Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Thursday, 26 March 2015
The Canadian “Committee for Monetary and Economic Reform” lawsuit.
CMER is taking legal action with a view to forcing Canada’s central bank, the Bank of Canada, to revert to one of its founding principles which was to provide government with interest free loans. CMER has my full backing.
Far as I can see, the latter interest free loans come to much the same thing as the combined monetary and fiscal policy system advocated by Positive Money. That consists of having the central bank supply government with money (which government can spend any way it likes) when the central bank thinks inflation and unemployment justify extra demand.
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What is the advantage of an "interest free loan" when the Central Bank has no money to loan (it must all be printed)?
ReplyDeleteAnd what is the advantage of an "interest free loan" when all Central Bank profits are returned to Government?
Roger, Re your 1st para, there is no difference between an interest free loan and a gift (assuming the "loan" is never repaid). And you're correct: it is "printed".
ReplyDeleteAs to the advantage of that, assuming stimulus is required, I'm baffled as to what the point of government borrowing is: i.e. what on Earth is the point of borrowing money if you can print the stuff? Moreover, borrowing has an "anti-stimulatory" effect: the opposite of the intended effect. Borrowing to fund stimulus is a bit like throwing dirt over your car before washing it.
Re your 2nd para, central bank profits are remitted to governments regardless of whether they make interest free loans or not, thus your 2nd para rather implies that ALL central bank activity is pointless. Put another way, the choice is between the EXISTING system, which involves (pointless) government borrowing, and second, simply having the state print money and spend it when needed. The latter strikes me as simpler and more certain to work.