Tuesday, February 10, 2015

Ann Pettiifor — Our monetary system is a great, if wildly misunderstood, public good

Britain and Europe’s economic discourse is embarrassingly er…vulgar. Treasury and Finance ministers’ determination to paper over the role of big banks in the 2007-9 crisis, and instead use the opportunity to re-structure Europe’s welfare states, is both crass in economic terms, but also crude politics.

Politicians are influenced by what I call the kitchen table monetarism of Mrs Thatcher and by the views of Mrs Merkel’s “Swabian housewife”. These reinforce the primitive ideas about money once expounded by Mrs Thatcher, namely that: 
“The state has no source of money, other than the money people earn themselves….There is no such thing as public money. There is only taxpayers’ money.”
Another regular assertion is that nothing can be done without accumulating ‘savings’. These assertions were contradicted in 2009 when it turned out that the state – via the ECB, the Bank of England and the Federal Reserve – did have a source of money. 
It was named QE, and used (mainly by the Federal Reserve) to mobilise trillions of dollars that socialized the losses of German, British and American banks. The money was created by central bankers “out of thin air” – without once dipping into the pockets of taxpayers, or drawing down ‘savings’.
There was nothing new in this. QE is just another name for the everyday activities of central banks. In the past these were known as ‘money market operations’ – carried out since about 1694 when the Bank of England was founded. The difference between then and now is in the scale of operations undertaken by central bankers since 2009….
Detonation
Our monetary system is a great, if wildly misunderstood, public good
Ann Pettiifor

4 comments:

Ralph Musgrave said...

Ann Pettifor doesn’t get the distinction between where an economy is at capacity and where it isn't (i.e. where there is far more unemployment than there need be). Obviously she is right to say given a large amount of excess capacity, central or commercial banks can print money and provide stimulus. (Not that commercial banks are in practice much use in a recession. The reality is that they act in a pro-cyclical manner: stoking booms and exacerbating recessions by cutting down on the amount they lend in a recession.)

However, having read the book, I got the impression she thinks banks are almost unlimited founts of free wealth. For example on page 26 she makes a claim which she obviously thinks is important because it’s a paragraph all on its own. It reads: “Savings are not needed for investment.” And, that idea is repeated on p.104 where she says “Under a well-managed banking system, and with the sagacious use of bank money, surplus wealth is no longer needed for loans and investment.”

The truth is that assuming an economy is at capacity, “investment” can only be funded by sacrificing CURRENT CONSUMPTION. Of course if she is right and I’m wrong, then she deserves several Nobel Prizes: she’s found a way of bringing an infinitely large stock of new houses, roads, hospitals etc into existence without anyone having to cut down on beer, holidays etc. That’s the best news I’ve heard in my entire life.

Matt Franko said...

"a way of bringing an infinitely large stock of new houses, roads, hospitals etc into existence without anyone having to cut down on beer, holidays etc. "

Ralph you are describing our last 15 years of US economy.... You get illegals to do all the domestic work for a shitty wage, and then get the Asian USD zombies to make all the other consumer stuff for pennies and import it....

You guys over there have to find some "British Pound Zombies" and you'll be all set....

rsp,

Peter Pan said...

Too much beer, too little time.

Ignacio said...

Living the good life in the ol' US of A, y'all ;)