Ben Dyson of Positive Money writes:
“We are delighted to send the first newsletter of the International Movement for Monetary Reform and announce the new blog section on our website. As more and more exciting developments are happening across the world, this newsletter will spread the important news to the worldwide community of money reformers.
The consulting group KPMG has published a new report commissioned the prime minister of Iceland. The report outlines the main benefits of a sovereign money system and relates on the various political developments that have been made possible by IMMR members.
The launch in Reykjavik featured a supportive speech from the Financial Times’ chief economics commentator Martin Wolf and drew comments from the Governor of the Central Bank of Iceland
The report was commissioned by the Prime Minister’s office. It provides an overview of the sovereign money proposal, including a summary of the latest political developments and the academic debate. While the report is quite accessible to read, it does not provide any recommendations on whether sovereign money should be implemented or not. Download the full report here.
Már Guðmundsson, the Governor of the Central Bank of Iceland expressed concerns about sovereign money- see http://internationalmoneyreform.org/blog/2016/09/kpmg-iceland-report-sovereign-money/ to which economist Martin Wolf replied. Some points made:
- “There is a very very powerful set of reasons for believing that the status quo is intolerable” he concluded, before emphasizing the merits of sovereign money:
- Reclaim seigniorage (the proceeds of creating money) for the public benefit
- Create a more stable financial system
- Limit the ability of banks to ‘extract rent’ (i.e. extract wealth from the economy rather than generating it)
- Stop pushing up house price bubbles
- Have a much stronger impact on stimulating the economy than current measures like QE.
So who should do it first?
The Governor joked that whilst Iceland could not experiment with a sovereign money system due to its membership of the European Economic Area [although we think this point is incorrect], the UK has just voted to leave the EU and so should be the first to experiment! MP Frosti Sigurjonsso, who authored a first report to the Icelandic PM in 2014, disagreed with the Governor: “We [Iceland] are one of the most democratic nations. We can take initiative, we can change the system.” he claimed.
The 2016 Attwood Award will be given to Ridhi Kalaria for her lively promotion of the Birmingham Pound. Karen Leach of Localise West Midlands once said that Ridhi is “a huge asset to the Birmingham Pound steering group. She thinks strategically and with clarity and insight, is creative and fun to work with, communicates well with very different audiences, and has got a lot done in a short space of time.”
News of this project – and of the Bristol Pound – has been carried for years on several websites and this 2013 account of the Bristol Pound may be read on the Thomas Attwood site. More recent news is that the operating technology which manages the different accounts -the Cyclos system – will be hosted in trail-blazing Bristol.
Bristol Pound director Chris Sunderland explains that “Most of the money spent in a city, leaves almost as soon as it’s spent. It goes up to the financial institutions and gets lost. What people can be sure of with Bristol Pounds is that they’re circulating in the city and that’s where they’ll stay”
A marketing campaign will start to get individuals and businesses to pledge to use the Birmingham Pound “pilot” launch within 6 months in at least two areas, with plans to scale up in due course.
An autumn currencies workshop, to be held in Birmingham, is being planned with the Guild of Independent Currencies, which has been set up by the Bristol Pound in order to help other groups to launch a local currency and to support them through shared knowledge and technology.
The Thomas Attwood seal of approval? Gesell money, public investment and government preference for British manufacturers
In the FT, Robert Skidelsky, Emeritus Professor of Political Economy at the University of Warwick (below right), advocates the issuing of Gesell money to consumers in parallel with the monetary financing of a public investment programme.
He recalls that Silvio Gesell’s idea was to give cash directly to households and to give people an incentive to spend the money and not hoard it – just as much of the cash already issued under QE lies idle.- unspent currency notes would have to be stamped each month by the post office, with a charge to the holder for stamping them.
How can this be done today?
Skidelsky points out that smart cards could be created with £1,000 for each person on the electoral register. The cards could be programmed to reduce the value of the balance automatically each week and this would boost its multiplier effect: “There are 46m voters on the register in the UK. Thus £46bn of new money might be injected into the economy (and) the effect on sales and prices would be widespread”.
John Maynard Keynes advocated a public works programmes which would get money into the pockets of workers who would be guaranteed to spend most of what they received from the jobs created and thus generate further spending. The tax on Gesell money does the same. Skidelski continues:
“The issuing of Gesell money to consumers should, therefore, be done in parallel with the monetary financing of a public investment programme. The government should pay for, say, an investment programme not by issuing debt to the public but by borrowing from the central bank. This will increase the government’s deficit, but not the national debt, since a loan by the central bank to the government is not intended to be repaid. Thus the government acquires an asset but no corresponding liability”.
For example, a £50bn programme of transport, housing, hospital, and school-building would not just restore capacity in the construction industry, it would simultaneously increase demand in the retail sector. If you build a new school or hospital you set up a demand for all the equipment needed for them to work.
However, as the prolonged recession and mediocre recovery has destroyed a great deal of industrial capacity, increased consumer demand ideally means increasing the economy’s capacity to meet that demand.
To limit the leakage of the extra spending power into imports, the government should give preference to British firms. An infrastructure programme financed by borrowing from the Bank of England that gives preference to British manufacturers would give Mrs May the industrial policy she is looking for.
The investment programme and Gesell money initiative together spread over, say, two to three years, would inject a total of £100bn of extra spending power into the economy — £50bn on consumer goods, £50bn on producer goods.
Here is a two-pronged strategy both for fighting the next recession and for rebalancing the British economy. And if it is a step too far for a Treasury still mired in Osbornian austerity thinking, it should be taken up by the Labour party.
See also on the Political Concern site: Shinzo Abe and Jeremy Corbyn advocate increased public investment, lower taxation & a high wage policy: https://politicalcleanup.wordpress.com/2016/08/05/corbyn-abe-increased-public-investment-lower-taxation-a-high-wage-policy/
Though Swiss voters rejected the proposal to introduce a guaranteed basic income for all, this issue is alive and actively considered in several countries.
The French Senate has decided to form a parliamentary commission aiming at investigating the idea. The City Council of Washington D.C. has approved an amendment that “calls on the city’s Office of the Chief Financial Officer to study the possibility of providing a basic income in D.C.” The Economic Commission for Latin America and the Caribbean (ECLAC), an official body of the Secretariat of the United Nations, has acknowledged the need for its member states to investigate basic income. Read more here.
Jeremy Heighway, who currently lives and works in Leipzig, was an active participant at the degrowth conference in 2014 and attended May’s conference on Universal Basic Income Network in Germany.
Looking at the aims of the conference page, it says very clearly: “A basic income is therefore a route to a degrowth society, however, a basic income does not necessarily start the ecological transformation that is so urgently needed,” and continues, “… addressing this … needs to be thoroughly incorporated into any implementation of a basic income and its accompanying measures.”
The tracks appear to go cold right there, however, as a shift is made towards four other areas of discussion, none of which intrinsically address ecological transformation. It is perfectly possible for a supporter of a basic income to ignore ecological transformation; to some extent it is even possible to be in favour of increased consumption.
The degrowth movement is a mindset; the basic income is a mechanism. This provides a possible clash from the outset, based on the question of what you hope to achieve and how.
On the societal side I think there is quite a good overlap and it is a great idea to get the movements working together. But opportunities can be missed if two groups do not also look hard at what is not automatically going to be addressed if you work together.
One huge area is, as stated above, ecological transformation. My proposal looks at eco-taxation and suggests that all increased revenue be returned to everyone evenly in the form of a basic income. However, I do not believe it would be able to help finance the true basic living-cost foundation much. It is certainly much more of an easy attachment to a basic income than a direct source of finance. Strangely, it is almost something which degrowth supporters need to be vigorous about from an environmental benefit perspective and argue for with basic income supporters.
The semi-sideline nature is maybe one reason why basic income supporters have not been very supportive of this idea so far: if it doesn’t do much to actually finance the true basic income, why complicate matters and potentially alienate people along the way with an unpopular taxation device?
Now it’s your time dear degrowth supporters: why do environmental concerns need to be considered again? And, dear basic income supporters, you can actually gain some firm supporters and new friends if you take up this idea – “… addressing this … needs to be thoroughly incorporated into any implementation of a basic income and its accompanying measures”, remember these stated aims of the conference?
US attorney Ellen Brown recalls; “The right of government to issue its own money was one of the principles for which the American Revolution was fought. Americans are increasingly waking up to the fact that the vast majority of the money supply is no longer issued by the government but is created by private banks when they make loans; and that with that power goes enormous power over the economy itself”.
Former Federal Reserve Chairman Alan Greenspan said in 2011: “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default” and on May 9th, Donald Trump, the Republican presidential candidate, said on CNN, “You print the money . . . if we can buy back government debt at a discount – in other words, if interest rates go up and we can buy bonds back at a discount – if we are liquid enough as a country we should do that . . .”
Ellen notes that Richard Duncan, a very interesting writer who began his career as an equities analyst in Hong Kong and is now chief economist at Blackhorse Asset Management in Singapore, makes a strong case for going further than just monetizing existing debt. He argues that under current market conditions, the US could actually rebuild its collapsing infrastructure by printing the money, without causing price inflation.
She comments: “Paying the government’s debts by just issuing the money is as American as apple pie – if you go back far enough. Benjamin Franklin attributed the remarkable growth of the American colonies to this innovative funding solution. Abraham Lincoln revived the colonial system of government-issued money when he endorsed the printing of US Notes or “greenbacks” during the Civil War. The greenbacks not only helped the Union win the war but triggered a period of robust national growth and saved the taxpayers about $14 billion in interest payments”. She describes the process in detail in her Max Keiser report, adding that Trump was not talking about borrowing the money but about printing it.
CNNMoney’s response was: “That can cause inflation (or even hyperinflation), and send prices of everything from food to rent skyrocketing”. Ellen refutes this: “The Federal Reserve has already bought $4.5 trillion in assets, $2.7 trillion of which were federal securities, simply by ‘printing the money’ “. She observes that when the Fed’s QE program was initiated, it did not even create the modest 2% inflation – the Fed’s target. QE was combined with ZIRP – zero interest rates for banks – encouraging borrowing for speculation, driving up the stock market and real estate. But the Consumer Price Index, productivity and jobs barely budged.
The European Central Bank and the Bank of Japan also began to buy back massive amounts of their own governments’ debts by simply issuing the money. There too, the inflation needle has barely budged. As noted on CNBC in February: “Central banks have been pumping money into the global economy without a whole lot to show for it other than sharply higher stock prices, and even that has been on the downturn for the past year. Growth remains anemic, and worries are escalating that the U.S. and the rest of the world are on the brink of a recession, despite bargain-basement interest rates and trillions in liquidity”.
Fergus Cumming at the Bank of England has written an interesting blog on the subject
Ellen Brown lists a few alternatives to QE ‘as done today’, when the newly issued money makes it no further than the balance sheets of banks
She notes that as European economists and central bankers are at odds about how to revive economies which are flagging despite radical austerity measures and increasingly unrepayable debt, one ‘hotly debated proposal’ repeats the “helicopter money” proposal – just issue money into the producing economy or the pockets of consumers, where it would need to go in order to create the demand necessary to stimulate productivity.
Proposed alternatives include a universal national dividend; zero or low interest loans to local governments; and “people’s QE” for infrastructure, job creation, student debt relief, etc.
Ellen Brown’s article may be read here.
Thanks to a link from Paul Gosling I accessed information about these academics on the Positive News website.
My favourite, from Professor Richard Werner, University of Southampton (The economist who coined the term QE):
“This staggering £275 billion largely ended up with the banks in the futile hope that it would result in a substantial increase in UK lending to business. Instead it was used to rebuild their balance sheets and invest in commodity speculation. To ensure that this does not happen again, we need a different kind of QE, to help the wider economy directly and to implement some badly needed green projects that would enhance the sustainability of the economy and improve the environment-as well as creating thousands of new jobs.” http://www.carolinelucas.com/latest/caroline-welcomes-report-calling-for-green-quantiative-easing
Professor Ricardo Caballero, MIT
“Instead, what we need is a fiscal expansion (e.g. a temporary and large cut of sales taxes) that does not raise public debt in equal amount. This can be done with a “helicopter drop” targeted at the Treasury. That is, a monetary gift from the Fed to the Treasury.” http://www.voxeu.org/article/helicopter-drop-us-treasury
Professor David Graeber, London School of Economics
“I mean look at quantitative easing this is an example, I don’t know how trillion of euros they are printing, but someone figured out that they are printing enough to give every individual in Europe €763 maybe, a month for a year. Well why not just give everybody in Europe €763 a month for a year. It would cost exactly the same amount, and how could that not be a better stimulus for the economy?” https://www.youtube.com/watch?v=pAJXph8eHJ4
Professor Paul Krugman, Economics at Graduate Centre of the City University of New York and columnist for The New York Times
“What’s remarkable about this record of dubious achievement is that there actually is a surefire way to fight deflation: When you print money, don’t use it to buy assets; use it to buy stuff… But nobody is doing the obvious thing. Instead, all around the advanced world governments are engaged in fiscal austerity, dragging their economies down, even as their central banks are trying to pump them up. After all, printing money to pay for stuff sounds irresponsible, because in normal times it is. And no matter how many times some of us try to explain that these are not normal times, that in a depressed, deflationary economy conventional fiscal prudence is dangerous folly, very few policy makers are willing to stick their necks out and break with convention. The result is that seven years after the financial crisis, policy is still crippled by caution. Respectability is killing the world economy.”http://www.nytimes.com/2015/09/11/opinion/paul-krugman-japans-economy-crippled-by-caution.html?_r=0
Professor John Muellbauer, Oxford University
“Clearly, the ECB must develop a strategy that works in the Eurozone’s unique system, instead of attempting to follow the Fed’s lead. Such a strategy should be based on Friedman’s assertion that ‘helicopter drops’ – printing large sums of money and distributing it to the public – can always stimulate the economy and combat deflation.” http://www.voxeu.org/article/combatting-eurozone-deflation-qe-people
Professor Simon Wren Lewis, Oxford University
“If Quantitative Easing (QE), why not helicopter money? We know helicopter money is much more effective at stimulating demand. Helicopter money is a form of what economists call money financed fiscal stimulus (MFFS)… The really strange thing is that ICBs have already had to confront this nightmare. It is more than possible that when central banks sell back their QE assets, they will make a loss, and so will be faced with exactly the same problem as with helicopter money.  A central banker knows better than not to worry about something because it might not happen. So the nightmare has already been faced down. It therefore seems doubly strange that the taboo about helicopter money remains.” http://mainlymacro.blogspot.co.uk/2015/02/helicopter-money-and-government-of.html
Professor Yanis Varoufakis, Former Finance Minister of Greece
“The EIB/EIF has been issuing bonds for decades to fund investments, covering 50% of the projects’ funding costs. They should now issue bonds to cover the funding of the pan-euro-zone investment-led recovery programme in its totality; that is, by waving the convention that 50% of the funds come from national sources. To ensure that the EIB/EIF bonds do not suffer rising yields, as a result of these large issues, the ECB can to step in the secondary market and purchase as many of these EIB/EIF bonds as are necessary to keep the EIB/EIF bond yields at their present, low levels. To stay consistent with its current assessment, the level of this type of QE could be set to €1 trillion over the next few years…Moreover, this form of QE backs productive investments directly, as opposed to inflating risky financial instruments, and has no implications in terms of European fiscal rules (as EIB funding need not count against member states’ deficits or debt).” http://www.economist.com/blogs/freeexchange/2014/11/economists-roundtable-euro-zone-3
Professor Roger Farmer, UCLA USA
“A large fiscal stimulus may or may not be an important component of a recovery plan. My own view is that there is a better alternative to fiscal policy…But if a fiscal policy is used it should take the form of a transfer payment to every domestic resident; not an increase in government expenditure.” http://rogerfarmerblog.blogspot.co.uk/
Professor Steve Keen, Kingston University, UK
“I would have used the capacity of central banks to create money by making a direct injection into individuals bank accounts on a pro rata basis, complicated to work out how, but basically injecting money into peoples bank accounts, on the condition that those people who are in debt pay there debts down so that way you have private debt cancellation coming out of it, not therefore not only benefiting debtors but also benefitting savers who would also get it, and rather than paying down their debts down they would get an increase in cash levels…Its a very indirect and expensive way of getting very little bang for your buck…” http://audioboom.com/boos/2846464-prof-steve-keen-on-what-s-really-going-on-in-greece
Professor Randal Wray, University of Missouri-Kansas City
“…if you don’t ramp up the fiscal stimulus, and keep it ramped up until a full blown recovery has occurred, you will remain trapped in recession.” http://www.economonitor.com/lrwray/2012/11/12/demystifying-quantitative-easing/#sthash.us2dehIJ.dpuf
Professor Mark Blyth, Brown University
“Unless one subscribes to the view that recessions are either therapeutic or deserved, there is no reason governments should not try to end them if they can, and cash transfers are a uniquely effective way of doing so. For one thing, they would quickly increase spending, and central banks could implement them instantaneously, unlike infrastructure spending or changes to the tax code, which typically require legislation. And in contrast to interest-rate cuts, cash transfers would affect demand directly, without the side effects of distorting financial markets and asset prices. They would also would help address inequality — without skinning the rich.”http://www.foreignaffairs.com/articles/141847/mark-blyth-and-eric-lonergan/print-less-but-transfer-more
Professor Lucrezia Reichlin, London Business School
“In a situation of persistently weak economic conditions it makes sense to consider all options including tools that have stayed long in the closet. ”http://www.voxeu.org/article/helicopter-money-policy-option
Felix Nugee and Johnathan Hazel, Wilberforce Society at University of Cambridge
“An ideal solution, then, would marry the efficacy of fiscal policy at the Zero Lower Bound with the efficient design of monetary policy. Our argument – and the next part of this paper – is that the proposal of helicopter money can unite these two objectives.” https://wilberforcesocietyblog.files.wordpress.com/2014/01/helicopter-money.pdf
Professor Bill Mitchell, University of Newcastle (Australia)
“People’s QE is an excellent strategy for the British government to introduce. It exploits the currency-issuing capacity of the government directly and uses it to increase the potential of the economy to improve well-being. But, the policy proposal should never have been called PQE because it is not similar at all to Quantitative Easing and the false analogy only opens the proposal to further, unwarranted criticism…PQE as envisaged is a fiscal operation, not a monetary operation, whereas QE as practiced by the Bank of England, the Federal Reserve Bank of America, the Bank of Japan etc are not fiscal operations.” http://bilbo.economicoutlook.net/blog/?p=31626
Professor Victor Anderson, Anglia Ruskin University
“The industrial revolution brought in an economy based on fossil fuels. Now the climate crisis is forcing us to move on again. EU governments should be urgently examining every type of policy that could be used to help in this low-carbon green revolution. Green quantitative easing deserves to be near the top of their action list.” http://mollymep.org.uk/2015/06/15/greenqe/
Professor Francesco Giavezzi and Professor Guido Tabelinni, Bocconi University (Italy)
“Combining a monetary and a fiscal expansion is key to the success of aggregate demand management, as shown by the recent experience of other advanced countries. Quantitative easing by itself would not do much to revive bank lending and private spending, because credit in Europe flows mostly via banks, rather than financial markets. And fiscal expansion without monetary easing would be almost impossible, because public debt in circulation is already too high in many countries. The combined monetary and fiscal expansion would stimulate aggregate demand both directly and indirectly, through a devalued exchange rate.” http://www.voxeu.org/article/how-jumpstart-eurozone-economy