Green Investment Quantitative Easine
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(Don't want to overload the Corbyn thread).
So:
Quote:GIQE always starts with debt. It may be debt issued by local authorities, or NHS trusts to replace PFI, or the Green Investment Bank, or whoever, but all will be within the state sector. Never once will there be GIQE without debt, or it would not be QE. And that debt would, because of the requirements of the EU Lisbon Treaty, be issued to private sector banks in the first instance: that is what the law requires.However, under a GIQE programme government would require that the Bank of England (BoE) make funding available to purchase such debt almost immediately after its issue to private banks.So, an economy worth €100. A local authority borrows €10, which the bank of England buys straight away (I assume the bank doesn't charge interest, why should it, the money it's getting is free). The economy is now worth €110.
Even assuming the private bank created the money, when it issued the debt, it created €10 of assets (the loan) and gained€10 of liabilities (the authority's account), when the BoE pays it, it looses the liability, and the asset loan, but gains asset cash. So the BoE gains the asset loan, and no balancing liability, so
LA gains €10 – €10
PBank €10
BoE €10
The private bank still wins here…
Under "quantitative easing" the central government issues and sells more short-term bonds (Treasury bills) and uses the proceeds to buy (generally) longer-term government bonds off financial institutions (eg. pension funds and insurance companies); the government does not pay the financial institutions directly but it pays their bank by increasing the reserves the bank holds with the Bank of England. The aim is to increase "(financial) asset prices" (on the assumption that this will encourage investment and get the economy going again) but it also increases banks' reserves with the BofE, so increasing the money supply (as conventionally defined as these reserves are regarded as part of it). This doesn't result in inflation as the banks can't spend these reserves, only use them to clear claims from other banks, and the financial institutions use them to buy more bonds, shares, and other financial assets (so increasing their price).QE is well explained in this article from the Bank of England's Quarterly Bulletin:http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
Quote:QE has a direct effect on the quantities of both base and broad money because of the way in which the Bank carries out its asset purchases. The policy aims to buy assets, government bonds, mainly from non-bank financial companies, such as pension funds or insurance companies. Consider, for example, the purchase of £1 billion of government bonds from a pension fund. One way in which the Bank could carry out the purchase would be to print £1 billion of banknotes and swap these directly with the pension fund. But transacting in such large quantities of banknotes is impractical. These sorts of transactions are therefore carried out using electronic forms of money. As the pension fund does not hold a reserves account with the Bank of England, the commercial bank with whom they hold a bank account is used as an intermediary. The pension fund’s bank credits the pension fund’s account with £1 billion of deposits in exchange for the government bonds. This is shown in the first panel of Figure 3. The Bank of England finances its purchase by crediting reserves to the pension fund’s bank — it gives the commercial bank an IOU (second row). The commercial bank’s balance sheet expands: new deposit liabilities are matched with an asset in the form of new reserves (third row).Two misconceptions about how QE worksWhy the extra reserves are not ‘free money’ for banks.While the central bank’s asset purchases involve — and affect — commercial banks’ balance sheets, the primary role of those banks is as an intermediary to facilitate the transaction between the central bank and the pension fund. The additional reserves shown in Figure 3 are simply a by-product of this transaction. It is sometimes argued that, because they are assets held by commercial banks that earn interest, these reserves represent ‘free money’ for banks. While banks do earn interest on the newly created reserves, QE also creates an accompanying liability for the bank in the form of the pension fund’s deposit, which the bank will itself typically have to pay interest on. In other words, QE leaves banks with both a new IOU from the central bank but also a new, equally sized IOU to consumers (in this case, the pension fund), and the interest rates on both of these depend on Bank Rate (…)Importantly, the reserves created in the banking sector (Figure 3, third row) do not play a central role. This is because, as explained earlier, banks cannot directly lend out reserves. Reserves are an IOU from the central bank to commercial banks. Those banks can use them to make payments to each other, but they cannot ‘lend’ them on to consumers in the economy, who do not hold reserves accounts.The Green "Quantitative Easing" scheme would not be like this. It could start the same with the Bank of England issuing and selling more Treasury bills, but from that point on things are different. The proceeds would be used to buy bonds issued by the Green investment bank. Even if this was to be channelled through a commercial bank (if only to comply with EU rules), this would be the "free money" that conventional QE avoids. It would be inflationary as the intention would not be to increase financial asset prices through the pension fund increasing its demand for them but to provide money for the Green Investment Bank to spend. It is new money that can be spent, which of course is the intention. But this just be a roundabout, sophisticated alternative to the government simply printing the money and giving it to the Green Investment Bank. Technically it could be done but the result is unlikely to be what is intended, i.e to stimulate the econmy. It's more likely to make it worse.
You know me, not a scooby on economics micro or macro. But i just read this article which isn't what is being suggested by your example but i think just as wishful. Banking that cares about the environment.http://www.countercurrents.org/banday020815.htmIt mentions the first ever American corporative green Bond in 2013 issued- $500 million in funding to connect investors with projects that create a positive environmental impact. The net proceeds of this new series of bond will be used to finance energy efficiency projects and invest in renewable energy projects such as wind and solar.
Ah, all becomes clearer, here's what Murphy said when I asked him about it:http://www.taxresearch.org.uk/Blog/2015/08/03/chris-leslie-has-got-corbynomics-wrong/comment-page-1/#comment-730618
Quote:The local authority issues a loan and gets cashThe bank buys itThe bank sells it to the BoEThe local authority now owes the BoEThe bank makes a margin on buying and selling – effectively an under-writing fee imposed by EU regulationThe BoE can charge interest or not – it’s circular thenYou forgot the bank has to buy the debt(I've edited slightly to remove an obvious typo). So, effectively, this gives local authorities the power to print money (ahem).
Murphy wrote:The local authority issues a loan and gets cash.Who buys the local authority loan in the first place?
"Positive Money", the oxymoronically-named campaign group, gets in on the act (also providing a photo, presumably of the non-entity who is the Labour Shadow Chancellor)http://positivemoney.org/2015/08/shadow-chancellor-look-case-strategic-qe/Note the comments by RJ (by " BoE reserves" he means what the commercial banks hold at the Bank of England; T is the Treasury):
Quote:Of course QE for the people will not reduce the Govt deficit. As the article rightly points out, QE is an asset swap where BoE reserves are swapped for Govt bonds. It increases the amount of money (bank deposit) only when the bonds are purchased from a non bank.So in effect the Govt deficit spending is initially funding by T bonds. The BoE then buys these bonds back. The result of this is that spending is funded by reserves rather than bonds. But both bonds and reserves form part of the Govt deficit. And also debtHopefully Corbyn understands this point. Otherwise he could end up with a UK Green Positive Money explanation disaster.Quote:"it’s just that instead of putting this money into financial markets, it would be allocated to government, or other public institutions,"And this is very wrong. Hopefully My Corbyn has a better understanding. QE is an asset swap where the BoE buys back Govt bonds on the open market. The BoE DOES NOT allocate money to the Govt or anyone else. The Govt quite rightly is responsible for this action. The issue is just how to fund this deficit spendingOption 1 By T bonds issues (this always drains reserves / bank credit but only if a non banks buy the bonds)Option 2 By BoE reserves (this does not drain reserves or bank credit)In effect option 2 means the non Govt sector end up holding cash rather than T Bonds. Some claim (others disagree) that this additional money (bank credit) in the economy pushes up asset prices.I think this shows the importance of value theory, it's not some bolt on (as I beleive Sraffa argued) to the socialist case. If there is no value beyond price, and "what people are willing to pay" then this plan for mass government fraud is fine, if, however, we ask "how is that money going to gain value", then we force the discussion to where value is in the economy, and how it is created by real work. Issuing valueless currency (essentially what is being argued for) merely will change the denomination of the value of wealth in the economy, not the amoun of wealth: the only (capitalist) justification for this policy would be overcoming and investment log-jam, to restart accumulation. This could be done with tax, but people are allergic to that name, so inflation is used as backdoor taxation on future wealth.
An update from the TAXRESEARCH website YMS cited a post from http://www.taxresearch.org.uk/Blog/2015/08/12/robert-peston-on-peoples-qe/
No one is denying that a so-called Peoples QE isn't technically feasible in the way Murphy is suggesting. In fact governments in Britain have never directly and literally printed more money. They have always introduced it indirectly via the Bank of England buying bonds from financial institutions and this working its way through the financial system until more currency notes are required and requested. It's the effect (inflation rather than pump-priming the economy) that's at issue.
Paul Mason (him again) explains things nicely here:http://www.theguardian.com/commentisfree/2015/aug/16/china-labour-debate-currency-economic-crisis
Quote:It was HSBC economist Stephen King who, in May, likened the world economy to a Titanic without lifeboats. Whatever the motivation of the Chinese devaluation, it was at the very least a clear signal: “We have a lifeboat.” And it prompts, for all wings of British politics, the legitimate question: “Where, should it be needed, is ours?”Put another way, the lesson of Bretton-Woods was that curencies need political solutions, and global co-operation, but that isn't possible while the world is dividied into competing groups opf property owners.This is particularly telling:
Quote:On top of that, once everybody is doing QE, the world’s ability to respond to crisis is reduced. What you ideally want, if another slowdown or bank crash or country bankruptcy happens, is for interest rates to be positive (so you can cut them again); and for government debts to be reduced – along with the debts of the private sector and households. But global debts now stand at $200tn – three times world GDP, interest rates are close to zero and, worryingly, inflation is closer to zero than 1% in most of Europe and the US, and at an eight-year low in China.One of the reasons 2008 was so bad was because the US & UK had dodged the Asian Tiger bullet in 2001/2 by essentially giving away money (they reducade interest rates below inflation), they didn't have that weapon a second time. Now interest rates are practically zero, the only way to go is actual printing money, or using tax to stoke negative interest rates (actually paying people to borrow off you).
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