Firstly, we need to take the power to create money away from the banks and return it to a democratic, accountable and transparent process.
History has shown that when banks have the power to create money, they create too much in the good times, causing financial crises, and too little in the bad times, making recessions and unemployment even worse.
They put most of the money that they create into house price bubbles and financial speculation, and only a small amount into businesses outside the financial sector. We simply don’t think that we can trust banks, who are hardwired to chase short-term profits, with something as powerful as the ability to create money.
And it’s not enough to regulate them; regulators have repeatedly failed to keep banks under control. There’s no reason why they should get it right this time around.
But we can’t trust politicians with the keys to the printing press any more than we can trust the big banks.
Instead, we need a new committee that decides whether and when to create new money.
This committee would need to be accountable to Parliament and sheltered from vested interests.
They would ensure the right amount of money is created – not enough to cause bubbles and a financial crisis, but not so little that it causes a recession.
Positive Money
See also the AMI-Kuchinch bill, HR2990, Sec. 302, ESTABLISHMENT OF THE UNITED STATES MONETARY AUTHORITY, Sec. 302, Establishment Of The United States Monetary Authority
14 comments:
Here is the long range solution the fixes most of the problems with the economy and includes the positive money solution.
https://www.readability.com/articles/s0s2ounz
While I like and appreciate our cousins over at Positive Money for helping to move the overton window closer to reality. I just don't understand wow full reserve banking is supposed to accomplish all of the positive things they wish it to.
Reserves are in some ways the most important thing in the world and in other ways, reserves are pretty much irrelevant. Lets examine some operations shall we?
The way I see it, if we transition to 100% reserve lending, we must do one of three things:
1) Forgo the Govt's ability to control interest rates.
2) Strictly limit private lending to the amount of deficit spending each year.
3) Forgo the ability of the public to deposit their money in their country's CB.
Here goes (for the USA):
1) The nominal level of excess reserves and total reserves is completely endogenous based on our current regulatory rules and the Govt's target interest rate. Whether we have 1%, 10%, 50%, or 100% reserve requirements, if We want to control interest rates, we must supply the level of reserves commensurate with that interest rate. The nominal level of reserves is irrelevant in this scenario.
If We held the level of reserves constant in order to constrain lending, then what happens to interest rates? How does a growing demand of settlement balances get satisfied?? Basically, everything falls apart. This is all true if we are using our current T-bond financing model of Govt spending and interest rate setting. If we just paid IOR, we could maintain control of interest rates but then #3 happens.
2)Now they could say that banks could lend out the aggregate additional reserves the Govt adds each year. This would mean that private lending would be constrained by the amount of NET reserves the Govt adds each year. And since we currently have a T-bond model, the NET reserve add each year (in a non-QE environment) is practically nothing. Just look at the increase in the monetary base since the 70's, it looks nothing like the increase in TCMDO. I'm not saying that huge deficits (with no bond issuance = net reserve add) along with IOR cant work to satisfy the private sector's debt appetite. I personally think we should try to change the % makeup of where the money comes from, but I haven't seen the Positive Money folks lay it out like that.
3) And of course if We don't issue T-bonds, then the public has no way of getting their own accounts at the Fed under current rules. Obviously, we could change this but again, I haven't see the proposal.
+1 on most of what Auburn said.
I gave up on the Positive Money people. IMHO, they get many details right but miss the big picture -- it's the fiscal policy, stupid !
Ditto with the public banking people.
I increasingly find economics to be like a religion -- people get OBSESSED with certain beliefs, and won't let go.
If only we had full reserve banking ....
If only we had public banks ...
If only we had NGDP targeting ...
If only we had a Job Guarantee ...
Auburn Parks,
Re your three points and starting with the fact that government no longer controls interest rates, what of it? Under PM’s system AD is controlled by adjusting the deficit (much as it is at the moment). Adjusting the deficit may well influence interest rates, but that’s of no interest to PM. Plus a recent Fed study featured on this blog claims that interest rate adjustments are useless.
Re your claim that private lending would be limited to the amount of deficit spending each year, I’m baffled as to why. For example, under PM’s system, any firm is free to supply goods to a customer on extended credit: i.e. not demand payment for several months. That’s a loan.
Third, you claim PM’s system would destroy the freedom of “the public to deposit their money in their country’s central bank”. Quite the reverse: PM’s system SPECIFICALLY ADVOCATES the setting up of bank accounts (available to anyone) which are 100% reserve and 100% safe (but little or no interest is earned on those accounts).
PM’s system is actually very similar to the system advocated by Lawrence Kotlikoff, John Cochrane and Milton Friedman. For the latter three see respectively:
http://www.bloomberg.com/news/2013-03-27/the-best-way-to-save-banking-is-to-kill-it.html
http://www.hoover.org/news/daily-report/150171
http://ralphanomics.blogspot.co.uk/2014/01/milton-friedman-set-out-positive-money.html
Dan Lynch,
Re your claim that “it’s the fiscal policy stupid” if you’re saying AD should be adjusted by adjusting government spending and/or adjusting taxes (i.e. fiscal policy), that’s exactly what PM advocates. I.e. PM are certainly not members of the Scott Sumner “fiscal policy is rubbish” crowd.
PM actually advocate creating new money and spending it (and/or cutting taxes) in a recession, which is actually a mix of monetary and fiscal policy. That’s what most MMTers favour, far as I can see. Plus Keynes favoured that policy.
PM advocate a cabal of the elite to 'manage the money' - all of the money.
We already have a committee that should manage the money. It's called parliament.
In the UK we have a convention that the House of Lords will not stand in the way of a government's Finance Bill.
If the legislative second chamber won't stand in the way of a Finance Bill, what right has anybody else?
Anybody who supports handing over power to an unelected elite - whether corporations, the Brussels mafia, or a bunch of so-called 'experts' - is fundamentally anti-democratic in outlook and should be resisted.
Neil,
On the contrary: there is a widespread view amongst voters that politicians should not be allowed access to the printing press. To that extent, delegating decisions on money creation is not undemocratic.
Moreover, if a democratically elected politician decides to delegate various economic decisions to a committee of experts, that’s democratic, isn't it?
Also, your point is not actually a point against Positive Money as such. That is PM is simply going along with a widely accepted view that various decisions should be taken by committees of experts.
Ralph:
Let me start by saying that I have not read any PM proposals thoroughly. I simply crafted my comment based off of the effects or non--effects of 100% reserve banking.
I am all in favor of trying out a permanent zirp with AD management handled by deficit adjustment.
Insert, "BANK lending" and then I'm right and you didn't address anything I said. No system on earth can keep me from borrowing money from my dad to buy a home. This is clearly not what I was talking about.
Ralph, you obviously didn't read my comment or ignored it. Here is number #3 again:
"Fed under current rules. Obviously, we could change this but again, I haven't see the proposal."
P.S. I don't necessarily believe that interest rate changes have no effect on the economy. The data says otherwise.
Neil: "PM advocate a cabal of the elite to 'manage the money' - all of the money. We already have a committee that should manage the money. It's called parliament."
Exactly. A command economy run by an unelected and unaccountable cabal at the top. Not even the veneer of democracy. Neoliberalism to the extreme.
This is beyond crazy.
Auburn,
If you want a quick introduction to PM’s proposals try the above Bloomberg article I linked to. Here it is again:
http://www.bloomberg.com/news/2013-03-27/the-best-way-to-save-banking-is-to-kill-it.html
It’s no longer than the average op-ed article. It actually describes Kotlikoff’s proposals, but they’re much the same as PM’s, and I actually prefer Kotlikoff ideas to PM’s by a small margin. For a longer description of PM’s proposals, see their book, “Sovereign Money”.
The only aspect of PM’s ideas that the Bloomberg article doesn’t deal with is PM’s “money creation committee” idea. I assume Kotlikoff thinks committees in central banks should retain responsibility for that decision (e.g. the Bank of England’s Monetary Policy Committee).
Tom,
PM’s “money creation committee” isn't a big departure from existing practice. As to monetary stimulus, that is currently decided by “unelected” committees in central banks. And as to fiscal stimulus that’s been decided up to recently by finance ministers (who in turn are heavily influenced by a rabble of economic illiterates known as “politicians”). But finance ministers round the world have recently given increased powers to fiscal responsibility committees. E.g. in the UK there is the “Office for Budgetary Responsibility”.
Since PM advocates the merging of monetary and fiscal stimulus (i.e. simply creating new money and spending it and/or cutting taxes in a recession), then it makes sense to merge the above monetary and fiscal committees. MMTers, far as I can see, also tend to favor that merge of monetary and fiscal policy.
Ralph:"PM’s “money creation committee” isn't a big departure from existing practice. As to monetary stimulus, that is currently decided by “unelected” committees in central banks"
Oh, you noticed that the "monetary authority" was practically copied out of the Federal Reserve Act section setting up the Fed board.
I have been screaming extensively about the Fed board under the chair as an anti-democratic command system at the top of the US economy, which is anti-capitalist as well, IT is pure neoliberalism, with the elite setting in the command seat.
Together with the BIS, IMF, and other interlocking elite institutions, central banks pretty and transnational corps now comprise a shadow government that rules the world iaw neoliberalism.
While consolidating the cb and Treasury functions is an MMT policy recommendation, the recommendation does not include just shifting the cb board of governors and chair to Treasury and combining the monetary and fiscal functions in the newly established "monetary authority."
I would rather see banks only creating money than government only under such as arrangement. It would be the death of both democracy and the advantages of capitalism and the establishment of a neoliberal new world order under a command system formally, legally, and institutionally controlled by the elite.
Crazy.
Hilarious! Reads like a monte python skit!
Maybe elect the joint chiefs of staff? Postmaster? Surgeon general? Political appointment is undemocratic! Campaign finance reform first? ;). Why the anti lending thing? Anti speculation? Anti gambling in general with private risk capital? Ban all gamblimg? Remember, the financial crisis didnt cause the unemployment, the policy response did. Just saying...
Looks to me the Positive Money proposal is being misunderstood.
If you have a look here, https://www.positivemoney.org/our-proposals/,
the first point highlights "democratic":
1. Money should only be created through a democratic and transparent body working in the public interest.
We’d like to see the power to create money transferred to a democratic, accountable and transparent process, where everyone knows who has the power to create money, how much money they create, and how that money will be used. However this process is set up – whether it’s the Bank of England or a new committee that decides whether to create money, it must be accountable to Parliament and protected from abuse by vested interests. We also want to see safeguards that ensure that the right amount of money is created – not too much (causing bubbles and a financial crisis) and not too little (causing a recession).
---
Also, If I remember correctly, the BOE, or the committee, would only decide how much debt free money is required by the economy, and then politics decides how to spend it.
Btw, "Sovereign Money" is a 60 page report. The book with the full Positive Money proposal is "Modernising Money".
Post a Comment