tag:blogger.com,1999:blog-2277215496195926573.post8028850596822170427..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: How private bankers enslaved Canada.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2277215496195926573.post-83952802472387009322013-04-07T23:05:38.468-07:002013-04-07T23:05:38.468-07:00Hi Mike,
Assuming PM’s latest ideas are simply an...Hi Mike,<br /><br />Assuming PM’s latest ideas are simply an update on the ideas they’ve been proposing for the last two years or so – and it looks very much that way from the summary – I don’t see any big need for “credit guidance”. I.e. under full reserve, commercial banks would decide who to lend to in exactly the same way as they currently do.<br /><br />It’s certainly a popular view (shared by PM) that banks lend too much to property and not enough to industry. However, the idea that industry or small and medium size firms are much more productive than house building etc is very questionable because it’s well established that failure to repay loans is twice as common by industry and SMEs as compared to property. That fact is recognised in the Basel risk weightings.<br /><br />Also, full reserve automatically cuts down on property price bubbles like the one that preceded the recent crisis: under fractional reserve, commercial banks can lend more money into existence when the value of collateral is rising (e.g. property prices).<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-26581323445436475892013-04-07T05:48:06.273-07:002013-04-07T05:48:06.273-07:00Thanks for the HT Ralph!
Whatever we eventually...Thanks for the HT Ralph! <br /><br />Whatever we eventually do about money reform in the UK, we are still going to face the problem of how to "allocate credit" once it is created. Positive money in their <a href="http://www.positivemoney.org/wp-content/uploads/2013/04/The-Positive-Money-Proposal-2nd-April-2013.pdf" rel="nofollow">latest proposal</a> are being very cautious about the money creators not having any say in the way that credit is spent. <br /><br />They seem happy to leave it to the banks to decide who they lend to, as now. True the banks won't be able to create that credit, but it's still a problem if it's not going into productive investment.<br /><br />As Werner says <a href="http://www.greennewdealgroup.org/wp-content/uploads/2012/03/Green-QE-report-CBFSD-Policy-News-2012-No-1.pdf" rel="nofollow"> in his Green QE proposal</a> central banks have always made allocation decisions.<br /><br />Further, in his <a href="http://eprints.soton.ac.uk/342277/1/Werner_Soton_Towards_Stable_Banking_201011.pdf" rel="nofollow">Towards Stable and Competitive <br />Banking in the UK – Evidence for the ICB</a><br /><br />he makes a strong case for credit guidance, along German and Japanese lines. Admittedly, that paper goes a bit beyond the scope of the Positive Money proposal, but I do worry that Positive Money aren't going quite far enough.<br /><br />I presume that they are afraid that a too radical proposal will just be rejected out of hand, and that they have to find something which is broadly acceptable. I understand that. <br /><br />But if we are not very careful, we will end up with a half-way-house with a lot of the problems of the old system, and without all the benefit from monetary reform that we could obtain, if it were a little more daring.<br /><br />To be fair to Positive Money, their proposals, if accepted, should be a great step forward, and "credit guidance" could be added incrementally, as the new system began to settle down.<br /><br />Regards,<br />Mike Ellwood, aka Montmorency.montmorencyhttps://www.blogger.com/profile/12879422255762834319noreply@blogger.com