Guest essay by Eric Worrall
Michael Metcalfe, a senior merchant banker who gave a TED Talk in 2014 campaigning for money to be printed on a vast scale, to fund global charities, now wants governments to print 100s of billions of dollars, to combat Climate Change.
Can we print money for climate finance? Three years ago, the idea of using money in this way was something of a taboo. Once you break down and dismantle the idea that money is a finite resource, governments can quickly get overwhelmed by demands from their people to print more and more money for other causes: education, health care, welfare — even defense.
And there are some truly terrible historical examples of money printing — uncontrolled money printing — leading to hyperinflation. Think: Weimar Republic in 1930; Zimbabwe more recently, in 2008, when the prices of basic goods like bread are doubling every day. But all of this is moving the public debate forward, so much so, that money printing for the people is now discussed openly in the financial media, and even in some political manifestos.
But it’s important the debate doesn’t stop here, with printing national currencies. Because climate change is a shared global problem, there are some really compelling reasons why we should be printing that international currency that’s issued by the IMF, to fund it. The Special Drawing Right, or SDR, is the IMF’s electronic unit of account that governments use to transfer funds amongst each other. Think of it as a peer-to-peer payment network, like Bitcoin, but for governments.
And it’s truly global. Each of the 188 members of the IMF hold SDR quotas as part of their foreign exchange reserves. These are national stores of wealth that countries keep to protect themselves against currency crises. And that global nature is why, at the height of the financial crisis in 2009, the IMF issued those extra 250 billion dollars — because it served as a collective global action that safeguarded countries large and small in one fell swoop.
But here — here’s the intriguing part. More than half of those extra SDRs that were printed in 2009 — 150 billion dollars’ worth — went to developed market countries who, for the most part, have a modest need for these foreign exchange reserves, because they have flexible exchange rates. So those extra reserves that were printed in 2009, in the end, for developed market countries at least, weren’t really needed. And they remain unused today.
So here’s an idea. As a first step, why don’t we start spending those unused, those extra SDRs that were printed in 2009, to combat climate change?
The Climate TED Talk was filmed in 2015, though the recording appears to have just been posted on the internet today.
From my perspective, there seems to be a remarkable similarity between Metcalfe’s 2014 plan to print vast sums of new money and give it to the UN, to combat global poverty, and Metcalfe’s November 2015 plan to print vast sums of new money and give it to the UN, to combat climate change.
Both of Metcalfe’s schemes seem to involve imposing what is effectively a gigantic new UN tax on the world’s workers.
Printing money is the ultimate stealth tax – instead of openly taking money out of people’s pockets, printing new money drains value from cash already in circulation. People still have the same amount of money as they did before you printed the new money, but some of the buying power of that money has been transferred into the newly minted cash.
But what about the alleged “benefits” of inflating the economy with newly printed money?
I spent a lot of time with bankers during the crisis, developing banking software. The rest of the economy had already collapsed, and I had bills to pay.
In my opinion, the only people the bailouts “saved” were bankers, and friendly senior politicians and donors who were heavily invested in banking stocks.
The bankers I talked to knew Subprime Mortgages were trash, well before the financial crisis, but there are fancy strategies by which sharp financial traders can make money out of the most unlikely rubbish.
However these fancy strategies require certain preconditions to function. One of these implicit preconditions is that the market remains “liquid”. The magic only works, when traders can keep their inherently unstable Portfolios balanced, by continuously buying and selling small parcels of financial instruments.
When Subprime mortgages collapsed, triggering the 2007 banking crisis, the market totally froze. Nobody was interested in buying subprime mortgage products at any price. Almost everyone was stuck with unbalanced portfolio positions which they were no longer able to adjust, positions which rapidly toppled into bank breaking losses.
Then suddenly it was all better – the friendly politicians showed up, with a huge deluge of freshly printed money, to make it all better. Not only did this public cash save the jobs and savings of the people whose recklessness had created the crisis, the public money actually enriched many of the failed bankers, in some cases beyond their wildest dreams.
Precious little of the bailout money helped ordinary taxpayers, who ultimately funded the bailout, via the money printing stealth tax.
If politicians listen to Metcalfe’s plan, and fire up the printing presses to “save the climate”, fund global charities, or for this year’s noble sounding cause, whatever that is, all that will happen in my opinion is that bankers will grow even fatter. The increased funding will help the UN to become more powerful. And of course, ordinary people, who would ultimately pay for this new banker party through the depleted spending power of their debased life savings, will be further impoverished.