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Calls for social and environmental quantitative easing ‘as Covid hopefully subsides’

March 2, 2021

There are calls for the Bank of England to extend its current use of debt-free money (quantitative easing) and address the adverse social and employment effects of the pandemic, Brexit and the escalating climate crisis.

The Bank’s website explains: “Money is either physical, like banknotes, or digital, like the money in your bank account. Quantitative easing involves us creating digital money”.

At present the BoE is creating digital money but using it merely to finance government spending

Colin Hines (right, convenor of the Green New Deal Group, former co-ordinator of Greenpeace International’s economics unit), writing in the Green Alliance blog, stresses that the government’s priority should be the funding of:

  • hundreds of thousands of secure, adequately funded jobs needed to fill the shortfall of doctors, nurses, carers, teachers etc.
  • extra face to face tuition for pupils adversely affected by school disruptions,
  • making all the UK’s 30 million buildings energy efficient,
  • installing the national charging network required for the transition to electric only vehicles
  • and the provision of high-speed broadband for all areas.

The EU’s internal market commissioner, Thierry Breton (left) advocates the use of quantitative easing for its Green Deal plans which are expected to need €1 trillion over the next ten years.

Professor Stephanie Kelton, a leading authority on Modern Monetary Theory, points out that the US — and other “monetary sovereigns” like the UK, Japan, Australia and Canada — currency issuers – do not need to borrow, they can simply spend money into existence: The Federal Reserve electronically credits bank accounts with brand new dollars.

Heather Smith, a reader from New Zealand, comments: “It’s refreshing to note that this American economist is echoing the opinions of Australian academics like Steve Hail (Adelaide University) and Bill Mitchell (Newcastle, NSW) University . . .” She adds that people and politicians in New Zealand (and elsewhere) now can see that her political party (Social Credit) has been right all along.

Dr Geoff Bertram – former senior lecturer in economics in the School of Economics and Finance at Victoria University, said: “. . .  issuing money in the current circumstances has impeccable support from mainstream economic thinking. The govt should not continue to be prisoners of outmoded, arch-conservative political doctrines” (quoted on the Social Credit website).





Will the proposed UK National Infrastructure Bank help to ‘build back better’?

January 27, 2021

In November it was widely reported that the government will set up a National Infrastructure Bank for the UK (UKNIB). Lexology, which posts international legal updates, analysis and insights adds that it will be based in the North of England, that details of the design will be published at Spring Budget 2021 and that it will support investment in both the public and private sectors.

Carol Wilcox welcomed an FT ‘build back better’ article by economist Professor Mazzucato but had reservations about her reference to the government’s proposed infrastructure bank: “There is no reason for the government to direct “global flows of money” into an infrastructure bank when it can create all the debt-free public money it needs, including what is needed for a “green transition”, by keystrokes on a computer. Its only constraint is the real resources available for purchase in sterling”.

Ellen Brown, a staunch advocate of publicly-owned national infrastructure banks, points out that America’s Federal Reserve is not allowed to spend money directly into the economy or to lend directly to Congress.  It must go through the private banking system and its “primary dealers.” The Fed can create and pay only with “reserves” credited to the reserve accounts of banks. These reserves are a completely separate system from the deposits circulating in the real producer/consumer economy; and those deposits are chiefly created by banks when they make loans. (See the Bank of England’s 2014 quarterly report here.)

Do the same restrictions apply to the Bank of England?

She points out that banks are not lending adequately even with massive reserves on their books and refers – in an article in the ScheerPost – to reliance on private, often global, capital: “. . . while the Chinese run circles around us building infrastructure with credit simply created on the books of their government-owned banks . . . That is how China built 12,000 miles of high-speed rail in a decade: credit created on the books of government-owned banks was advanced to pay for workers and materials, and the loans were repaid with profits from passenger fees”.

Historical precedents are cited: “Publicly-owned U.S. national banks and U.S. Treasuries pulled off similar feats, using what Sen. Henry Clay, U.S. statesman from 1806 to 1852, named the “American System” – funding national production simply with “sovereign” money and credit”.

This sort of public credit mechanism is not inflationary

Unlike the QE pumped into financial markets, which creates asset bubbles in stocks and housing, Ellen explains that this sort of public credit mechanism is not inflationary. Credit money advanced for productive purposes balances the circulating money supply with new goods and services in the real economy. Supply and demand rise together, keeping prices stable. China increased its money supply by nearly 1800% over 24 years (from 1996 to 2020) without driving up price inflation, by increasing GDP in step with the money supply.

From our October blog:

North Dakota which has operated a public bank since 1919, transfers all of its funds—such as tax collection and fees—to the public bank. Those funds are then lent out to small businesses and infrastructure projects through partnerships with community banks. When the great recession hit, the Bank of North Dakota stepped in and provided loans and allowed local banks to thrive.-

Stop press: today Ellen writes:

In a remarkably strong start to 2021 legislative sessions, three states — New York, Oregon, and Washington — have introduced new legislation to establish state-owned public banks. In contrast to bills of previous years that aimed to create a task force or call for a feasibility study, all four new bills would start a bank. Read more here.





QE and QQE in Japan, where levels of unemployment and inequality are low

December 10, 2020

The grass-roofed Karakida community centre by Chiaki Arai in Kama, Tokyo

Japan ‘pioneered quantitative easing’, reported William Pesek for Forbes  Magazine in April this year and – in the Federal Reserve Bank of San Francisco (FRBSF) – Mark Spiegel reminds us that the quantitative easing (QE) program actually began in March 2001.

Science Direct reports that then the Bank of Japan initiated a “Quantitative and Qualitative Monetary Easing” (QQE) policy in April 2013. Pesek commented that in 2013, Haruhiko Kuroda, the bank’s new governor ‘led Tokyo into territories previously unknown to monetary science’.

Though these and other sources viewed the Japanese programs with some disfavour, a recent overview in the Financial Times’ editorial  reports that the frequently predicted downside of QE has not materialised:

  • There is ‘virtually non-existent inflation’.
  • While the economy’s growth in aggregate has been low since the end of the 1990s bubble it has done no worse, and often better, at increasing living standards for its citizens than many other rich countries.
  • A shrinking population has meant that while the total economy has stagnated, income per head has kept pace with elsewhere.
  • Unemployment and inequality, too, are enviably low compared with much of Europe and the US.
  • The country, too, has a structural excess of savings.

The FT’s editorial board concluded that Japan’s success in managing to remain relatively stable socially and raise living standards is admirable. It shows that a country can continue to improve the material wellbeing of its citizens without a growing population.

Cherry blossoms at Kitanomaru Park, one of Tokyo’s less well-known parks

Ed: I have visited Tokyo three times, spending most of the time it its suburbs. While the reliability of its transport system, low unemployment, courtesy and few signs of inequality have been well-documented, I was also deeply impressed by the superb public services: schools, community centres and parks. Favourable reports also come from others who have travelled extensively in the country.






Future QE can and must fund aspects of the economy that need investment.

December 2, 2020

Colin Hines, Convenor of the UK Green New Deal Group (right), has been prompted to comment on an assertion by New Statesman journalist Philip Collins, that Labour needs to work out what it means to be a social democrat without money (The Public Square). He writes:

Keir Starmer needs to understand that money is not the problem, but what it is spent on, and who gains.

To help to cope with the fallout from coronavirus, the government turned to the Bank of England to inject £150bn of newly created electronic money into the economy via Quantitative Easing.

What politicians and activists need to grasp is that the previous £745billion of QE already spent or announced has not made extra demands on the taxpayer, increased government borrowing or resulted in rising inflation (which is expected to remain historically low).

However, this new money has not achieved improved conditions for the majority. Instead, it has been used predominantly to boost the property assets and shares of the wealthier sections of society.

Future QE must fund aspects of the economy that need investment. It could form part of a Covid exit strategy: not only providing short-term support for the hospitality, entertainment, retail and tourism sectors, but also financing longer-term measures that deal with regional inequality, repair our threadbare social infrastructure and tackle the climate crisis.




A new documentary film: Bank Job

November 10, 2020

JDC has drawn attention to a special online preview screening of the new documentary film Bank Job on 11 December 2020 

This mischievous feature documentary produced by artist and filmmaker team Hilary Powell and Dan Edelstyn, tells the story of a community coming together to make their own currency and open a ‘peoples’ bank. In doing so they examine how money and debt is created and ask important questions about how the system of money creation might be altered in our favour.

Their aim? To uncover the true nature of the UK’s household debt crisis, where even before Covid, 9 million people were facing problem debts.

Debt is an integral component of our current system of inequality.

97% of all money is conjured into reality at the moment when banks make loans. This means our money supply is effectively on lease from private banks – giving them inordinate power determine the course of our economic, social and common good. Yet we, the public, do not yet fully understand the way money comes into existence – and while we remain in the dark, there will be no way to change course.

The film makers explain:

Our act of citizen money creation is both a way of raising real money for specific causes in the community and a way of fundraising to buy and destroy £1million of local predatory debts.

Through the film we argue that widespread debt is the natural – though unwelcome companion to the money system we currently have and, like money, another widely misunderstood phenomena subject to myth and moralising.

From both talking to economists and our local community we discover that debt is tied to even the most basic provisions, education, healthcare, housing – as all these are being accessed through credit in one way or another.

We argue that these debts are a result of a monetary system which is impoverishing multitudes by design, and which could be changed.

Book your ticket today:

The screening will be followed by a Q&A with the Bank Job team, Ann Pettifor and Grace Blakely. 








California’s Governor, Gavin Newsom, has signed the 2020 Public Banking Act

October 3, 2020

Reinvest, Rebuild and Recover from COVID-19

Public banking is an old concept. North Dakota which has operated one since 1919, transfers all of its funds—such as tax collection and fees—to the public bank. Those funds are then lent out to small businesses and infrastructure projects through partnerships with community banks. When the great recession hit, the Bank of North Dakota stepped in and provided loans and allowed local banks to thrive.

In California, calls for public banks intensified after the financial collapse of 2008. The crisis increased demands for divestment in banks such as Wells Fargo and major financial institutions tied to the Dakota Access pipeline and other controversial projects, said Sushil Jacob, a senior attorney with the Lawyers’ Committee for Civil Rights of the San Francisco Bay area.

On October 2nd 2019 the Public Banking Institute reported that Governor Gavin Newsom had signed the Public Banking Act 857 and it will become law on January 1, 2021. This will make it easier to establish regional and municipal public banks throughout the state. California has become the first in 100 years to allow locally-chartered public banks.

Like public banks in California, it would be operated by professional bankers and run by an independent board of directors to insulate and protect against self-dealing.

The bank’s sponsor would have to propose a viable business plan which would need to be approved by the state department of business oversight and would also need approval to obtain direct deposit insurance from the Federal Deposit Insurance Corporation. The plan would have to go before the public before it moved forward. “That injects an element of sunshine and public debate,” said Jacobs, who added that because the banks would be public entities, they would be subject to laws that require them to provide the public access to records and meetings. “There are a lot of protections, far more than the current structure (of private banks).”

In January Bloomberg predicted that the second California State Public Bank Bill would move forward in 2021 and in July Biz Journal reported that further state legislation had been announced and a California public bank would be established to help with a more equitable economic recovery from the Covid-19 crisis by directly lending funds and offering credit to community banks, credit unions, municipalities and small businesses struggling because of the economic downturn caused by Covid-19.

Assembly Bill 310 (AB310) written by Assembly Members Miguel Santiago, D-Los Angeles, and David Chiu, D-San Francisco, is a follow-up to AB 857, which became law last year after several months of grassroots organizing by the California Public Banking Alliance. Both Santiago and fellow assembly member David Chiu (below right) also co-authored that bill. AB310 proposes to relocate “idle” funds from the state’s “checking account” into the California Infrastructure and Economic Development Bank, or IBank – moving 10% of the state’s Pooled Money Investment Account (PMIA) into the IBank’s loan fund.

Santiago said: “We can structure a bank that actually is accountable to the people and does what the people want it to do — we can help small businesses, we can reimagine what banking looks like and actually invest in affordable housing, we can look at local infrastructure like parks.”

Union President John Grant commented: “On behalf of the over 30,000 members of the United Food and Commercial Workers Local 770, we strongly support the creation of a public bank for the State of California. In this moment of crisis, grocery, retail drug and packing house workers are struggling in very basic ways as essential employees. If nothing else, the global pandemic gives us the opportunity to rethink equity and how we best respond to a likely imminent global recession. A public bank is a necessary part of the overall recovery.” Sushil Jacob and Paulina Gonzalez-Brito of California Reinvestment Coalition added:

The state bank will provide a counter to the global banks that have mishandled and profited substantially from funds allocated to address the current financial crisis.

Wall Street banks gave priority to large corporations in distributing Paycheck Protection Program (PPP) funds, leaving little or nothing for struggling small businesses. The Federal Reserve Bank handed out billions to the largest banks at near-zero interest with no strings attached while making municipalities beg for funds at above-market rates with onerous constraints.

Nearly two dozen other states – including four this year in New York, New Mexico, New Hampshire, and Massachusetts – have tried to establish public banks, according to Vox, but all have failed. 

Account corrected thanks to Ellen Brown of the Public Banking Institute.




Financial Times: economists call for full reserve banking

August 31, 2020

Economists from France, Germany, Denmark, Finland and New Zealand called for change in the FT, 11 hours ago. Many readers will recognise the names of Joseph Huber  (23 articles on this site) and Bryan Gould, the best Prime Minister Britain never had.

A search revealed that Jorg Guido Hulsmann is an economist who correctly anticipated the financial crisis of 2001 (after the collapse of the dotcom bubble, the 9/11 attacks, and a series of accounting scandals at major U.S. corporations) and a staunch critic of fractional reserve banking; that Patrizio Laina has advocated full reserve banking for several years and that Ib Ravn, whose primary focus is on education and psychology, has written at least three articles on money creation in his blog since 2017. Their lightly edited call (with added information and links) follows:

Fractional reserve banking is a system in which only a fraction of bank deposits are backed by actual cash on hand and available for withdrawal.

It is risky. For hundreds of years it has resulted in bank failures with depositors losing their money. The arrival of taxpayer-backed deposit insurance in the 1930s and multi-billion-dollar bailouts of banks meant banks received state support, while other lenders who lend about as much as banks do not.

Moreover, depositing money at a bank with a view to the bank earning a return is the same as depositing money with a stockbroker for the same purpose in that both activities are commercial in nature, and it is not the job of taxpayers to support commerce, unless there are very good social reasons for doing so.

As for the alleged merit of fractional reserve banks, namely that they create money and liquidity, unfortunately they do so in a procyclical manner, which means central banks and governments have to counteract that.

Add to that the fact that private banks are totally incapable of creating the huge amounts of extra money needed in crises like the present Covid crisis.

Hence stripping private banks of their ability to create money would do no harm, as Martin Wolf, the FT’s chief economics commentator has argued on many occasions

The writers therefore wish to see the alternative to fractional reserve, that is, full reserve banking, given much more serious consideration for various reasons, including some or all of the above.

Jorg Guido Hulsmann Professor of Economics, Angers University, Angers,


Patrizio Laina Chief Economist, Finnish Confederation of Professionals (STTK), Helsinki, Finland

Joseph Huber Emeritus Chair of Economic and Environmental Sociology, Martin Luther University, Halle-Wittenberg, Germany

Ib Ravn Senior Lecturer, Aarhus University, Copenhagen, Denmark

Bryan Gould Vice-Chancellor, Waikato University Hamilton, New Zealand





A currency issuer country like the UK will come through stronger from this crisis: Apostolos Sfetsas

July 27, 2020

Apostolos Sfetsas, London-based fund reporting specialist with M&G investments, writes:


Reading the headline in the FT report (July 17) about the UK being ready to sell more than £500bn of debt this year, my instant reaction was to think that this cannot be good news about the country’s deficit and an increase in borrowing costs is most likely to follow.

Well, I was wrong on both counts. As the FT reported, the 10-year gilt yield was steady at 0.15 per cent and as Stephanie Kelton wrote in her new book The Deficit Myth, modern monetary theory explains that if the government expects to run a fiscal deficit of £500bn, the Treasury will arrange an auction of that amount.

Reading news through the correct MMT lens, especially during times of radical uncertainty helps the reader to stay calm and carry on. A currency issuer country like the UK will come through stronger from this crisis.

Geoffrey Gardiner also added a reassuring comment: “I recall Stephanie Kelton advocates that a country must borrow in its own currency. I am not sure that wise rule has been followed in the UK. My understanding of MMT – and I know its proponents – is that it is not suggested that currency be issued to the point where it blows up. Common sense is followed”.

Responding to the last post on this site, The Deficit Myth. Heather Smith (Social Credit Party, New Zealand) adds:

It’s refreshing to note that a US economist is echoing the opinions of illustrious Australian academics like Steve Hail (Adelaide University) and Bill Mitchell (Newcastle, NSW) University, published in Economic Reform Australia. whose goal is to educate and advise decision makers and the community on the economic foundations of a financially stable society based on social justice and ecological sustainability.

Heather continues: “Here in NZ the Labour-led government has finally had to admit the our sovereign Reserve Bank has the authority to issue fiat money – but, instead of allowing it to directly fund public bodies directly, it insists on the banks buying Treasury bills and bonds first with the RBNZ allowed to purchase them from said banks.  Ridiculous – but at least people are having to admit that my political party (Social Credit) has been right all along, after decades of ridicule. A shame that it’s taken a crisis for this admission”.

Kia Ora – Heather





‘The Deficit Myth’

July 7, 2020

Attention is turning to what the ‘unprecedented spending sprees Governments have embarked on’ will mean for inflation and national balance sheets when the crisis is over. Gavin Jackson (FT) asks:

  • How will public finances be brought back under control?
  • Will central banks be forced to keep rates low to stop the cost of paying interest on these debts from absorbing ever more of the public budget?
  • Will inflation rear its head again?

Stephanie Kelton is a leading light in modern monetary theory — an increasingly popular view in US leftwing circles. She is professor of economics and public policy at Stony Brook University and the former chief economist on the US Senate’s budget committee.

Fundamental to her latest book, The Deficit Myth, is the idea that the US — and other “monetary sovereigns” like the UK, Japan, Australia and Canada — act like currency issuers rather than currency users.

Currency users must gather money before they spend it. You and I need to earn money or borrow it before we can buy goods and services, but the US government – a currency issuer – can simply spend money into existence: the Federal Reserve electronically credits bank accounts with brand new dollars. The government then taxes away the new money or exchanges it for US Treasuries, gathering back the tokens it creates.

Spending thus comes before tax and borrowing, not after. This means the usual worries about the state not being able to repay the national debt are meaningless.

Instead, the concern should be inflation: we know the government is spending too much when prices get out of control. The limits on its action are the real resources of the economy — workers, materials and so on. When they try to employ too many of these resources, their price will increase.

Kelton suggests a jobs guarantee funded by new money would act as an automatic stabiliser. When unemployment grows and inflationary pressure is lower, the government would create more money. This would be cut back as full employment is reached. Both supporters and critics of MMT love to portray it as a get-out-of-jail-free card, allowing left movements to sidestep the need for unpopular taxes.

Much of this could be enacted under the current regime of an independent, inflation-targeting central bank: for proof look to Germany, which has free universities and healthcare for all as well as an attachment to fiscal prudence.





Can governments afford the debts they are piling up?

May 4, 2020

In the Financial Times an economist and a financial historian debate the long-term viability of the Covid-19 rescue packages  – an issue which is concerning many thoughtful members of the public.

Stephanie Kelton is professor of economics and public policy at the State University of New York and a former chief economist on the US Senate Budget Committee. Last year she was on Bloomberg’s list of the 50 people most influential on global markets. Her forthcoming book is “The Deficit Myth”.

“Yes” says Professor Kelton: “While public debt can create problems in certain circumstances, it poses no inherent danger to currency-issuing governments, such as the US, Japan, or the UK. This is not, as some argue, because these countries can currently borrow at very low cost, or because a strong recovery will allow them to grow their way out of debt”. She gives three reasons:

  • First, a currency-issuing government never needs to borrow its own currency.
  • Second, it can always determine the interest rate on bonds it chooses to sell.
  • Third, government bonds help to shore up the private sector’s finances.

“No” says Edward Chancellor, a financial historian, journalist and investment strategist. In 2008, he joined Grantham, Mayo, Van Otterloo’s asset allocation team. He is the author of a forthcoming history of interest.

He believes that governments can print money to cover their costs only as long as the public retains confidence in a currency. When the crisis passes, the excess money must be mopped up, but politicians are unlikely to raise taxes in time to nip inflation in the bud. Though bonds can be issued to withdraw money from circulation, once inflation is under way, bondholders demand higher coupons (the amount of annual interest paid by the bond’s issuer to the bondholder).

Others would argue that, as new money is created at the stroke of bankers’ pens – or the click of a computer key, when they approve loans (see Bank of England Quarterly Bulletin) money can be deleted in the same way.

Nick Boles who formerly served as MP for Grantham and Stamford, writes In a recent Financial Times’ article:

“The usual objection to printing money to pay for government spending is that it will unleash inflation. That would be true if the spending being financed were increasing the overall level of demand in the economy, and if markets expected the government to resort to monetary financing as a matter of course. Neither of these conditions holds true today”.

Martin Wolf (below) was a senior World Bank economist and Director of Studies at the Trade Policy Research Centre, in London. He joined the Financial Times in 1987, where he is associate editor and chief economics commentator. He agrees with Professor Kelton on this subject, writing in the FT:

“Our financial system is so unstable because the state first allowed it to create almost all the money in the economy and was then forced to insure it when performing that function . . .

“A maximum response would be to give the state a monopoly on money creation. A 2012 study by International Monetary Fund staff suggests this plan could work well. Banks could offer investment accounts, which would provide loans. But they could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are”.

Wolf talks about the issue (from 8.37mins) in a very interesting videoed interview on Indian television which focusses on the global economic impact of the coronavirus.