The politics of printing money

Trumpeter Lanfried

We don't need the Daily Mail to conjur up visions of a Zimbabwean economy. The very phrase, 'printing money' will suffice. Vote Labour. Buy gold.

Patrick

The Bank of England is already doing this in a big way. Read John Redwood's blog.

Cut & Paste - the juice.

One of Matthew Lynn's predictions for 2009.

Bloomberg - 31/12/08:

Britain calls in the International Monetary Fund: In the last few months, the U.K. has been a lesson in how to turn a crisis into a catastrophe. Everyone knew its debt-fuelled, financial-services-dependent economy would need a painful overhaul to develop new industries. Instead, Prime Minister Gordon Brown has embarked on one last borrowing splurge. With the pound already in freefall, the U.K. will run out of money and have to beg the IMF for a bailout.

Sally Chatterjee

Brown and Darling seem to be lurching from one policy to the next but nothing is working.

The challenge for the Opposition comes in three steps. First to point out the enormous risks linked to these extremist policies but without refusing to employ them. Next to point out that we're in such a mess that we have to resort to these wild ideas. Finally to make the point that Brown and Darling have so far only made matters worse, that the people who've led us into the mess can't be trusted to get it right.

I'm hoping George Osbourne is on his way to the Nissan plant as I type, to talk to workers, union officials and managers alike and then to give a live press conference from the staff canteen. But I won't hold my breath.

Fergus Pickering

What is it about George Osborne's name that means countless thousands can't bloody spell it. It must be the Ozzie bloke.

TomTom

The challenge for the Opposition

is to get some quality Economists as advisers and some articulate Politicians with profile and presence to shred the disaster Labour is preparing before they destroy democracy itself and stay in power as a Fascist regime using the "state of emergency"

Philip Wright

John Redwood has blogged this morning that "Qualitative Easing" is already underway from his reading of the B of E's weekly statements.

Surely it is about time that the commentariat (including Coffee House) stopped predicting that this would occur and start looking at what will happen if the printing presses start to work even faster. The Tories can and should make far more of the disastrous consequences that this will entail for the economy. "Reykjavik on Thames" could be in danger of becoming "Harare on Thames".

Lou Dacht

I wonder if anyone on board could recommend an idiots' guide to this economic trope and the mechanics of its actual operation?
I tried following someone explaining it on R4 this morning and he lost me early in the proceedings.

Genuine request, all help appreciated.

Peter Norman

The Government and Bank of England already seem to be “printing money” like there’s no tomorrow? In June 2005 the BOE Consolidated Statement showed £87.5bn liabilities. I notice the latest liabilities total £237.5bn. Bankers and economists please explain these minor changes (to us – the dim-witted folk in the street)?
See references
http://www.bankofengland.co.uk/publications/bankreturn/2006/060607cs.pdf
and
http://www.bankofengland.co.uk/publications/bankreturn/2009/090107cs.pdf

Susan Hill

Osborne out. Osborne out. Osborne. Osborne. Osborne OUT OUT OUT

Ken

Surely its once "Reykjavik on Thames" and "Harare on Thames" become "Weimar on Thames" that the true disaster surfaces? ... and then Hitler Brownshirt makes the moves .....

Max

The odd thing is that although the politics may be wrong the economics are very definitely right. True- it is a very risky policy- but it really is the only option to avoid debt deflation. The strategy should be 3 pronged-

1. Set up a "bad bank" for the Bank's bad debts

2. "print Money" in order to buy those debts off the banks and rebuild the banks balance sheets.

3. Crucially, and paradoxically, maintain and the start gently increasing interest rates. The problem as it currently stands is not that people can not afford credit at current interst rates it is that the banks, overwhlemed with bad debt, are not lending at all. Therefore the soloution is to increase the banks ability and willingness to lend by giving them cash in return for their bad debts while simulatenously deterring the consumer from borrowing too much through the use of interest rates and keeping a little in the bank as higher interest rates stimulate saving.

Lou Dacht

Do I understand this right Max?

A group of businesses, having made bad decisions and finding themselves penniless; should be able to palm off their mistake at the expense of other people, so they can return to the activity which caused their/our grief?

I wonder would you be interested in giving me some cash in return for my bad debts?

Sabine K McNeill

Lou,

There is money in our pockets and there is a currency of a sovereign Nation State. To print notes and mint coins is the privilege and monopoly of the State: free of interest, even making money out of the difference between the actual costs and the face value.

However, slowly and surely, banks have used their ability to create Credit out of thin air [see http://www.guardian.co.uk/commentisfree/2008/mar/20/jamesrobertsonmoneyfromthi]. As a result, virtually all money in circulation is now Credit, while no Cash is being created to pay for all those Credits. Personal and corporate debts have different effects than national debts.

But making money out of money is called 'usury' and is not allowed by religions and philosophies. Only economists preach it...

More on http://tinyurl.com/66rwd

Sabine K McNeill
Organiser, Forum for Stable Currencies

D Frampton

I can see companies are suffering the reality of the unavailability of funds and loans. After billions have been handed to the banks why are they not releasing money.
None of the banks have shown any accountability for any of the received bailouts, it has just been swallowed whole - not a word.
Now the bank of england wants to buy the governments debt!
It doesn't make any difference what they call it, it still amounts to FIAT money and this will not lubricate the wheels of commerce it will just ensure that when we do emerge from this so called recession we will have inflation - and inflation on the kind of scale that they are talking about is just another way of devaluing our assets or one could simply say taxation!
The US has been the world bank for international trade since WWII but as the $ slides there will be I suspect be a great run on the "bank of America" as it slides further into nothingness.
If the bank of England prints off fiat money to buy gov debt we will end up in the same state as the US with hyper-inflation on the horizon.
In my opinion the banks have received the bailouts and have squirreled our money away and are purposefully keeping it out of circulation - similar to the way the banks and the federal reserve did in the 1929 depression (Milton Friedman).
The banks are manipulating our economies and the government is a toothless dog with no control whatsoever over the FSA or any other regulatory body for that matter. They are all industry controlled! so what is the point of government when they are so intrinsically kakistocratic?
Brown sold half of the British Gold reserve and rock bottom prices from 2000 - 2003 so we will have inflation whether we like it or not!
Brown has never made good economic sense.
Money is traded as a commodity when it really should be a staple. This I feel is where convoluted economic theory has become unstuck.
Since the Reagan years when legislation was passed allowing derivatives to be traded legally the world economy has been in the hands of the traders, hedgefunders and the banks (central banks).
Money has itself become the cash cow.
People have forgotten in these convoluted times that the real value is not money but people.
Without people, money,or any other type of asset becomes worthless. The people are the assets. They make the money worth what it is and our countries what they are and ultimately provide their worth.
The facts are plain to see for anyone who cares to open their eyes.
The world is full of able, capable people who have real worth and value. They and their products and services are tangible and of great value.
I see no recession in their value!
This engineered recession by the banks who are willfully keeping money out of circulation are to blame. Whatever their reasons they are to blame and the effects are being felt by many people and companies.
It seems that the banks have outlived their usefulness and a return to the gold standard as a baseline combined with GDP as the basis of an economic strategy might be a way forward (if only brown had not sold half our Gold).
Fractional reserve banking is just feudal and antiquated. They are merely loan sharks operating under the pretense of officialdom and should not be tolerated.