Printing money for state spending - comparative histories

[Diamond]

Rather than being your usual patronising self, how about explaining what I supposedly don't understand? Shouldn't be too difficult for a chap with a first class mind.

Issuing paper on a triple A credit rating, that the UK currently has, is an awful lot cheaper than issuing it on a lesser rating given the relative spreads.

This means that it is more expensive for a country like Greece to issue paper than the UK - i.e. to raise funds - because it is less credit worthy.

The credibility of a country's rating will always be contingent on its government. The idea that Corbyn can come into office and nationalise close on £200bn pounds of private assets, running a budget with a massive deficit as a result and also ask the BoE to engage in QE for the public sector as well as for the banking sector puts that rating at severe risk and once you start going down that route it is very difficult to climb back out because people will only lend to you on increasingly severe terms.

 

[Diamond]

Again, why not explain yourself, rather than pompously prating?

It was a question to you VP.

What do you mean by "profitable behaviours" and how do they contrast with "unprofitable behaviours"?

 

[ItWillNeverWork]

Try issuing paper on a treble-A rating and then on a junk rating - you will find that they are two rather different things.

The US was downgraded by S&P in 2011. At the time we were told it was the end of the world! What has happened since then? Nothing. In fact, borrowing costs have gone down.

 

[ItWillNeverWork]

The idea that Corbyn can come into office and nationalise close on £200bn pounds of private assets, running a budget with a massive deficit as a result and also ask the BoE to engage in QE for the public sector as well as for the banking sector puts that rating at severe risk and once you start going down that route it is very difficult to climb back out because people will only lend to you on increasingly severe terms.

Like with Japan in the above graph, you mean? A country that invented QE. A country that has the largest public debt in the world?

 

[ViolentPanda]

Issuing paper on a triple A credit rating, that the UK currently has, is an awful lot cheaper than issuing it on a lesser rating given the relative spreads.

This means that it is more expensive for a country like Greece to issue paper than the UK - i.e. to raise funds - because it is less credit worthy.

Yes, thanks for telling me what Mr. Cozens taught me in my O Level "Commerce" class 40 years ago.

The credibility of a country's rating will always be contingent on its government.

And not on the economy as a whole?
It's partiallycontingent on government (and more importantly, on govt policy), but it's equally contingent on the economic fundamentals of the host state.

The idea that Corbyn can come into office and nationalise close on £200bn pounds of private assets...

Because obviously he's stupid enough to do that all in one fell swoop, rather than over the life of a couple of Parliaments.

...running a budget with a massive deficit as a result...

I wasn't aware that he'd forsworn an eventually-balanced budget, only that he's made clear he's notin favour of balancing it on the bones of the poor.

You really shouldn't ingest editorials from The Economist whole.

...and also ask the BoE to engage in QE for the public sector as well as for the banking sector puts that rating at severe risk and once you start going down that route it is very difficult to climb back out because people will only lend to you on increasingly severe terms.

I suggest you read Richard Murphy's more in-depth analyses of Corbyn's propositions, as any sensible economist (if such a creature exists), banker or other "money person" will be doing, rather than grazing on quasi-scare stories.

 

[ViolentPanda]

It was a question to you VP.

What do you mean by "profitable behaviours" and how do they contrast with "unprofitable behaviours"?

In the context of the thread, profitable behaviours would be those that serve the broader aims of the institution(s) in question - therefore "instrumental". How do they contrast with unprofitable behaviours? They don't yield a profit, and accrue no benefit to the institution(s).

Now, please impress me with your forensic knowledge of "the markets" while gainsaying what I've posted, while at the same time dripping condescension in that way you do so well. G-d loves a tryer.

 

[BigTom]

Issuing paper on a triple A credit rating, that the UK currently has, is an awful lot cheaper than issuing it on a lesser rating given the relative spreads.

This means that it is more expensive for a country like Greece to issue paper than the UK - i.e. to raise funds - because it is less credit worthy.

The credibility of a country's rating will always be contingent on its government. The idea that Corbyn can come into office and nationalise close on £200bn pounds of private assets, running a budget with a massive deficit as a result and also ask the BoE to engage in QE for the public sector as well as for the banking sector puts that rating at severe risk and once you start going down that route it is very difficult to climb back out because people will only lend to you on increasingly severe terms.

Isn't Corbyn going to stop QE to banks? Or are you referring to the existing QE?

Also if we're worrying about credit ratings and the like, if we borrow money and use it to build houses and renewable energy production/infrastructure then we have assets. Finance companies tend to like debts that are backed up with physical assets, much less of a risk to future refinancings of the debts, which will also be getting smaller over time as the revenues from the things we build pay off the debts we've created.

I agree with cynicaleconomy that we need to ask why we pay attention to the credit rating agencies that got it so wrong so recently, but I also don't think that a borrow and invest plan will fuck us up by making our debts too expensive.

I'm also not sure how much it matters with QE, where the treasury is borrowing from the BoE, can't the BoE set the rates and continue to refinance the debts over time? Do we even need to worry about credit rating agencies and financial markets?

 

[Diamond]

In the context of the thread, profitable behaviours would be those that serve the broader aims of the institution(s) in question - therefore "instrumental". How do they contrast with unprofitable behaviours? They don't yield a profit, and accrue no benefit to the institution(s).

Now, please impress me with your forensic knowledge of "the markets" while gainsaying what I've posted, while at the same time dripping condescension in that way you do so well. G-d loves a tryer.

"unprofitable behaviours" / "profitable behaviours" - are they not the same thing until one determines whether they have turned a profit?

What I am trying to get at here is that your language betrays your ignorance...

 

[ItWillNeverWork]

"unprofitable behaviours" / "profitable behaviours" - are they not the same thing until one determines whether they have turned a profit?

What I am trying to get at here is that your language betrays your ignorance...

Can you address my posts please?

 

[Diamond]

Like with Japan in the above graph, you mean? A country that invented QE. A country that has the largest public debt in the world?

Japan is the most stagnant advanced economy in the world and the market for its debt is unique, almost perverse.

To think that it is a model to aspire to is ridiculous.

 

[ItWillNeverWork]

Japan is the most stagnant advanced economy in the world and the market for its debt is unique, almost perverse.

To think that it is a model to aspire to is ridiculous.

I didn't say it was a model to aspire to. I gave it as evidence that your claim regarding the impact of debt and credit ratings is spurious.

 

[Diamond]

I didn't say it was a model to aspire to. I gave it as evidence that your claim regarding the impact of debt and credit ratings is spurious.

If our debt level approached Japan's, we would not merit the same credit rating.

 

[ItWillNeverWork]

If our debt level approached Japan's, we would not merit the same credit rating.

The debt level of a government is irrelevant. It is a symptom, not a cause of ill-health. If you fix the fundamentals of an economy then the finances will fix themselves. This is why investment in infrastructure, technology and manufacturing is so vital. You say we cannot do public investment because there isn't enough money, I say there isn't enough money because we don't do public investment.

 

[Diamond]

The debt level of a government is irrelevant. It is a symptom, not a cause of ill-health. If you fix the fundamentals of an economy then the finances will fix themselves. This is why investment in infrastructure, technology and manufacturing is so vital. You say we cannot do public investment because there isn't enough money, I say there isn't enough money because we don't do public investment.

The debt level of Japan is irrelevant to its economy?

Are you serious?

It's something well over 200% of GDP and repayments take up almost the majority of the budget...

 

[ItWillNeverWork]

The debt level of Japan is irrelevant to its economy?

Are you serious?

It's something well over 200% of GDP and repayments take up almost the majority of the budget...

I'm entirely serious. You are confusing correlation with causation. Japan's public debt is only high because the underlying health of the private sector is poor, and has been poor ever since the early 90s when its private debt bubble burst. Its public debt is a result of the problems in its economy, not a cause of them.

 

[Diamond]

I'm entirely serious. You are confusing correlation with causation. Japan's public debt is only high because the underlying health of the private sector is poor, and has been poor ever since the early 90s when its private debt bubble burst. Its public debt is a result of the problems in its economy, not a cause of them.

So its public debt has no bearing on the general economy?

Is that seriously what you are arguing?

 

[ItWillNeverWork]

So its public debt has no bearing on the general economy?

Is that seriously what you are arguing?

Yes. That is exactly what I am arguing.

 

[ska invita]

Paul Mason on money printing here, in China and beyond http://www.theguardian.com/commentisfree/2015/aug/16/china-labour-debate-currency-economic-crisis

lots there.....

in general
When interest rates approach zero – as they did in the slump that followed 2008 – you have to print money. This, too, all things being equal, will collapse the value of your currency some more and you get an even nicer accident: you steal some growth from anywhere that is not printing money. America and Britain did it first, in early 2009; Japan waded in massively in 2012 and the eurozone finally did it, in the teeth of German resistance, in January this year.

Economists have always feared that, once everybody starts printing money, reducing the effectiveness of the growth-stealing game, one player would break ranks and turn the “nice accident” of lower exchange rates into an overt policy. If that player is massive – like China – and has massive overcapacity of goods, services and labour, the impact would be to export stagnation to the rest of the world.

On top of that, once everybody is doing QE, the world’s ability to respond to crisis is reduced. What you ideally want, if another slowdown or bank crash or country bankruptcy happens, is for interest rates to be positive (so you can cut them again); and for government debts to be reduced – along with the debts of the private sector and households. But global debts now stand at $200tn – three times world GDP, interest rates are close to zero and, worryingly, inflation is closer to zero than 1% in most of Europe and the US, and at an eight-year low in China.

 

[ItWillNeverWork]

Interesting article by Bill Mitchell on why 'Peoples QE' is not really QE

Today, I want to discuss what appears to be a major economic policy proposal – the so-called People’s Quantitative Easing (or PQE). There are elements of a good idea in this proposal but the QE reference and the resulting language is all wrong, in that it betrays as lack of understanding of the difference between a monetary policy operation and a fiscal policy intervention. The concept should be re-framed so that a consistent narrative can be provided and that a good policy proposal gains the wings it needs. PQE is a wealth generating policy which is in contradistinction to QE which just shuffles wealth portfolios.

 

[Falcon]

Money proves surprisingly difficult to analyse - no-one really understands what happens when we create tokens that stand in for "wealth". But a fairly obvious principle is that the number of tokens in circulation at any time must remain in proportion to "wealth". So quantitive easing - creating more tokens - works when wealth is increasing. Creating tokens when it isn't has the effect of reducing the value of every other token in circulation.

Wealth is decreasing (a fact which virtually every conventional analysis overlooks). Which is why quantitive easing is a disaster.

 

[ItWillNeverWork]

Money proves surprisingly difficult to analyse - no-one really understands what happens when we create tokens that stand in for "wealth". But a fairly obvious principle is that the number of tokens in circulation at any time must remain in proportion to "wealth". So quantitive easing - creating more tokens - works when wealth is increasing. Creating tokens when it isn't has the effect of reducing the value of every other token in circulation.

Wealth is decreasing (a fact which virtually every conventional analysis overlooks). Which is why quantitive easing is a disaster.

What do you mean when you say wealth is decreasing? Like in ecological terms? When you say that QE is a disaster, do you mean that it isn't working as intended? Or that it is actually doing damage in some way?

 

[mauvais]

But a fairly obvious principle is that the number of tokens in circulation at any time must remain in proportion to "wealth". ... Wealth is decreasing (a fact which virtually every conventional analysis overlooks). Which is why quantitive easing is a disaster.

QE may or may not be a disastrous strategy, but what you describe is not the case, at least within some parameters. We live in a growth based economy, i.e. one contingent on constant growth. If you tread water then your wealth diminishes over time - just look at inflation. Therefore the number of tokens is always increasing. In theory it should be in exchange for something tangible, i.e. dig up some gold and you can print some more paper money, but we all know this is simplistic bollocks. If QE really does stimulate proper economic growth then wealth increases overall, to the extent that this means anything.

 

[mauvais]

Coming back to this:

Corbyn would be sensible to look at funding public works through bond issues. The City don't like it because they can't make big profits like they can through PFI, and the big consultancies hate it because...what's to be consulted about? Bond issues are relatively simple - fixed term investment with a fixed yield.

The banks don't like it because it means QE that inherently doesn't go direct into banks and largely stay there. The rest will still derive work out of it, probably more so.

FT Alphaville: Corbyn’s “People’s QE” could actually be a decent idea

Worth reading in its entirety, but quoting a small piece:

The existing monetary policy tools also have the unseemly property of appearing to work mainly by making the rich richer and hoping that some of the extra wealth gets spent. Even if it’s true that the rest of society benefits from this, because otherwise they’d be unemployed, this is trickle-down monetary policy. The Bank of England admitted that “in practice, the benefits from these wealth effects will accrue to those households holding most financial assets”.

Cutting out the middle men is the most obvious way to improve the transmission of central banker desires into economic reality. If policymakers want people to spend, they shouldn’t try to juice share and home prices, or fiddle about with borrowing costs at the margin, but actually give people money.

Our preferred approach would be direct deposits into household accounts offered at the central bank. It’s simple and doesn’t require any political debate about how best to spend the newly created money.

But Corbyn’s plan to have the Bank of England fund government-directed investment in infrastructure could also work, especially if the pace of investment were adjusted according to the condition of the economy. In fact, Adam Posen supported something similar when he was on the Monetary Policy Committee of the Bank of England, except that he focused on small businesses.

 

[Blagsta]

Issuing paper on a triple A credit rating, that the UK currently has, is an awful lot cheaper than issuing it on a lesser rating given the relative spreads.

This means that it is more expensive for a country like Greece to issue paper than the UK - i.e. to raise funds - because it is less credit worthy.

The credibility of a country's rating will always be contingent on its government. The idea that Corbyn can come into office and nationalise close on £200bn pounds of private assets, running a budget with a massive deficit as a result and also ask the BoE to engage in QE for the public sector as well as for the banking sector puts that rating at severe risk and once you start going down that route it is very difficult to climb back out because people will only lend to you on increasingly severe terms.

If that is true, doesn't it rather illustrate the incompatibility of capitalism and democracy?

 

[nino_savatte]

Right - this is nonsense on a lot of levels.

"profitable behaviours" - what are "unprofitable behaviours"?

Wrong end of the stick, as usual.

 

[ska invita]

BUMPING THIS THREAD

Economics still makes my head spin and Im still stumbling in the dark on it. However the issue of helicopter money and possible inflation resulting from it is firmly back on the agenda.
What Im trying to understand is the relationship between recession/depression/devaluing of currency and inflationary potential of helicopter money.
In a video posted here:

This vid show wave effect of markets, spring to winter, we are entering an ice age.
Its a bit like tv ad but it got some insights into bubbles.

about half way through it seems to suggest that under a particular circusmtance - one in which we are in? - central banks can magic money tree print money and it wont seemingly have an inflationary effect, as it will be balanced out by the deflationary trends in the economy, creating a net stasis (or near enough)

Thats my understanding of what was said anyway - is that right though? Does anyone here understand this dynamic with any confidence?

 

[BigTom]

I haven't watched the video, but I'm not sure it's about deflation exactly, although that's certainly correct.
The speed of circulation of money is at least as important as the actual amount of money in the economy.

A sharp crash like we would have without govt intervention would mean a massive slowdown in the speed of circulation of money, alongside a huge cut in demand for goods and (most importantly in terms of inflation), a sharp drop in the price people are willing to pay for anything except necessities. So you do have deflation but it's not just that on its own.

Put too simply, if people don't have money to spend, then the money doesn't circulate so quickly, without money circulating, there's no economy. If you print a load of money and give it to people to spend, they will spend it and that money will circulate, whilst other money either sits in bank accounts or is destroyed by the repayments of debt which is not matched by the creation of new credit since banks are not wanting to lend money out.

The money created will be created in the same way as the QE money was - in the form of debt from the treasury to the bank of england so once things are flowing again, that money can be destroyed, removing any inflationary issue from an increase in the amount of money in the economy.

 

[yield]

BUMPING THIS THREAD

Economics still makes my head spin and Im still stumbling in the dark on it. However the issue of helicopter money and possible inflation resulting from it is firmly back on the agenda.
What Im trying to understand is the relationship between recession/depression/devaluing of currency and inflationary potential of helicopter money.
In a video posted here:

about half way through it seems to suggest that under a particular circusmtance - one in which we are in? - central banks can magic money tree print money and it wont seemingly have an inflationary effect, as it will be balanced out by the deflationary trends in the economy, creating a net stasis (or near enough)

Thats my understanding of what was said anyway - is that right though? Does anyone here understand this dynamic with any confidence?

As BigTom said, the velocity of money is important when trying to determine inflation.

So, 30 minutes later. No idea what they mean by "Federal Reservce controls base money and can only influence influence interest rates / reserve balances"? Suspect they were both precious metal speculators previously.

There's a little bit of truth in the video. His father after demobilisation in the 1950s could buy a house in Oregon on a shop manager's wage. The 1% were relatively poorer from the 50s to the 80s.

The whole Demographics section doesn't once mention immigration? There's some sloppy pseudoscience and he's talking about The Kondratiev Wave? And East/West Cycles?

It's just a marketing and promotional video. I'm not convinced it has any value. Buy this book if you want to know more! The people who made money in the gold rush were those selling picks & shovels.

ska invita did you read the MMT article I posted a few days ago? The World According to Modern Monetary Theory

 

[ska invita]

As BigTom said, the velocity of money is important when trying to determine inflation.

So, 30 minutes later. No idea what they mean by "Federal Reservce controls base money and can only influence influence interest rates / reserve balances"? Suspect they were both precious metal speculators previously.

There's a little bit of truth in the video. His father after demobilisation in the 1950s could buy a house in Oregon on a shop manager's wage. The 1% were relatively poorer from the 50s to the 80s.

The whole Demographics section doesn't once mention immigration? There's some sloppy pseudoscience and he's talking about The Kondratiev Wave? And East/West Cycles?

It's just a marketing and promotional video. I'm not convinced it has any value. Buy this book if you want to know more! The people who made money in the gold rush were those selling picks & shovels.

ska invita did you read the MMT article I posted a few days ago? The World According to Modern Monetary Theory

No I missed that post of yours will have a look

And yes, that video is an Invest On Gold book sales pitch I think.

Still, you learn from what you can...

 

[Koknbul]

What with Jeremy Corbyn proposing "quantitative easing for people instead of banks", ( "one option would be for the Bank of England to be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects") what has the history of print and build been like across the world?

Danger of inflation must be the biggest concern....

Theres a little thing here from Robert Preston as to why even moderate use of this approach can have an inflationary impact
Would Corbyn's 'QE for people' float or sink Britain?
responded to here by Richard Murphy who is pro the policy
Robert Peston on People’s QE

Prestons conculsion is that "quantitative easing for people makes good economic sense only if you believe that a state investment bank would make viable investments that the private sector refuses to make."

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