Wednesday, 13 November 2013

Positive Money’s latest publication.

I like it. Although I’ve only skimmed thru it. It’s jargon free and waffle free: i.e. it’s written in plain English.
The authors advocate the combination of fiscal and monetary policy: i.e. they claim that come a recession, the government / central bank machine should create new money and spend it into the economy (and/or cut taxes). Incidentally, that has been PM policy for some years now.
They are well aware that the latter idea is not new: i.e. that there are numerous historical examples of the idea being put into effect. And some of the historical examples were new to me.
They get the point that central banks have been forced into bizarre forms of monetary stimulus like QE because of a refusal by politicians to countenance enough fiscal stimulus (i.e. large enough deficits). And apart from QE, in the UK we’ve been the lucky(?) recipients of other bizarre forms of monetary policy: e.g. Funding for Lending, and Help to Buy.
On the downside, I didn’t agree with the idea that governments should allocate new money to SPECIFIC types of spending (they advocate house building amongst other things). The problem there is that, as the authors rightly point out, new money is a form of stimulus and the amount of stimulus needed varies hugely from one year to another. Thus if new money / stimulus is allocated to SPECIFIC sectors of the economy, the amount spent on those sectors will gyrate from one year to the next.
And there’s an additional problem with housing. What happens when a series of houses are half built and it’s decided that stimulus is no longer warranted? Hundreds of building sites close down, and houses are left half-built? That doesn’t sound like an efficient allocation of resources.
Anyway, at least eight out of ten to the authors. I’ll read this publication right thru rather than simply skimming thru it at some stage.

P.S. (15th Nov): Re central banks being forced into “bizarre forms of stimulus” the new head of the Fed made a very similar point recently.


  1. Thanks for publicizing this document. Yes, it’s a good read, though a bit long.
    It makes a strong case for much more active FISCAL policy, so the document extremely welcome.

    However, the new phrase “Sovereign Money Creation” (SMC) is deceptive.
    Hell, do we need yet more jargon in economics?
    The author explains very well that government spending financed by “printing” money is an old and effective idea. Yet this what SMC is. So why the new term?

    The only new idea that I can see is that the author proposes a new type of gilt (government bond), namely ‘perpetual zero-coupon consols’. These would be interest-free and have no maturity dates!
    He proposes that these would replace conventional gilts in the internal accounting of the government sector when the treasury wants extra reserves for spending on public works etc.
    It seems that the author mistakenly thinks that this would avoid increasing the national debt.

    However, this is a pointlessless solution to a non-problem.
    Printing money to finance government spending does NOT increase the overall public sector debt.

    Neither conventional gilts nor SMC consols issued by the Treasury to the CB have any effect on the national debt owed to non-Government agents by the government sector as a whole (Treasury and Central bank consolidated).

    If I write an IOU note, put it in my left pocket and transfer $5 to my right pocket, this has zero effect on the overall indebtedness of me or my pants.
    Similarly, the transfer of paper assets/liabilities between the Treasury and CB do not affect the national debt owed outside the public sector.


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