Friday, 1 November 2013
Financial Times Watch. No.1.
This is a new feature of this inspiring (?) blog: comments on FT articles.
Oct 30: Martin Wolf has doubts about Mark Carney’s new fit of generosity towards commercial banks. Nice to see Wolf agreeing with my take on the subject.
There’s just one sentence in Wolf’s article that might be been phrased better. In reference to commercial banks in trouble, said, “The Victorian commentator Walter Bagehot thought central bank lending at a penalty rate would curb the danger.”
Actually Walter Bagehot didn’t think much of central banks lending to commercial banks in trouble. That is, he thought it better for commercial banks to have decent reserves and capital, and then being allowed to fail once those reserves and capital were exhausted. But by the time Bagehot wrote his book “Lombard Street”, the above bailouts or loans by the Bank of England was so well established, that Bagehot didn’t think it worth the effort to try to abolish that system. (See first few paragraphs of the conclusion of “Lombard Street”).
So if you see Carney trying to justify his policy by reference to Bagehot, take that with a pinch of salt.
Samuel Brittan, the closet MMTer?
Brittan is spot on when he argues in this article that the reason governments have implemented quantitative easing, is that QE is allegedly or hopefully a way of effecting stimulus that doesn’t involve increasing the dreaded deficit and national debt (as I pointed out in July.)
In his final paragraph, he argues for a combination of fiscal and monetary stimulus and then says the reason that has not been implemented is because of the “mistaken analogy between household and government budgets”.
Spot on: George Osborne, the UK’s finance minister, like the economic illiterates in Treasuries round the world (and in the IMF and OECD) think that national debts (macroeconomics) can be likened to household debts (microeconomics).