Guest essay by Eric Worrall
The Guardian has promoted an idea for a new climate friendly financial system, to permanently halt economic growth.
To deal with climate change we need a new financial system
Abolishing debt-based currency isn’t a new idea, but it could hold the secret to ending our economies’ environmentally damaging addiction to growth.
When it comes to global warming, we know that the real problem is not just fossil fuels – it is the logic of endless growth that is built into our economic system. If we don’t keep the global economy growing by at least 3% per year, it plunges into crisis. That means we have to double the size of the economy every 20 years, just to stay afloat. It doesn’t take much to realise that this imperative for exponential growth makes little sense given the limits of our finite planet.
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The question is what to do about it. How can we redesign the global economy to bring it in line with the principles of ecology? The most obvious answer is to stop using GDP to measure economic progress and replace it with a more thoughtful measure – one that accounts for the ecological and social impact of economic activity. Prominent economists like Nobel Prize winner Joseph Stieglitz have been calling for such changes for years and it’s time we listened.
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One way to relieve the pressure for endless growth might be to cancel some of the debt – a kind of debt jubilee. But this would only provide a short-term fix; it wouldn’t get to the real root of the problem: that the global economic system runs on money that is itself debt.
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The responsibility for money creation would be placed with an independent agency that – unlike our banks – would be democratic, accountable, and transparent, so money would become a truly public good. Commercial banks would still be able to lend money at interest, but they would have to back it dollar for dollar with their own reserves. In other words, there would be a 100% reserve requirement.
This is not a fringe proposal. It has been around since at least the 1930s, when a group of economists in Chicago proposed it as a way of curbing the reckless lending that led to the Great Depression. The Chicago Plan, as it was called, made headlines again in 2012 when progressive IMF economists put it forward as a strategy for preventing the global financial crisis from recurring. They pointed out that such a system would dramatically reduce both public and private debt and make the world economy more stable.
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I haven’t been able to locate the original text of the Chicago Plan memorandum, but the IMF revival of the Chicago plan is available here.
The main thrust of the plan appears to be to nationalise all personal retail bank deposits. When proponents of the plan talk about forcing banks holding a “100% reserve”, they don’t just mean physical cash – government bonds also count as cash. When you deposit cash into a bank under this scheme, you will effectively be buying government bonds, lending the money straight to the government. Other than holding physical cash, lending to the government would be the only option for earning an income from bank deposits.
Would this plan stop economic growth? It would certainly cause a lot of harm. Replacing private lending with government lending schemes has been tested to destruction on countless occasions. It turns out civil servants who don’t face personal consequences if the loan goes bad tend to do a poor job of checking the creditworthiness of applicants. Printing new cash to cover losses from poor centralised banking decisions is not a recipe for prosperity.
I suspect what this plan would do, if implemented, is accelerate the ongoing growth of the shadow banking sector.
Governments are rapidly losing control of the global currency system. Digital currencies like Bitcoin exist because their proponents want to liberate currency from the control of governments. While almost untraceable Bitcoin is undoubtably the currency of choice for scammers, terrorists, drug traffickers, and other assorted filth, it is also the currency of people who want to circumvent unfair restrictions on money.
Thanks to Bitcoin and similar digital currencies, even communist China can’t control currency movements anymore. One of the main reasons the value of Bitcoin has surged in recent years, is mainland businesses discovered they could use Bitcoin transactions to circumvent Chinese currency controls, to shift their profits out of China.
There is nothing new or mysterious about how Bitcoin and other digital currencies work. Bitcoins are simply the latest incarnation of the long history of informal value transfer systems, a tradition as old as tax collection.
These f*ckwits are not even bothering to pretend anymore that they’re not wanting what they actually want.
Without growth, economics becomes a Zero Sum Game. Economic wealth creation comes from growth and requires energy. Energy and economuc growth are intimately intwined as Mr Hickel is aware.
Economic growth is what has allowed our standards of living to be better than our grandparents, to have more opportunities for our children to not live in filth and disease, to have access to medical care that our ancestors did not have and costs money (resources).
Jason Hickel is just a human turd who belongs in the same category of Paul Ehrlich…. flushed down the toilet of human waste.
We do not need money at all. We can all just wear uniforms, live in dormitories, and just do what we are told to do. If it is good for North Korea then it should be good for the rest of the world.
Before the private sector learns to do without debt the government sector needs to learn how to stop accumulating debt and instead pay off its existing debts. According to the President’s economic “plan”, the federal government should be in their second fiscal year of posting annual surpluses to be used to reduce the National debt but that is not happening. We are also still waiting for the budget cuts that were suppose to have gone along with the tax hike on the rich and the ACA taxes as part of the President’s balanced approach to deficit reduction. At the very least the federal government needs to stop keeping interest rates artificially low so that middle class savers can again earn real money through interest on savings. The President, as the federal government’s CEO, needs to present to the taxpayers a plan for the federal government to pay off its debts. I estimate that the money the federal government is borrowing today will end up costing the taxpayers more than 12 times the amount borrowed to pay it back over the next 170 years.
But the reality is that the climate change we are experiencing today is caused by the sun and the oceans over which Mankind has no control There is no real evidence that CO2 has any effect on climate. If we removed all the CO2 from the Earth’s atmosphere it would have little effect upon the total greenhouse gases in the atmosphere but it would kill off most of the life as we know it on this planet. Then again, even if we removed all the greenhouse gases from the Earth’s atmosphere, it would have very little effect because there is not detectable radiant greenhouse effect on Earth nor anywhere in the solar system. The AGW conjecture depends on a phenomenon that does not exist.
Mankind does need to control his own population but I believe that there exists a more humane approach then by means of starvation caused by economic calamity. Those that are in favor of economic calamity may also favor thermonuclear war as another approach to fighting climate change.
“At the very least the federal government needs to stop keeping interest rates artificially low so that middle class savers can again earn real money through interest on savings.”
Interest rates are, in the main, controlled by the Federal Reserve, which is not part of the Federal Government.
The Fed is nominally independent of the federal goverment, and sometimes nonpolitical sort of. As the head of the Federal Reserve is a presidential appointee, the behavior of the appointee in office depends a great deal on the intentions and skill of the President.
Janet Yellen is one of the more political heads, and shows both the skill and intentions of Obama in appointing her. She does not get direct instructions, but knows quite well what the administration wants.
That’s the fiction many want you to accept. No. The Federal Reserve is a GSE. It is nominally independent of politics, but in actuality, it isn’t.
This is straight out of the pages of Atlas Shrugged…
What has killed economic prosperity and vastly lowered living standards for the middle/lower classes has been excessive public spending, massive growth of global sovereign debt (now close to $90 Trillion), excessive monetary inflation (US$ has lost 90% of its purchasing power since going off the gold standard in 1972), insane regulation compliance costs ($2 trillion/yr in US) and crazy zero-interest rate polices designed to create economic bubbles that will soon pop…
GDP as calculated now is fatally flawed as it reflects NOMINAL costs and substantially underestimates REAL inflation caused by governments’ excessive money printing.
Increases in productivity and technological advances will cause prices to FALL for everything leading to deflation and fewer required working hours to produce the same amount of goods… Who wants to pay MORE for things and work harder and longer to buy them? It’s insanity…
One person per household should only be working 32 hours a week to provide a very comfortable middle class standard of living. But, alas…now 2 people per household have to collectively work 60~80 hours/week just to make ends meet…
Failed Keynesian economic policies have brainwashed people into believing FALLING prices are dangerous and must be avoided at ALL COSTS, which is stupid.
Total state, local and federal spending should only cost citizens 10% of GDP at most, and governments should only be allowed to spend money on a few enumerated powers: military, passing a few laws, courts, border protection, policemen, firefighters, infrastructure and that’s about it… The private sector can provide all other societal needs at 1/4 the cost.
NOTHING will change until the current insane system collapses and people finally realize Statism/ Leftism is just another form of slavery/indentured servitude.
Everyone should read “The Confidence Game: How Unelected Central Bankers Are Governing the Changed World Economy” by Steven Solomon. A little dated, but the con is still on.
Pretty good Samurai.
I’d leave most infrastructure out of the government hands-probably only sewage/sanitation and and regulation of public watersheds for drinking water and the interstate highway system. Letting that go totally private or state-run would probably ruin it. States are already way behind on their fiscal support.
The rest of the infrastructure did quite well in private hands-just about every road you see labeled XXXX-Pike was originally a privately built toll road, also all the canals, the original interstate transport system, were private businesses. Bridges , too, most water systems. Most of this infrastructure was turned into public during the Progressive era in the late 1880’s-1950 when public infrastructure was mostly entrenched.
Philohippous-san:
I agree with you that roads and infrastuctire should be privatized, too, however, my argument was based on what Article 1, Section 8 Constitutional powers the federal government actually has, and managing and building roads and infrastructure are part of the 18 federal enumerated powers.
Especially with GPS, it would be very easy to privatize roads with tolls being collected based on actual road usage. Additional revenue could be generated by building utility conduits under roads, which utilities could rent from the transportation companies.
The fundamental problem with fractional reserve banking is that it creates multiple claims (titles) on the same asset, something that violates fundamental legal principles. And on that point I agree with the proposal. But let us ask, to what end was this proposal made? Clearly to a fraudulent and socialistic end, and that is where I part company with them.
If anyone cares to poke around at the web site of the Mises Institute, (mises.org) you can find a lot of thoughtful explanations about the nature of money and how dangerous fractional reserve banking is to economic and social freedom. But they will clearly say that money is not something that should be allowed to be created or manipulated by anyone because when the money supply is distorted by government, it always results in some participants in the economy gaining and some having wealth taken away from them.
Creating more money out of thin air by government is a form of embezzlement of private wealth by dilution plain and simple. It is fraud and theft and therefore in violation of the takings clause of our Constitution. Worse, it gives people the false idea that wealth can be created out of thin air to pay for “benefits”, for wars, for programs and for more bureaucrats and enforcement agents at the EPA. In short it hides the full cost of government and makes possible a far larger government than we really can honestly afford.
No problem. The dollar is owned by who ever it is lent to last.
Everyone else has a non-performing asset.
MUST WATCH VIDEO: How The Fed Is Purposely Destroying The Economy
Filed in Economy, Videos by SRSrocco on September 17, 2015
https://srsroccoreport.com/must-watch-video-how-the-fed-is-purposely-destroying-the-economy/
“J. W. McCallister, an oil industry insider with House of Saud connections, wrote in The Grim Reaper that information he acquired from Saudi bankers cited 80% ownership of the New York Federal Reserve Bank- by far the most powerful Fed branch- by just eight families, four of which reside in the US. They are the Goldman Sachs, Rockefellers, Lehmans and Kuhn Loebs of New York; the Rothschilds of Paris and London; the Warburgs of Hamburg; the Lazards of Paris; and the Israel Moses Seifs of Rome.”
http://www.globalresearch.ca/the-federal-reserve-cartel-the-eight-families/25080
Ooooooh! All greedy Jews!
Sadly, I need /sarc, even here.
The odd thing is these fools believe, as being elite master minds, that they will be exempt from the consequences of total socialism for whatever cause. The social “victories” of Cuba,Nicaragua, Albania, Yugoslavia, and Venezuela seem to have totally passed over their collective heads.
Whenever Lefties speak fondly of “benevolent dictatorship”, it’s naturally assumed the benevolence will move in their direction.
A benevolent dictator is still a dictator.
A “benevolent dictator” is one who actually works for the greater good, not to hand out favors to friends and supporters. They are few and far between, but a few Kings, Queens, and Emperors have done it, at least for awhile.
A benevolent dictator, while theoretically possible, is not something to be counted on.
The most important thing is who controls the national currency, should it continue to be private central banks, or the government. For all the problems with government control, the private banks use the control of currency to concentrate wealth and reward their friends(especially politicians).
Good post Anne Ominous.
The Chicago Plan was largely the responsibility of economist Irving Fisher who wanted to prevent another Great Depression from happening. Fisher’s paper can be found here – his proposals on Fractional Reserve Banking.
http://www.longwavepress.com/A-Program-for-Monetary-Reform-.pdf
The proposal suggested here is actually pointed at the Malthus/Ricardo population/wage trap that has concerned economists since the 1800’s. In effect, population growth (labor over-supply) causes wages to decline to subsistence levels, resources become too scarce because of the combination of population growth and the lack of wages to pay for them, leading to societal collapse. The solutions that eventually asserted themselves were that emigration can act as a safety valve, but that economic expansion causes increasing demand for labor, providing a way out of the trap.
Much of the AGW agenda is based on Malthusian (population) theory, and its adherents are not happy with the ecological impact of economic growth. The first 2 paragraphs and the last quoted above make clear that the “solution” is what is being attacked here, and they are not altogether wrong: Find a way to permanently end economic expansion, and the Malthus/Ricardo trap reasserts itself.
As to the GDP issue, proposals to measure “goods” with non-quantifiable values are interesting, but have not gone anywhere for the obvious reason.
Whether requiring a 100% reserve ratio would result in a stable system is an interesting theoretical exercise, but the author clearly states that the goal is to stop economic growth (which would force imposition of the Malthus/Ricardo trap).
This scheme is Marxism is disguise. These systems offer an illusion of success but ultimately fail because they underestimate the power of the invisible hand.
I’m firmly of the mind that climate change is pure crud, a fraud pushed on humanity to scam the public with carbon taxes, credits, cap and trade. A means of concentrating wealth into the hands of the people running the foundations that push the alarmist propaganda. They are the winners of the debt based currency system.
My parents were Social Creditors, not to be confused with Socialists. The Chicago Plan is a far more aggressive Credit based currency scheme than they would have imagined. That said, we have the problem that GOP expansion is currently needed just to pay interest on the ever expanding global debt.
Eliminate public and private debt, and any GDP growth goes to the long suffering public.We can make economic investments based on long term requirements and not short term greed and debt refinancing. The Chicago plan envisages 10% GDP growth per annum as an outcome. Elon Musk was saying just a few days ago that automation would make all employment obsolete within 20 years and we would need a guaranteed minimum income scheme to keep the economy running.
Here’s a few numbers to consider. 100 million working age Americans are not in the workforce. 65% of those not working say they would like to but can’t afford to lose benefits. 50 million employed Americans could have their jobs replaced by existing automation and A.I. Over half the employed work in the public sector.
In almost every other western country, health care accounts for 10% GDP, in America, it’s 18%. That’s a big reason jobs get shipped to China and Mexico, get health care costs in line, you can stop the bleeding. One of the reasons you have Obamacare is because health insurance companies cannot survive in a zero percent interest economy, they need 4% minimum. Obamacare kept them afloat until now, but the collapse is upon us. To prevent it, the debt problem has to be fixed, because you can’t raise interest rates with this much debt in the system.
In America, problems tend to be discussed in isolation from each other, when they all interconnect in an error cascade originating in debt based currency. To solve problems, always look for the most common denominator to all of them.
The most common denominator? Stupid belief in simple solutions.
Sure you’re not charliecynic, a little tale. A man in Missouri took his dog hunting ducks for the first time. He shot a duck and told the dog to fetch it. The dog walked across the surface of the pond, picked up the duck, then walked back and placed it at his masters feet. The man rubbed his eyes, shook his head in disbelief, then decided to shoot another duck and get the dog to fetch it again, just to confirm he was seeing things. Once again, the dog walked across the surface of the water like Jesus, picked up the duck, and delivered it to his master before sitting down like any other retriever. This went several more times before the man drove home with the dog sitting beside him just like any other dog.
The man decided there was only one way he could tell other people and not be told he was crazy. He decided to invite the most skeptical, cynical guy in town duck hunting the next weekend. When the two men were out hunting that next weekend, the man shot a duck and told the dog to go get it. Once again the dog walked across the surface, picked up the duck and walked back. The town cynic showed absolutely no reaction to the dog’s Jesus imitation. Even when the performance was repeated several more times, he didn’t bat an eye.
When the two men were driving back from the hunting trip, the man finally got the nerve to ask the cynic, “You didn’t happen to notice anything unusual about my dog” to which the cynic replied, “yeah, he can’t swim.”
Like I said, Chris: Stupid belief in simple solutions.
The Malthusians will never be right unless they are given the power to restrict growth. A little irony there.
” It doesn’t take much to realise that this imperative for exponential growth makes little sense given the limits of our finite planet.”
This analysis was made with the idea in mind that there is no service sector, or a very limited one. The concept is silly from the get-go. The value of goods and services does not consist only of the value of goods. If the Movement of the Left would consider those aspects of the economy that are not ‘things’, i.e. give up their materialist bent, they would quickly realise that the sum of goods and services consists of more and more services as a society develops.
The UK has had a growing economy using less energy total. Service jobs outpace goods production in many countries as goods shrinks relative to services. The use of capital investment per service job is much less than goods production investment per job. It is not simple like they propose.
Basically the argument is simplistic and stale. If they were indeed successful in stalling growth by restricting investment capital, people would simple exchange services without capital as was done in the Great Depression. Who wants to live in a permanent depression?? Further, were capital redistributed more equitably (i.e. rapacity ended and profit share implemented universally) the same amount of capital that is now being used to buy ‘debt notes’ would still be in the financial system. It would just be applied in other ways. You can’t print wealth, you can only print a medium of exchange.
Money can be viewed as a store of energy or a store of labour. Printing money (debt) simply devalues the medium of exchange in relation to goods and services. Ending debt finance doesn’t mean people would stop buying. The effect would only be temporary as they would save for 1/2 a generation then operate in cash as does most of China and a lot of Japan, not to mention Africa. Debt financing is only creates a brief burst of activity. All debt comes home to roost as the US$ will discover eventually.
There is absolutely nothing in the thesis being promoted by the Guardian that wasn’t generated by the right Reverend Parson Malthus in the eighteenth century
Jason’s boss:
Jason:
Jason’s boss:
The consumer-driven economy seems to be a Ponzi scheme where ever-increasing demand is necessary to fuel ever-increasing production. That cannot possibly continue indefinitely. What is/are the solution(s)?
The Communist Manifesto had many valid criticisms of capitalism. But it is claimed that capitalism is the best economic system developed by man. Nothing better is possible. Can that be true?
Wilhelm Von Roepke had some other ideas. You are a wage slave if you depend on selling your labor to an employer. You need to develop other income-producing skills or properties in order to become more self-sufficient and less dependent on selling your labor to the highest bidder, especially when robots are performing more of the labor. Somehow we must form an economy that is less labor intensive, one that allows for more self-sufficiency. That would be something worthy of a Nobel Prize.
But don’t forget the 50% or so demanded by the taxman.
Then give me the Prize. Belief that: Individual people can make a better future for everyone, if simply left to themselves; capitalism/private property, not coercion; entrepreneurship, not envy; an ever-expanding pie, not a scramble for finite resources; light regulatory regimes, not bureaucratic fiat; future wealth and technology beyond current imagination, people then-living can handle their own sets of problems; and our monetary and fiscal systems are what they are, ignorant rants won’t change that fact.
So sayeth Charlie Skeptic
You have just described the Ponzi scheme that cannot continue. Nothing goes on forever. An ever-expanding pie requires an ever expanding population to eat it, otherwise why would it expand? You apparently assume that everyone has perfect knowledge and equal abilities, which is clearly not true. You have explained nothing with your glittering generalities, charlieskeptic.
SRI: Future wealth and technology beyond your imagination. Then again, we can put bureaucrats in charge to ensure that dosen’t happen, heh?
South River Socialist, you are completely wrong. Please spend a little time reading actual economists and less time reading Marx.
MarkW, Actually you should spend a little time reading Wilhelm Von Roepke. You do understand that the Middle Class is declining. The problem is that people do not have equal abilities so even if they have perfect knowledge and equal opportunities, dubious as that is, they may not be able to benefit. That is part of the reason for the ever-increasing disparity in wealth between the rich and poor. If you read the “actual economists” you will see the unrealistic assumptions that make all of their theories unworkable for many real people in the real world. What do you propose to eliminate the disparities that result from Capitalism’s “greedy hand”? (I am not proposing Communism or socialism. You have no idea of what I am talking about.) Read some Von Roepke, then we can have a conversation.
charlieskeptic – you too should read Von Roepke. Like MarkW, you have no idea of what I am talking about.
SRI, why don’t you just pick one of my suggestions and point out where it is weak”
And I do know what I am talking about, twit. You might want to get some practical experience to go with ungrounded theory.
charlieskeptic – your reliance on an ever expanding pie is wrong. Nothing continues forever. Some people do not share in the ever expanding pie. That is one instance of where you are wrong. If you take my recommendation and research Von Roepke, you will discover that he is an actual economist whose advice helped Germany recover from the devastation of WWII. Again, you have no idea of what I am talking about. You are the twit.
Wrong-O, SRI. I am very well aware of the not-Von Roepke story. You ignore cold war history in West Germany’s political and economic developments.
Oh, if you don’t believe in an ever-expanding pie, SRI, then you are a Malthusian.
I’m weak; I know! I get sucked into trying to imbue thread discussions with fact, reason and sanity.
1. All people share in an ever expanding pie. SRI seems to believe that some people deserve more than they get.
2. Roepke (not Von) was one of many economist is post-war Germany. SRI really should cite some of his recommendations that made it into actual policy and regulation.
3. Referencing biased puff pieces is not proof.
charlieskeptik – you are ignoring what is happening to the middle class in America, which should be of concern to all of us. The gap between rich and poor is expanding. Some upper-middle class who are capable are getting wealthier, but many more middle class are dropping out of it and the middle class suicide rate is escalating. I do not see any of your solutions alleviating that situation. You theorists continually ignore the people who are not able to achieve economic success in modern capitalistic society, for various reasons beyond their control. You appear to have no compassion for those less capable than you.
charlieskeptic – forgive me for the “von” before Roepke; it has been a number of years since I read him and incorrectly thought he used “von” like Mises and Hayek. (In other words, I got his name wrong, but not his ideas and significance.) Roepke was more than just another economist in Germany. He was the personal advisor to Adenauer and Erhard and provided the intellectual basis for Germany’s economic recovery. If he were alive today, he would be critical of our current economic system. It is not working for too many Americans. It needs to change. What do you think needs to be done to help your fellow Americans who are struggling now?
Charlie Skeptic went home and resumed his life after helping win the war, just like all those GIs after WWII. They were the ones, under our capitalist economic system, that provided the prosperity necessary to provide the vast sums of U.S. monies that went into helping a post-war West German recovery. Our strong military also protected the West German people during their economic recovery, which recovery was especially noteworthy compared to their socialist East German brothers. Without U.S. money and might, West Germany would not have had an economic recovery.
Charlie Skeptic would probably say that his fellow Americans that are actually struggling will, in the main, do just fine on their own. Federal, State and local governments will continue to take care of the rest.
Your first mistake was in thinking that there were any valid criticisms of anything in the Communist Manifesto.
Like most socialists, you want to fix everything by eliminating the desire of people to have more.
MarkW – please explain your theory of wealth discrepancies in the richest nation on the planet. Please do not tell me that all of the poor are lazy or lack motivation.
Ah the conflation of “poor” with “broke”. A “poor” person is not necessarily “broke” and a “broke” person is not necessarily “poor”. Wealth is not the same thing as stuff. Wealth, like value, resides in a person’s mind. A “poor” person blames others for his troubles that were not the results of the actions of others, but the results of his own poor decisions. A “rich” but “broke” person blames himself for being “broke” so he goes to work creating values that others desire and are willing to trade their created values in exchange. Resources are things that exist in the world or are brought into being into the world because they get used to create a better world. All successful life forms on this rock do this to enhance their own survival.
cdquarles – I agree with you to some extent. However, a certain amount of wealth above subsistence level is necessary to achieve the value residing in a person’s mind. Suggest you read some Joseph Pieper.
SRI, please tell us what that “certain amount of wealth above subsistence level” is in your mind. Does it include touch-screen computers?
Charlieskeptic – enough to allow a person some leisure time. Read Joseph Pieper’s Leisure: the Basis of Culture and his Happiness and Contemplation.
Charlie Skeptic helped win the Climate War; he has retired from the battlefield triumphant (rhymes with Trump, as in The Donald). Even though you and yours lost, Charlie Skeptic feels no need to return to administer coup de grace. You illiberals are doing a good enough job on your own.
Mmmm…I liked the picture in the Guardian article of burning tigers….a new take on appropriate fuels , CO2 and global warming for ten year olds…
The proposal from the Guardian has as much chance as a snowball in Hell.
http://www.bbc.co.uk/news/world-europe-37883003?ocid=socialflow_twitter
It’s worse than we thought!!!
Typically of the Grauniad this is all about “we”, without saying who “we” is.
Funnily enough, global regulators have already made a big step in this direction through two components of the Basle 3 framework, which was designed after the 2008 crisis. The Liquidity Coverage ratio requires banks have liquid liabilities (i.e. deposits) to hold equivalent values of High Quality Liquid Assets (i.e. government debt or assets of equivalent size and credit quality). On the other side of the balance sheet, the Net Stable Funding Ratio requires banks holding long term assets (i.e. loans) to fund them with long term liabilities. Overall effect will be to limit the ability of banks to do maturity transformation and credit creation.
The rationale for this was not to limit growth but to improve financial stability. ( Incidentally, the whole green obsession with growth has things entirely arse about face. Growth is not the “objective” of the economy. Growth occurs either because more resources become available to people (principally human resources because of population growth, but occasionally mineral resources e.g shale oil), or because people work out better ways to use the resources they have, either through research and tenhology or just through better management. This is what economists mean by productivity. It can easily lead to fewer physical resources being required). But whatever the intention, the effects are likely to be far reaching. Banks in London, for example, are extremely reluctant to take deposits from companies for anything less than 95 days. In other words, banking services as traditionally understood, are no longer available to corporate treasuries. The guardian may get its wish sooner than it thinks!
This is quite a laugh. Apart from their usual factual errors, the Guardian is invoking a proposition most famously associated with Milton Friedman and the monetarist revival of the 1960s/70s. If you wanted to reduce a British leftist to incoherent rage in the early 1980s, that name would do the trick. From a dusty old banking book, I see it was proposed by Friedman in 1960, well before offshore banking got going. In theory, it would provide tight control over the money supply and therefore (in theory) inflation. First proposed, apparently, by Irving Fisher (Yale) in 1935 as a way (obviously) of stopping bank runs. It is not anti-growth per se (the names involved should tell you that). Quite impractical today, unless you are planning a global central bank presiding over a single currency.
And today, inflation is a word you never hear anymore and interest rates are the lowest they have been in the entire history of mankind and money lending going back 4,000 years.
Friedman’s ideas have been the most successful economic theories in history in terms of achieving a desired result.
For the most part, the Greens and climate science believers were left-wing socialists before they decided to be against CO2.
People can move to Venezuela if they want socialist economies.
Ads –
Most mainstream economists today will tell you that a measure of inflation is necessary to oil the engine of growth. The Bank of England has a target for inflation of 2.5% p.a. – they consider the current ca. 1% too low. (Believe me, they will have their wish, and more, because of what they have done in the past!).
In times of crisis I might go along with an easing of the money supply, but it should be done with the greatest reluctance, and over the longer haul sound money brings its own dividend, as Germany and Switzerland have shown admirably, at least until recently. The error, adopted by most economists, could well be down to a trust in economic MODELS.. The error is to mistake GDP numbers for growth. Measuring it is not easy in the short term, because it is not the same as activity. Wealth comes through an ever more efficient division of labour, largely through technology. Money should only be a means of exchange, not a way of tweaking the growth process.
I recall a TV show in the UK in the 80’s called Spitting Image. I don’t recall all details and characters, but did feature a “fiscal” model. The character (He) operating the model had control over several inputs. Basically, he lost control of the inputs to the model and the model went wild, running up the walls etc and generally refusing to cooperate and chaos ensued. I think it was about the time of the big crash in Stirling around about 1985 IIRC. Hilarious, wish I could find a YouTube clip.
If the economy is expanding at 2% per year, then the money supply also needs to expand at 2% per year.
The big problem is that money supply is the total number of dollars in circulation multiplied by the velocity of money (the number of times an individual dollar changes hand during the measuring period).
When the economy is growing, velocity tends to go up, when the economy is shrinking, velocity tends to go down.
Velocity has no bearing on the measure of “money supply.” https://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html
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Get a clue.
If it’s an idea promoted by the Grauniad, then it will always prove to be a bad, impractical and irrational idea.
We are all looking at this from a Western Centric viewpoint..
But what about the developing world? Are they to remain in poverty just to satisfy the Guardian?
The system is rigged and always has been. Wealth is power and power is control.. That’s why the powerful always wan to disarm the population. The anti-humanist would like about six billion less people on the planet and this is a step in that direction.