People's Quantitative Easing
Description
by Richard Murphy:
"People’s quantitative easing is not the same as quantitative easing. Both are, of course, based upon the idea that the Bank of England provides funds to buy back debt that the government or its agencies in their various forms have issued, but the impact is fundamentally different. In the case of quantitative easing of the type used from 2009 until 2012 the money bought government bonds that had already been in existence for some time and the money was available to banks, pension funds and others to reinvest, the hope being that this money would flow into the productive economy. It did not. Instead it flowed into the house price and asset speculation. The gains went almost entirely to bankers who were, in effect, given costless money to speculate, which they did to the benefit of their bonuses and their banks’ profitability.
People’s quantitative easing is instead a highly directed process where the debt that is repurchased has been deliberately created and issued either by a green investment bank or by local authorities, health trusts and other such agencies for the specific purpose of funding new investment in the economy at the time when big business and financial markets are completely failing to deliver the scale of investment that is needed to get the UK working again and to restore our financial prosperity. There is no chance whatsoever that people’s quantitative easing funds will leak into asset speculation, and so generate inflation, precisely because to the greatest extent possible banks will be kept out of this loop for the good reason that they have proved themselves unable to manage this type of socially beneficial investment activity.
Second, people’s quantitative easing does not require an end to Bank of England independence, although why Chris Leslie should be so wedded to that idea apart from the fact that it was Ed Balls’ suggestion in the first place, I am not sure. If anyone can provides good reason for moving most of economic policy beyond democratic control in the 21st-century I would be pleased to hear it: I can think of no justification for doing so.
Third, printing money is not inflationary when there is a shortage of money in the economy. If Chris Leslie is not aware of it, and I suspect he is not, all money that exists in our economy is created either by bank lending or by the government printing it. Those are the only options that are available. And, when there is too little money we risk getting deflation, which is pretty universally recognised as posing a threat to economic well-being because of the risk that it creates that people will stop spending, whether on business investment, or on household goods.
Right across Europe, including in the UK, this is the big risk right now. Many European countries already have deflation whilst we have zero inflation, and quite appropriately the target for inflation is at least 2% per annum. Despite Office for Budget Responsibility forecasts, there is a I, and many other economists, have noted very little prospect of businesses suddenly entering into a period of quite historically exceptional new investment, and barring a massive house price boom there is also very little chance that consumers are going to increase their borrowing to the extent that George Osborne has predicted.
In that case in the UK we may well remain in the situation where net loan repayment by business and consumers may actually be destroying more money than is being created by banks making new loans. In that case we are in the same position as many EU states, where there is desperate need of the new money to be injected into the economy to boost economic activity and maintain positive rates of inflation. And even if we cease to be in the same position as some of those EU states we still have a choice, which is an entirely valid one for any government to make, as to whether or not new money should be created by house price bubbles, asset price bubbles, or increased consumer debt, all of which were the precursors of the 2008 crisis, or whether, instead government wishes to themselves create this new money in a focused and directed fashion to ensure that there is new economic activity in the country which creates employment, increased wages, rising tax revenue, long-term prosperity, economic and environmental sustainability and a sense of well-being. I know which I would prefer: it would seem that Chris Leslie prefers the route to a crash.
Fourth, to suggest that people’s quantitative easing will increase the government’s debt burden is wrong, as it is also wrong to suggest that it will increase its debt servicing obligation. If the government buys its own debt then it cancels it. This, as a matter of fact, is true. It is, of course, technically legally possible to argue that the debt still exists, but if I create a loan to myself, even if it is legally recorded, it has no economic consequence: my repayments of my loan from me to me means that no money actually in net terms leaves my own pocket and that is exactly what happens when, as a consequence of any form of quantitative easing, the government owns its own debt.
So, quantitative easing actually cancels government debt and does not increase it. And, in the process, it prints money, and the government does not have to pay interest on the money that it has created itself: Chris Leslie should know this; no interest is paid on the £375 billion of government debt that was repurchased between 2009 and 2012, partly under a Labour government. Technically, therefore, his arguments in this area are all just wrong. There is as a consequence no chance that this form of quantitative easing will push up interest rates, whilst to suggest that it will prevent spending on schools and hospitals, when that is exactly how it will be used, is either naive or deeply disingenuous, as are the claims on debt servicing." (http://www.leftfutures.org/2015/08/chris-leslie-has-got-corbynomics-wrong/)
More Information
- Steve Keen explains People's QE to RT's Max Keiser report, https://www.facebook.com/QuantitativeEasingForThePeople/videos/882105991828579/?hc_location=ufi