Blog Archives

Corporate-political alliance: “the British Establishment can be a thoroughly unpleasant bunch when cornered”

Steve Beauchampe writes – as the British establishment attempts to bludgeon Scottish voters into submission:

“Right now they feel cornered, horrified, terrified, panicking that the sureties of power and control that they have held for several centuries, and which they complacently expected to hold on to after the referendum on Scottish independence, might be less certain than they believed . . . several arms of government, supported by their pro-Unionist cheerleaders in the media, financial sector and business world, rapidly up the ante by threatening the Scots with all manner of grief if they dare to break with Britain”

A Sassenach conspiracy? Robert Peston reports:

“For what its worth, some bankers have seen the invisible hand of 10 Downing Street corralling these bankers to make announcements that have been embarrassing for Alex Salmond and those campaigning for independence.

” ‘There was someone in Number 10 trying to get the banks to co-ordinate on this’ a senior banker told me. But Downing Street says this isn’t true”.

scotland cartoon

    Defending oil and nuclear weapons via ‘Project Fear’?

Should UK government monetary policy be reordered? The American Monetary Institute conference takes British thinking a step further

At the recent AMI conference, Dr Michael Kumhof, deputy head of Research at the International Monetary Fund summarised his paper and the rapporteur commented:

 

One powerful conclusion of Dr. Kumhof’s study, is that the potential for inflation is much much smaller when money is created by the government instead of by the banks.  This confirms Professor Yamaguchi’s study of the HR 2990, which concluded that it pays off the national debt as it comes due, provides the funding for infrastructure (thereby solving the unemployment problem) and does so without inflation. People – this confirmation by the two different studies, is really dynamite!”

 

Like pouring oil on a seized engine

 

Robert Peston – according to the FT – and Sir Simon Jenkins have reported that Adair Turner’s private opinion is that Britain should consider whether debt should now be “monetised”, financed by blatantly printing money rather than buying bank bonds in order to boost demand. Turner points out that actually printing money would involve “no increase in government debt and therefore no increase in future debt servicing”.

 

Jenkins: “At very least, this should be discussed”

 

The FT comments: “We need to ask ourselves why governments finance their deficits through the issuance of bonds in the first place, rather than just asking the central bank to print money, which would not add to public debt”.

 

Ultimately, the answer is the fear of inflation

 

FT journalist Gavyn Davies explains that, at present, by selling bonds to cover the deficit, private savings are absorbed, leaving less for private investment and reducing private expenditure today – a combination of factors which he calls the “restraining effect” of bond sales.

If the government did not sell bonds to finance the budget deficit, but asked the central bank to print money instead, private savings would not be absorbed, there would be no tendency for interest rates to rise, and no expected burden of future taxation . . . He concludes that in such a case:

The restraining effect does not apply. Obviously, for any given budget deficit, this is likely to be much more expansionary (and potentially inflationary) than bond finance.

 

But would not the private surplus become `effective demand` for goods and services, stimulating production and increasing growth?

 

To read more about the AMI conference click here.