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COVID-19 bulletin 15: Prof. Huber on emergency payouts (helicopter money) and monetary financing

The COVID pandemic has revived the debate on helicopter money. This post presents some of the points made by Professor Joseph Huber (right) in his recent paper, ‘Monetary Financing of Helicopter Money’ which may be read here.

In the after­math of the 2008/12 crisis Adair Turner, last chairman of the UK Financial Services Authority relaunched the idea of direct monetary financing.

The central-bank money thus issued for government spending was soon dubbed ‘helicopter money’, a derogatory metaphor used by economist Milton Friedman in 1969; he  thought that helicopter money would simply raise price levels, not productivity and wealth.

But in a severe recession or crisis, extra government spending to prop up the economy has been a policy tool for decades, even if not openly funded by the central bank.

In contrast to what is generally assumed, monetary financing is not unheard-of. In a way it was common practice at all times, but in the latter half of the 19th century, the central banks underwent a role change. They turned from ‘bank of the state’ to ‘bank of the banks’, primarily or even exclusively supplying the banks with notes and account balances. This role change was advanced under the influence of neoliberalism in banking and finance and monetary financing became taboo.

A core doctrine of neoliberalism, which became ultraliberalism since around 1980, was: ‘Restrict or prohibit money creation by the government as well as money creation by the central bank for the government. Money shall primarily be created by the private banking sector. The role of the central banks is to refinance the banks, not financing government expenditure which must be funded by taxes and sovereign debt’.

However, contrary to what is claimed, ‘money printing’ continued to be practised more extensively than ever. In place of the treasuries it was the banking sector which made reckless use of the ‘printing press’ in the form of creating bankmoney on account.

Sovereign debt became an important profitable investment opportunity for banks, investment trusts, wealth funds and insurers. The treasuries issued bonds, the central banks bought them on the open market from banks and other financial institutions.

This kind of monetary and financial system has now definitely manoeuvred itself into a dead end. A better balanced and functionally more sensible role needs to be developed regarding the sovereign control of the currency and money creation and the division of powers between monetary competences, budgetary-fiscal responsibilities and financial-market functions.

In a crisis such as the subprime and debt crises of 2008/12 and the current covid-19 crisis, temporary and limited helicopter money is an effective measure. Monetary financing of QE for the real economy is certainly preferable to the previous policies of QE just for finance which flooded the banks with unprecedented amounts of central-bank reserves.

The sensible way to get the money out into general economic circulation, is by issuing the money in the form of central bank digital currency (CBDC) to be used by everyone. This is now on the agenda. The special type of money in which CBDC will be issued is not definite yet (deposit money or crypto tokens or mobile-phone tokens; accessed directly or indirectly), but issuance of CBDC is only a matter of time and of the particular design principles of implementing CBDC in coexistence with bankmoney.

In the UK the law does not prevent the Bank of England (BoE) from monetary financing. After long years of hesitation, the covid-19 pandemic has now prompted the BoE to raise the ways-and-means facility for the government from 0.37 to 20 billion pounds and to act as a primary dealer of newly issued British gilts if need be. adding to the money supply according to well-defined monetary-policy criteria, giving to the state what is of the state

Finally, CBDC can and ought to be created free of debt. A plan devised to that end was conceived of by David Ricardo in his 1824 Plan for the Establishment of a National Bank. Ricardo was the most prominent representative of the Currency School, opposing the Banking School of the time. According to his concept, the Bank of England was subdivided into an issue department, responsible for the note issue, and a banking department, concerned with the central bank’s banking operations. The separation of the note issue from the banking operations exists to the present day, although it never gained too much importance because of its inconsistent implementation, notably, leaving the notes of the country banks and, more importantly, bank deposit money untouched outside the arrangement.

The approach can be implemented in an up-to-date way by separating a money-creating currency register from the balance sheet of a central bank’s operational banking activities. The currency register would create the additions to sovereign money (solid cash as long as it exists, reserves or CBDC, the latter possibly of not just one type). The register would issue the money either into the central-bank balance sheet as a non interest-bearing but callable assignment for financial uses, or transferred to the treasury as genuine seigniorage.

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The three issues addressed in this paper – CBDC, genuine seigniorage (omitted in this summary), money tokens beyond debt – are likely to be too much to handle all at once. They do not necessarily include one another, but build well on each other. They would make monetary financing of helicopter money, which today appears to be an extraordinary thing, an ordinary integral part of the money system.

This opens up the perspective of a change in the current crisis-ridden bankmoney regime towards a money system eventually dominated by sovereign money. This too would certainly not be heaven on earth, but, if run competently, it would be free from the kind of monetary non-safety and financial instability we know today.

 

 

 

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Jeremy Corbyn has made a genuinely socialist party electable for the first time in our living memory

The last thing we need at this critical time is sniping at the leadership from the left!

With a general election possibly on the horizon, the Establishment propaganda assault on Jeremy has already started. Odious right-wing propaganda sheets have been noticeably upping their anti-Corbyn smear-ridden stories over recent days and weeks. The last thing we need at this critical time is sniping at the leadership from the left!

Over the months we have repeatedly witnessed Jeremy’s extraordinary will and courage being tested in the most extreme of ways — and we are hard-pressed to think of any present-day politician who would have been able to withstand the ferocious onslaught that the Establishment has unloaded on to him — and continues to, as we write.

Let’s be clear: Jeremy would be the first to admit — I’m sure with characteristic modesty — that he’s not a perfect party leader

But the very idea of a “perfect” leader always was a fiction and every mortal human being will have weaknesses.

This allegedly “weak” leader has inspired a huge, unprecedented surge of new party members (who else could conceivably have brought hundreds of thousands of new members into the party? — Chuka Umunna; Dan Jarvis; David Miliband?); forced embarrassing U-turns from an arrogant, uncaring government; shifted the political centre of gravity in Britain significantly to the progressive left; brought morality, fairness and peace into previously moribund political narratives; performed very well in local elections before the putsch last summer by the Parliamentary Labour Party (PLP) elite; has consistently out-performed Theresa May at Prime Minister’s Questions in recent weeks; has had the courage to take a nuanced, thoughtful view of Brexit — rather than adopting a tabloid-esque, grandstanding “pro” or “anti” position — and has remained dignified and calm in the face of daily vituperative attacks from the media, the entire Establishment and even his own party.

Rather than using any weaknesses Jeremy might have to criticise him from the left, everyone around him should be doing everything possible to complement the brilliant and unique qualities that he does possess.

He has been bullied, betrayed and ridiculed, and yet he carries on with the same grace and care he always shows to others — however objectionable their behaviour and treatment of him might be. The genuinely warm send-off Jeremy recently gave to resigner and serial Corbyn-critic Tristram Hunt is a case in point.

We also know no other politician in this country who possesses the maturity and dignity to have walked out of the unprecedented PLP meeting of June 27 last year with all its scarcely believable bully-boy nastiness directed viciously at him and to immediately urge his many thousands of supporters in Parliament Square to act respectfully, even to those we disagree with.

In the months and years to come, it is our strong conviction that it will increasingly dawn on more and more people that in Jeremy we’re looking at a deeply powerful and courageous human being.

No other Labour leader would have had the strength to withstand the relentless assault that Jeremy has had to endure from all quarters since he became party leader. Nobody else in the PLP could have rescued the Labour Party from the jaws of neoliberalism as Jeremy has; and his proud place in our class’s history is already assured for having made a genuinely socialist party electable for the first time in our living memory.

This post interlards a letter by Richard House with paragraphs – purple font – from an article by Richard and Skeena Rathor

 

 

 

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Who is driving the Financial Times to desperation – Corbyn, or vested interests?

As condemnation mounts, more people rally to support Jeremy Corbyn. Very slow to rouse, has the need for a wholesale rescue finally taken hold of British hearts and minds? Will this movement grow and prosper, resurrecting what has been called ‘the Dunkirk spirit’ (Macmillan) in the face of a government dominated by wealthy interests?

jeremy corbynFT View, which never names its author, felt the need to open its article with a savage caricature of Jeremy Corbyn. It was decided not to reproduce it, but stay with the reality (right).

The title given: ‘Jeremy Corbyn means trouble, and not just for UK’s Labour party‘.

Subtitle: ‘Victory for the radical would cause problems for Britain’s body politic’.

But Britain’s corporate ruled body politic is already in deep trouble

broken britain 3 mps bankersOne comment on the article describes the country asa country where the gross distortions of hot and corrupt money and the encouragement of it by successive governments have led to a sense of despondency in voters”.

As FT View says, the young idealists and trade union members who support Corbyn “aim for a full-throated protest movement against fiscal austerity and “neoliberalism”. They are redefining the purpose of politics”. Not before time. Another comment:

“The sheer lack of humanity and care for the most vulnerable of people has finally lit a touchpaper in the country.  Good”.

The FT continues: “Even if Mr Corbyn narrowly loses out to Yvette Cooper, the leadership rival who finally spoke out against him on Thursday, the sheer scale of his following would drag her to the left”. . .

And provide a real opposition, then a government serving its electorate, after years of plutocracy?

Mr Corbyn’s decent constructive economic policies are dismissed as “quaint” – shareholders in privatised postal services, transport and utilities no doubt would use stronger language. His outlook on foreign policy is deemed “troubling” – especially to the arms industry.

The next comment sets FT View right:

JC ft comment

But the FT View writer ends: “Folly upon folly has brought a grand political party to this predicament, from which it is not certain to recover. That would be bad enough. The potential harm to the rest of British public life is just as worrying”. Yes . . .the signs are that many more might ‘worryingly’ start taking a real interest in politics and become immune to media brainwashing.

99%-3

A true socialist government would care for the 99%.

 Britain might even become honest, compassionate, egalitarian and respected.

 

Monbiot focusses on Neoliberalism: the justification of a global grab of power, public assets and natural resources by an unrestrained elite

Lord Stern has described climate change as “the greatest and widest-ranging market failure ever seen”

George Monbiot continues:

“In return for 150 years of explosive consumption, much of which does nothing to advance human welfare, we are atomising the natural world and the human systems that depend on it. “The world is in the grip of Neoliberalism, an extreme political doctrine, whose tenets forbid the kind of intervention required to arrest it and appears to be little more than a justification for plutocracy, the ideology used, often retrospectively, to justify a global grab of power, public assets and natural resources by an unrestrained elite.

 

 

“The doctrine was first applied in Chile in 1973. The result was an economic catastrophe, but one in which the rich – who took over Chile’s privatised industries and unprotected natural resources – prospered exceedingly. The creed was taken up by Margaret Thatcher and Ronald Reagan. It was forced upon the poor world by the IMF and the World Bank. By the time James Hansen presented the first detailed attempt to model future temperature rises to the US Senate in 1988(3), the doctrine was being implanted everywhere”.

Those on the PCU mailing list will agree with him that “Neoliberalism protects the interests of the elite against all comers” but most will not side with his decision to support the expansion of the nuclear power industry.

As he says, we should ‘abandon the four-fifths or more of fossil fuel reserves that we cannot afford to burn’ – we add, for more than one season. And many will agree that:

“The struggle against all the crises besetting us cannot be addressed until the doctrine is challenged by effective political alternatives”.

To this end a democratic mobilisation against plutocracy is getting under way:

 Chilean student outriders: ‘Our future is not for sale’

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  •  this should start with an effort to reform campaign finance: the means by which corporations and the very rich buy policies and politicians;
  • a petition will be launched later this month.
Monbiot advocates a new politics – a more fiery version of the Green Party Manifesto?
  • one that sees intervention as legitimate,
  • that contains a higher purpose than corporate emancipation disguised as market freedom,
  • that puts the survival of people and the living world above the survival of a few favoured industries.

 

 Read the article here, or the fully referenced version at Monbiot.com

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