Friday, 15 June 2018

More nonsense from Richard Murphy.

Richard Murphy keeps flipping between saying the state (i.e. governments plus their central banks) can create money and saying they can’t. Today in this short article he is in “can” mode….:-)

That’s good to see because most of us tumbled some time ago to the fact that the state can in fact create money at will (base money to be exact).

However there’s just one fly in the ointment.  He says “Quite simply quantitative easing is creating new bank deposits. As modern monetary theory suggests, money advanced creates what are, in effect, new savings, even if in this case they are reserves held by banks with the Bank of England.”

Well those two sentences are not entirely clear, but I’m 90% certain he’s saying that QE creates “new savings”. Well no it doesn’t: QE involves the central bank printing money and buying £X of government debt off the private sector. Thus the private sector loses approximately £X worth of government issued bonds and gains £X of cash. Where are the “new savings” there?

Of course it could be argued that those bonds now in the hands of the central bank are a form of savings. But quite honestly, is a debt owed by one arm of the state to another arm a form of saving? If I declare that my right hand pocket owes my left hand pocket one million, am I better off to the tune of one million? I think not.

Moreover having supported Modern Monetary Theory for the last ten years, and having read several hundred articles written by other MMTers, it’s news to me that MMTers adhere to Murphy’s strange idea that QE creates “new savings”.

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