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Posts Tagged ‘monetary policy’

British Conservatives forget their own history

February 27 2013 Leave a comment

Andrew Lilico is a true believer in the logic of austerity and took to the Conservative Home blog recently to argue for bigger, faster cuts.

He was kind enough to respond to my comment and I’ve posted the exchange below.

oblivia: No, no, no. And no.

Lilico reckons Britain could face the same fate as Ireland and Spain. “It is not a “’purely theoretical’ concern,” he assures us.

Err, did I miss the UK joining the euro? If not, then Lilico is talking nonsense. It’s a “purely theoretical” concern that Britain will be forced by the Germans to take the same medicine as Ireland and Spain.

As long as we have our own currency, it’s impossible that we could run out of money and have to go begging to Europe for a bailout. Doesn’t Lilico know this? Is he deliberately cultivating groundless fears or just being ignorant?

It’s bizarre that people who railed against giving up the pound now behave as though we joined the euro anyway. What’s the point of currency sovereignty if you don’t take advantage of the huge power it gives us? We could have spent the past couple of years sprinting past the rest of Europe, but instead we’ve just joined them.

Hard to think of anything stupider.

Lilico: Yeah, yeah, cos countries that print their own currencies *never* have sovereign debt crises, do they? How could anyone have thought that the UK in 1976 had a gilts crisis, or that Angola is anything other than AAA today. And *obviously* the Irish recession and bank failures came *after* the ECB intervened, not before – how could I have been so silly as to think things had occurred in the opposite order.

I am no longer able to be polite about this utterly ridiculous meme that has spread that countries that print their own currencies can never have sovereign bond problems. It’s garbage.

oblivia: There are indeed parallels between Britain in 1976 and the PIIGS in 2009 — they were beholden to others. Britain was dependent on funding from the IMF, while Ireland and Spain had devolved monetary policy under the euro.

News flash: We are no longer indebted to the IMF and we didn’t join the euro. These aren’t accidents. They were the product of deliberate Conservative efforts to protect our independence.

Now you argue that this independence is an illusion. Forget all the arguments of the past, you say, we are in just as much peril today as we were in 1976. Be afraid.

I say this is nonsense.

ps Andrew Lilico is a director and principal at Europe Economics, a consultancy specialising in economic regulation, competition policy and the application of economics to public and business policy issues. You can find him on Twitter as @AndrewLilico, though you do so entirely at your own risk.

pps Martin Wolf also has a good piece in today’s FT that slays a few austerity dragons and makes the point that the problems in the PIIGS were caused by the ECB’s ill-advised austerity (which was forced on them after they gave up their independence to join the euro): “Eurozone countries’ debt crises resulted from European Central Bank policy failures. Because of its refusal to act as lender of last resort to governments, they suffered liquidity risk – borrowing costs rose because buyers of bonds lacked confidence they would be able to resell easily at all times. That, not insolvency, was the immediate peril.”

Helicopters can go up as well as down

February 18 2013 Leave a comment

I commented on Gavyn Davies’ much-discussed article: Helicopters can be dangerous.

This line in particular struck me as odd: “The increase in the monetary base is temporary in the case of QE, and permanent in the case of OMF.”

OMF is overt monetary finance, which is apparently a “less inflammatory” term for helicopter money. I’m not exactly sure why Davies thinks helicopter money would be dropped permanently, or why he thinks anyone is arguing that this would be a good idea.

But what I find particularly obnoxious is how the City is now back to calling for common sense and fiscal restraint. Ha!

Remember, it was bankers who demanded the initial increase in the monetary base (through bailouts) as a way of preserving their bonuses, and it was bankers that drove monetary expansion in the years before the financial crisis as they earned fat margins from cavalier lending, but when someone suggests a monetary expansion that might actually benefit ordinary people… heaven forbid!

Of course, neither MMT nor modern monetarism are concerned with a permanent expansion of the monetary base anyway. The point is to take control of the money supply away from the banking cartel and using a rule-based system instead. Outside of the banking industry, this is not a remotely controversial idea.

The only restriction on what a sovereign nation can or cannot do is determined by the available resources, rather than some made-up limit on the amount of money (which can be created at will).

The lobby for the status quo

January 9 2013 Leave a comment

Paul Krugman is a Nobel prize-winning economist, right?

He went to Stockholm and rubbed shoulders with the world’s leading scientists, novelists and peacemakers — fellow members of this elite community. Right?

Wrong, kind of. Alfred Nobel was a Swede who, as everyone knows, made his fortune in the explosives business. On his death, he bequeathed that fortune to the endowment of five awards in the fields of physics, chemistry, medicine, literature and peace. Not economics.

The prize that Krugman won is officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, and has been sponsored by the Swedish central bank since it created the award in 1968.

It is the only other prize awarded by the Nobel Foundation, and some of Nobel’s descendants actively protest the association of the economic prize with their name.

Discussions about nominations cannot be disclosed for 50 years, so we have a few years to wait to find out how the selection process works, but one thing is clear, according to Bernard Lietaer, an economist who once worked at the Belgian central bank: there must be no discussion of the monetary system.

“Didn’t they tell you? Never touch the money system,” Krugman once told him, apparently. “You’re killing yourself academically if you touch the money system.”

Mainstream economists disagree over many things, but they rarely differ much over the money system. Whether in the Soviet Union or the USA, bank-debt money was the only game in town for both communists and capitalists.

“We have been blind ideologically to what is common between them,” says Lietaer in an interesting presentation on “monetary blind spots and structural solutions”:

This video is the first of five parts, in which Lietaer challenges assumptions about how our money system works the way it does. And why.

“At Belgian central bank, they told me: ‘We exist, the central banks exist, the IMF, the World Bank exist for one purpose: to keep the system going as it is, not to improve it.’ It is the lobby for status quo. At the time, in the 1920s, the banks got the best deal they could ever get, so they created a reality that froze it forever. There’s an active lobby that nobody sees as a lobby, because central banks are different from the banks, right? But there’s one thing they agree on, the money system.”

They also agree that anyone who challenges the status quo doesn’t get a “Nobel Prize”.

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