quantitative easing « Labour Uncut

Posts Tagged ‘quantitative easing’

Jack Lesgrin’s week: Turns out there is a Magic Money Tree

02/06/2021, 08:49:54 AM

by Jack Lesgrin

Back during Theresa May’s ill-fated 2017 general election campaign, she told a nurse who had complained about low wages that “there isn’t a magic money tree that we can shake that suddenly provides for everything that people want.” Standard fare of political and economic discourse, you might think.

Yet listening to BBC economics correspondent Andy Verity’s Today Programme news item last Tuesday helped those of us who have been trying to locate the ephemeral Magic Money Tree. Regarding recent government financial figures, he noted that while “borrowing £300 billion may sound a frightening number”, this is a much smaller amount than the figures for both world wars, and smaller than the Office for Budget Responsibility predicted last November. But the killer line was the last one of the report: “…and almost all the money borrowed is owed to the Bank of England, which created the money to purchase that debt from nothing.”

It seems the government borrowed money from itself (in the quasi-independent form of the Bank of England) to spend during a crisis, and now owes itself this sum. It begs the question why must the government owe itself money and therefore, presumably, go through the painful process of either cutting expenditure or raising taxes to repay itself this money?

(more…)

Posted in Grassroots | 19 Comments »

We need economic policies for 2020. Not 2008

02/09/2015, 07:42:03 PM

by Michael Pavey

The story of the last Parliament was the Tory-led government crushing a nascent economic recovery and condemning the country to five years of misery through austerity – but successfully convincing the public that it was all Labour’s fault.

In no small part this is because immediately after the 2010 election, Labour indulged in a prolonged and self-absorbed leadership contest. Instead of defending our economic legacy, we bickered amongst ourselves and allowed the Tories to badge us as spendthrift deficit-deniers who caused the financial crash. We never shook off the damage of those early months.

Now we are making exactly the same mistake. Instead of developing persuasive economic policies which people understand and relate to, we are focusing on the fantasy that is Corbynomics. I have absolutely no problem with Jeremy Corbyn – but Corbynomics is the polar opposite of what we need. Not because it’s scary and left-wing, but because it will have less and less relevance to people’s lives as the next general election approaches.

The cornerstone of Corbynomics, “Quantitative Easing for the people”, is a triumph of hindsight over commonsense. It’s what we should have done in 2008. But the unique circumstances which created that moment no longer apply. When the whole financial system stood on the brink of meltdown, we should have set a much broader definition of the public good than simply protecting current accounts to keep ATMs flowing. At the same time as saving the banks, we should have had a strategy which also protected jobs, livelihoods and public services from the impact of a prolonged recession.

But to say we should have done this in 2008 doesn’t mean it’s the right thing to do now. 2008 was a unique moment, both economically and politically. An unprecedented meltdown triggered an equally unprecedented clamour for political intervention. Hindsight shows that the steps taken were far from perfect, but this was a time of genuine fear when no-one knew what was happening – so Gordon Brown deserves full credit for averting something far worse.

(more…)

Posted in Grassroots | 11 Comments »

We need to make better use of Quantitative Easing

10/05/2013, 07:30:48 AM

by Dan McCurry

George Osborne’s nanny state policy responses are failing our banks and perverting our markets. In the midst of the political rhetoric on welfare and debt, there is one economic policy that the chancellor has implemented which has a genuinely significant impact: Quantitative Easing (QE).

This has had a profound impact on the economy.

The normal way for the money to be supplied into the economy is for banks to provide loans. If ten £1k loans are made for every deposit of £1k, then £9k of new money has been put into circulation. The banks are liable for it if it isn’t paid back, so they have become expert at judging risk. The supply of money makes a good demonstration of the private sector achieving a public good, normally.

The problem is that lending is too slow. As a result there is a lack of new money going into the economy but people are continuing to repay the loans they previously took out. The net effect is less and less money in the economy. If money is the oil on the cogs, then without it, the machinery will grind to a halt.

As a policy response, we’ve had QE. The Bank of England is creating money on a grand scale. Under Quantitative Easing they have so far produced an extra £375billion. In this respect it is the largest nationalisation of private sector service since the 1945 Labour government. I wonder if George Osborne realises that.

For a long time the banks have been receiving contradictory instructions from government. They must lend more, but they must increase their capital reserves. It’s like telling a schoolboy to spend his pocket money then scolding him for not saving it.

As a result, innovative policies are not only proving expensive but also potentially counter-productive. The government driven Funding for Lending Scheme (FLS) aims to subsidise bank lending for small businesses.

It is bad economics. It has lowered the interest paid to savers, but achieved little increase to the loans given to small businesses. With the state competing with savers, the banks no longer need to attract deposits as they have cheaper source with government cash.

(more…)

Posted in Uncut | 3 Comments »

Today Ed Miliband started to re-frame the economic debate

14/02/2013, 05:22:58 PM

by Dan McCurry

Thank god Ed Miliband has finally got a handle on our economic offer. Today he laid out a new narrative built around a “living standards” message with some good policy detail in the 10p tax pledge. He previewed the new approach at PMQs on Wednesday where he said that come the 2015 election, people will be asking “Am I better off now than I was 5 years ago?”

It’s about time, we really need this new, sharper approach.

On Tuesday night, I was speaking at an event by Pragmatic Radicalism where a number of people presented ideas for Labour economic policy and the audience voted for their favourite. My pitch was this:

“Even though we are right and they are wrong, we acknowledge that the Conservative party have a far more coherent economic policy than Labour. I believe that an economic policy of massive intervention, with massive stimulus, through massive infrastructure spending, should be presented with massive confidence by a leadership who will then stand their ground and defend their policy.”

Whenever I get up to speak at these kinds of events, I naturally imagine that my thoughts will be received with the kind of rapturous joy they deserve. Ahead of this event, my fantasy included the image of Amanda Ramsay in full Grecian toga, sprinkling rose petals in my path, as I stepped down from the podium to a roar of applause.

In fact my pitch provoked the question, “how will we afford it?” I had to patiently explain to these ignoramus’ that the £400 billion of quantitative easing was wasted on government bonds when it could have been spent of building schools and hospitals. We should be campaigning that future QE be spent on tangible investments in the real economy rather than delivered as helicopter cash to the banks and pension funds.

This policy response is difficult because people don’t understand where money comes from. Conversely, the Tory policy response is simple. Reduce the debt.

(more…)

Posted in Uncut | 16 Comments »

A gift from Alastair to George

13/11/2012, 07:00:00 AM

by Dan McCurry

The funniest line of George Osborne’s letter to Mervyn King begins with the words, “As you are aware, my predecessor agreed…”

The predecessor is Alistair Darling and the letter concerns the £35 billion of interest payments, or coupons, that would have been paid on the gilts bought up by the Bank of England, under the policy of quantitative easing (QE).

The agreement struck by the Labour chancellor, is that the treasury would not make coupon payments on the gilts, since it would be pointless for the treasury to pay interest to the Bank of England (the state to pay the state).

The reason the letter is amusing is that Osborne won an election on the promise to reduce the deficit at spectacular speed, but has spectacularly failed to do so. However, he has done a good job of blaming his predecessor for his own failure. In this letter he has been forced to admit that his predecessor has delivered a £35 billion gift to the public purse.

All this means that George Osborne must be tremendously happy. You can picture him getting out the bunting in number 11 Downing street. He’s probably kissing a photo of Alistair Darling at this very moment. There must be a proper spring in his step.

All of his efforts to remove Britain’s debt mountain have failed, but then this one policy of Alistair Darling has delivered a massive contribution to the effort.

In all, one third of the UK’s total debt has been bought up by QE. I can only presume that George will immediately take the air waves to thank the previous administration for their brilliant policy.

Without inflationary pressures, the Bank of England can sit on the gilts in perpetuity. This means that next year and the year after, the Treasury will receive a further £35bn in gifts.

The inflationary pressure expected by the policy has been marginal. Paul Krugman explains this by pointing to the lack of demand in the economy. Few workers are demanding higher wages at present. They are mostly just clinging onto the jobs they’ve got. Shopkeepers aren’t seeing the shelves empty at such a rate that they wish to increase their prices.

It may be that once growth returns there will be too much money swirling around the economy. If that were the case, then inflation would be a prospect. The bank would respond by returning the gilts to the market and the treasury would resume making coupon payments. If that were the case, then the benefit would have been temporary, but much appreciated none the less.

However, the people who do sums on this type of thing tell us that there isn’t too much money in the economy. If they are right then there will be no inflationary pressures once growth returns. At that point, if he wanted to, the Bank of England governor could strike a line through a number on a ledger, and the gilts would no longer exist. More likely he would simply allow them to expire, according to their stated lifetime.

All of this must be music to the ears of George Osborne. You can imagine him, with the prime minister and his cabinet mates, drinking a toast to Alistair Darling and sharing a warm glow of affection towards the Labour party.

We feel a warm glow back. Good luck, George. This one’s on us. We look forward to seeing you thank us publicly.

Dan McCurry is a Labour activist whose photographic and film blog is here.

Posted in Grassroots | 1 Comment »