Friday, 9 May 2014
Fractional reservers contradict themselves.
I do like the way the advocates of fractional reserve banking contradict themselves on the subject of having a committee of economists decide the amount of central bank money to be created and spent (as advocated by many full reservers). Examples of these “self contradictors” include Ann Pettifor. As she puts it, “…the idea that society can set up a single “independent” committee of men to make far-reaching decisions about the quantity of money needed by a nation of sixty four million people, all engaged in varied and complex activities – is bordering on authoritarian.”
Another self-contradictor is Neil Wilson.
Now fractional reservers are happy enough for government and central bank (GCB) to implement stimulus when needed: e.g. cut interest rates, implement QE or implement fiscal stimulus. And who decides when and how much of that stimulus to implement? Well when it comes to interest rate adjustments and QE it’s one of those allegedly awful committees of economists: the Bank of England Monetary Policy Committee in the case of the UK to be exact.
Of course everyone has their own ideas as to which of the above three (or other) methods of imparting stimulus is best. And full reservers, like everyone else, have views on that. But that apart, when the BoE MPC decides to impart stimulus, the silence from full reservers is deafening. Which is strange.
As to fiscal stimulus (i.e. having government borrow and spend and/or cut taxes), it’s true that politicians have more say there. But even there, there’s been a move in recent years to have even that decision taken by one of those dreadul committees: e.g. the Office for Budget Responsibility in the UK. But again, the silence from full reservers is deafening.
Even more hilarious is the fact that over the last three years or so we’ve implemented fiscal stimulus and followed that by QE. And what d’yer know: that comes to EXACTLY THE SAME THING as the “print and spend or cut taxes” policy advocated by full reservers. So fractional reservers both do and don’t approve of the latter print policy: apparently it depends who does it (if I’ve fathomed what’s going on in their muddled minds).
Politics and economics.
Another point where fractional reservers are muddled (e.g. see link to Wilson above) is that some of them think that when a committee of economists under full reserve decide how much central bank money to print and spend, that necessarily involves also taking POLITICAL DECISIONS, like what to spend the extra money on.
Now this may be news for fractional reservers, but the Bank of England has never told the government of the day how much to spend on health, education or anything else. But at the same time, the BoE takes decisions on stimulus (and same goes for other central banks). Now fractional reservers will be baffled by that: apparently a central bank can decide to increase aggregate spending for the economy as a whole without specifying what the extra money is spent on.
Most people aren’t baffled by the one. But fractional reservers are flummoxed, so it seems.
So let’s spell that out in bold red letters for the benefit of fractional reservers:
The decision to raise aggregate demand can easily be separated from the decision as to what that extra money is spent on. Those two decisions are separate under the existing system, and they would remain separate under full reserve banking. Moreover, Positive Money (one of the advocates of full reserve) is VERY SPECIFIC on the point that those two decisions should remain separate.
Hope that’s clear.