Thursday, 11 June 2015
Richard Murphy tries to criticise Positive Money – sigh.
Murphy gets off to a great start in this article when he says “with the exception of notes and coins all money is created by lending”. Whaaat?
He has left out bank reserves, or if you like, QE. QE consists of the central bank (CB) printing money and buying up privately held assets. That money comes NEITHER from lending by private banks, nor does it come in the form of notes and coins.
And that particular tranche of money is MASSIVE just at the moment. Admittedly in normal times bank reserves are not so large as they are right now. But they are still there and always have been.
And if you want to know why no one pointed to that glaring error in the comments after Murphy’s article, the reason is that Richard Murphy tends not to publish comments that are critical of his articles (not that he’s the only blogger guilty of that deception). I.e. if it’s an open, free and fair debate you want, i.e. free speech, then my advice is to skip Murphy’s blog.
Are bank reserves part of the money supply?
An argument sometimes put against the latter bank reserves point is that bank reserves are not “money out there in the economy”. Thus they don’t count as money. Well that point doesn’t hold water and for the following reasons.
When the CB prints money and buys a private asset (as part of a QE operation or for any other reason), the CB sends a cheque to the seller of the asset for $X, who deposits the cheque at their commercial bank, which in turn passes the cheque to the CB, and demands that the commercial bank’s account at the CB is credited. Incidentally my assumption that a CHEQUE is used may be old fashioned, but if more up to date electronic methods of transferring money are used, it comes to the same thing.
So the net result is that the commercial bank’s reserves rise by $X which if you like is not “money out there in the economy”. But also, the asset seller’s account at the commercial bank is credited with $X, and that very definitely IS “money out there”. Net result: when the central bank prints money and buys government debt, the result is a rise in “money out there in the economy”.
The only exception to that comes where the relevant government debt is owned OUTRIGHT by commercial banks. But that’s a small proportion of government debt.
Banks as we know them cease to exist?
Murphy’s next criticism of PM (para starting “This suggestion on my part..”) is that under PM proposals, banks as we know them cease to exist, thus PM proposals must be wrong.
Well the answer to that is that it’s stark staring obvious to everyone (apart from banksters, politicians in the pay of banksters and Richard Murphy) that there’s something very wrong with the banking system, which in turn means some pretty drastic changes might be in order. And if that means changing banks out of all recognition, then what of it?
Not to put too fine a point on it, if there’s something seriously wrong with a system, then changing the system out of all recognition is quite possibly a good idea.
Stimulus is negated by tax?
Next, there’s a paragraph starting “I admit that I have..”. Here Murphy makes the bizarre and very obvious point that if the state prints and spends new money into the economy and then withdraws that money via tax there is little or no net effect. Well that’s pretty obvious.
But PM does not advocate implementing stimulus (by printing and spending new money) and then immediately cancelling that stimulus via extra tax!! To do that would obviously be futile.
Where stimulus is needed, PM advocates creating new money and spending it. Period. Full stop. Finito. Hope I’ve made my point.
I can’t be bothered dealing with any more of Richard Murphy’s points. He clearly has no grasp of this subject.