In response to a letter from MP Caroline Lucas, Bank of England governor Mark Carney hinted in the Financial times today that the Bank of England could potentially invest in a programme of ‘Green Quantitative Easing’.
The idea of ‘Green QE’ is that the Bank of England would – with the agreement of the government – buy bonds from e.g. the Green Investment Bank, which could then use the financing to subsidise low carbon projects.
With this move Carney confirms that the “Green New Deal” is technically possible. Caroline Lucas MP and members of the Green New Deal Group (including PRIME director Ann Pettifor) made ‘Green QE’ part of a larger set of policy recommendations for tackling the triple crunch of the financial crisis, climate change and insecure energy supplies.
Mark Carney been reading Marriner Eccles?
8 comments:
I think it would be better if, instead of using the misleading term "green quantitative easing", they simply called this "green central bank financing." This has nothing to do with quantitative monetary policy.
In fact, central banks should simply get rid of the term "quantitative easing" altogether, no matter what category of bonds they are talking about.
I assume the whole point of this option is simply to finance these projects at a lower rate than would be the case if the green investment bank sold its bonds to private sector investors?
Warren makes it all clear by including tsys in the monetary base.
It make zero difference whether government funds itself with money as zero interest or money that pays interest (other than the interest as a subsidy for holding money).
The cb buying the bonds accomplishes the same thing as financing with debt other than that it deprives the private sector of the interest subsidy.
It's window dressing for the people that don't understand how it works, which is apparently most of finance.
They probably look at it as they would be "earmarking" the balances for "green" projects rather than buying govt bonds for which the proceeds can be used for any authorized/appropriated general purposes...
they could always just authorize/appropriate some green projects and just let the Treasury fund it with bonds and have the CB buy some ... this just looks like some additional "earmarking" in the financial details... if the UK process works similar to the US process.... makes the CB appear more 'environmentally friendly'...
Tom, when we say here: " make zero difference whether government funds itself with money as zero interest or money that pays interest" are we asserting that there was not a good reason to sell "war bonds" (ie 'move balances to the savings accounts') during WW2 to prevent the non-govt from having access to settlement balances (ie "in the checking account") to compete with the govt for material provision during the war?
rsp,
Right but in this case they are not just talking about different mechanisms for financing public expenditures. The UK Green Investment Bank is a for-profit public company with a government guided mission. Its government funding is designed only to seed a much larger private investment in its projects, and to fund a transition to an enduring, stand-alone institution fully independent of government. So the bank sells bonds to the private sector to raise private capital. What the BOE is apparently talking about is buying some of those bonds, which is effectively a way of increasing the government's investment beyond the existing statutory stake of 3.8 billion pounds.
Imagine there was a bank called "Goldman Sachs - Green Subsidiary" that was a private investment bank subject to some special government regulations of its project investment portfolio, in return for which it received some government investment funding (but not subsidies - the govt stake has to be repaid). That's sort of what we have with the GIB.
It make zero difference whether government funds itself with money as zero interest or money that pays interest (other than the interest as a subsidy for holding money).
That could be a pretty big "other than" depending on how high the fed allows treasury rates to rise. It effectively allows the existing capital sector to earn a profit off government spending operations with which it has no intrinsic connections and for which its participation is not needed.
Two ways of buying a government laptop without taxing: (i) issue $500 and trade them to Dell for a laptop, (ii) issue an interest bearing security that you trade to JP Moneybags for $500, and hen trade the $500 to Dell for the laptops. Both methods increase private sector NFA's, in one case by $500, in the other by slightly more than $500. With both methods the government has one more computer and Dell's inventory one less computer. With both methods Dell has $500 more than it had before. But with the second method, JP's net assets have grown by the present value of the future interest payments, even though JP has nothing to do with computers or making them.
IIRC, "war bonds" were different, Matt. They did not trade on the market and were actually forced saving. You had to redeem the bond to get cash and that meant forgoing the interest that was accruing. People actually held those bonds until maturity many years after the war. They were E bonds, like EE/E bonds today.
Good point Tom.... looks like "liquidity" characteristics were different with those bonds... rsp,
It’s daft to tie any specific type of spending to QE (green stuff, infrastructure or anything else). Reason is that QE is liable to gyrate hugely depending on how much stimulus is needed. Thus if the above “tie” is implemented, we’d get big gyrations on what’s spent on green stuff, infrastructure, etc.
Another example of this mistake is that every time there’s a recession, a large selection of deluded individuals appear from the woodwork advocating a big increase in infrastructure spending. Infrastructure spending just can’t to expanded and contracted overnight.
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