than simple “cash” or “money”, and can’t be used to do what others say when they talk about “money printing”.
I am certain that when the Open Market trading desks of central banks are engaging with Primary Dealers, that both sides fully know what precisely it is that they are doing, and what with.
It never sat well with me that “QE is just an asset swap”, but it does seem to come down to a simple sounding question – are bank reserves “usable”? Snider says no… Snider says the initial recipient of these freshly magicked-out-of-thin-air reserves can’t be used to go shopping with. Another American, ex Fed employee who claims to have worked this mineshaft, says similar… that there is a two-tier currency system, and whilst Primary Dealers can theoretically spend reserves like deposits or cash, there are regulatory and profit reasons why they don’t, and part of that is due to the central bank having to give permission to convert reserves into deposits, and due to the fact that only a handful of organisations can hold reserves in a reserve account a central bank. The logical question then, is do these reserves always remain as reserves (as Snider claims) or base money; or, do they get converted into deposits that leave the reserve system and enter the broad money system (as those who say there is money printing / credit expansion etc…) say?
I think a detailed discussion on that would be really useful… maybe the American system is substantially different from the British one? I found your article describing the way QE happens in the UK really useful, and clearly different from what happens over the pond (and perhaps different again from Japan and the Eurozone). To me now, it seems the main fundamental question that needs answering or explaining… is there moneyprinting or is something else going on? the Eurodollar drought? the dollar drought? the collateral drought?
There’s much I don’t know, but it seems important to know given the emerging risks of something eventful happening economically and financially both this year (e.g.: a crash in Spring), and over the next couple of years, in a few key parts of the world.
maybe you could even get onto Youtube and do a debate with Snider on this… it would get a decent amount of interest, I’m sure.
sorry to go on, and thanks for your hard work,.
It all depends on what you mean by usable
I am assembling data in this – literally this afternoon