Newbie Corner
Where Money Comes From In The First Place.
According to the Bank of England;
"... Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
The reality of how money is created today differs from the description found in some economics textbooks.".
from this PDF file
Money Creation Modern Economy
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The BofE have helpfully made a video on this subject too;
Money Creation in the Modern Economy
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This subject so excited Parliament, they had a debate about it.
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Here we're advised by the Norges Bank, the Bank of Norway, that "When you borrow from a bank, the bank credits your bank account. The deposit – the money – is created by the bank the moment it issues the loan. The bank does not transfer the money from someone else’s bank account or from a vault full of money. The money lent to you by the bank has been created by the bank itself – out of nothing: fiat – let it become. The money created by the bank does not disappear when it leaves your account. If you use it to make a payment, it is just transferred to the recipient’s account. The money is only removed from circulation when someone uses their deposits to repay a bank, as when we make a loan repayment... To sum up: banks create money out of nothing and withdraw it when loans are repaid."
https://www.norges-bank.no/en/news-events/news-publications/Speeches/2017/2017-04-25-dnva/
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What about in the EU? Here it's the ECB’s [European Central Bank] turn to describe how money is created as debt by the privately-owned commercial banks, when they explain: “Commercial banks can also create so-called “inside” money, i.e. bank deposits – this happens every time they issue a new loan. The difference between outside and inside money is that the former is an asset for the economy as a whole, but it is nobody’s liability. Inside money, on the other hand, is named this way because it is backed by private credit: if all the claims held by banks on private debtors were to be settled, the inside money created would be reversed to zero. So, it is one form of currency that is created – and can be reversed – within the private economy.”
https://www.ecb.europa.eu/explainers/tell-me-more/html/what_is_money.en.html
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Here's the German Bundesbank explaining where money comes from, and that banks aren't intermediaries as popularly imagined, "In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer's bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank's economists, "this refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers". By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money)"
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Does this mean they're printing banknotes all night and day then? Mais non, according to France's BNP Paribas: "Printing banknotes accounts for only a tiny fraction of money creation. There are two different types of money creation. On the one hand, the central bank creates so-called ‘central bank’ money (or ‘high-powered money’, the ‘base money’ or the M0 monetary aggregate), consisting in all issued bills and coins, plus commercial bank reserves with the central bank. This form of money is only exchanged between banks on the interbank market.
On the other hand, banks create scriptural money (non-cash), representing short-term customer deposits included in their liabilities. These deposits are an integral part of money since they are extremely liquid and allow for fast payments. Scriptural money accounts for a greater share of all money creation than fiduciary money.
As for the M3 monetary aggregate (also known as the ‘money supply’ or ‘broad money’), 95% of it is composed of the money that you and I use, meaning the bills and coins in our wallets and the amounts of our demand deposits (checking accounts), our holdings requiring a notice of withdrawal of three month or less (savings accounts) and our
term-deposits with a maturity of two years or less. More precisely, the M3 aggregate also includes debt securities with a maturity of less than two years issued by banks, which can be traded on the money market, as well as shares in money mutual funds. But these instruments account for only a small share of the money supply (about 5%). So the money supply consists in a portion of central bank money (bills and coins) and scriptural money, which is by far the larger share. In December 2018, fiduciary money amounted to 1,175 billion euros, scriptural money (short-term customer deposits) totaled 10,541 billion euros, while the total money supply in the eurozone reached 12,638 billion euros.
That is why printing money (or producing fiduciary money) is actually part of money creation, but it is only a small fraction of the whole. Moreover, this form of money creation is mostly offset by the monetary destruction caused by the Eurosystem pulling old bills out of circulation. In 2018, these actions represented 94% of the flow of new bills placed in circulation in the same year, and 83% of the total value of all bills in circulation.
Finally, despite the development of new payment methods (debit cards, contactless payment, e-wallets, etc.), fiduciary money remains deeply ingrained in our habits. Indeed, bills and coins made up 7.5% of broad money (M3) in 1997. Remaining stable since 2015, their proportion reached 9.5% in 2018
https://group.bnpparibas/en/news/money-creation-work
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Here's the Canadian Library of Parliament describing not only how money is created for the Canadian govt to spend into the economy by the Bank of Canada but also how the private banks create money from nowhere, both as 'loans':
"Both the Bank of Canada and private commercial banks create money by making asset purchases or making loans. However, money creation by the Bank of Canada through purchases of Government of Canada securities is essentially an internal government process; this means that external factors, such as financial market dysfunction, cannot cause the federal government to run out of money."
https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/201551E
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The Bank of England confirms the same kind of operation is in practice in the UK on its explanatory page about Quantitative Easing (QE): "The money we used to buy bonds when we were doing QE did not come from government taxation or borrowing. Instead, like other central banks, we can create money digitally in the form of ‘central bank reserves’.We use these reserves to buy bonds. Bonds are essentially IOUs issued by the government and businesses as a means of borrowing money. Now that we are reversing QE, some of those bonds will mature and we are selling others to investors. When that happens, the money we created to buy the bonds disappears and the overall amount of money in the economy will go down.
We’re not alone in using QE. Central banks in many other countries, including the United States, the euro area and Japan have used it too."
Followers of MMT might like to note especially the line about how, when the Bank sells bonds back into the market, "the money we created to buy the bonds disappears and the overall amount of money in the economy will go down."
Well!
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How did the govt finance all the extra spending necessary to combat Covid? The BoE made the necessary money up, as explained here by those good folk at Positive Money; "UK central bank becomes first in the world to adopt direct monetary financing to fund government spending during the coronavirus crisis. This move demonstrates once and for all that the government need not depend on private markets to finance its spending.
This morning the Bank of England made the welcome announcement that it would expand the government’s pre-existing overdraft at the Bank, known as the Ways and Means facility, to provide the government with additional spending power for its Covid-19 response. The Bank was already indirectly financing the Treasury through its quantitative easing (QE) programme, but today’s step represents more direct coordination."
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Here's the BoE announcing the introduction of DMF (Direct Monetary Financing) using the quaintly named Ways & Means account which they choose to characterise (perhaps misleadingly) as an 'overdraf't the Govt has with the Bank; "HM Treasury and the Bank of England (the Bank) have agreed to extend temporarily the use of the government’s long-established Ways and Means (W&M) facility." Economania considers this description to be misleading as it suggests the BoE and the Govt are seperate entities when in reality they're parts of the same thing, the BoE being essentially an offshoot of the Treasury.
However, the main issue here is that, when it wants to, the govt, in the form of the BoE, can create money to fund government spending. If it can do that to fund the fight against Covid, then why can't it do that to pay for the NHS, schools, hospitals, libraries, fill potholes etc. etc.? Why can't it do that to answer the oft-asked question regarding proposed political policies, "But how will it be paid for?" The answer would seem to be that govt. can and govt. could... but it chooses not to.
Let's be clear. We know from the BoE's statement referred to earlier that banks create new money when they make a loan. The BoE itself refers to the Ways & Means account as the govt's 'overdraft' at the Bank. Expanding that facility then means the Bank increases the govt's overdraft, ie it lends it more, thus creating new money. We know too though that the Bank is part of govt, so when the Bank lends the govt money, it's really the govt lending itself more. In other words, this is the govt creating for itself the new money it needs, ending forever, for anyone grasping this process (a cohort which would sadly seem to exclude almost every MSM economics commentator) any question about where the necessary money would come from.
hmt-and-boe-announce-temporary-extension-to-ways-and-means-facility
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The IMF are getting in on the act too with this relevant paper entitled "Money Creation in Fiat and Digital Currency Systems": "To support the understanding that banks’ debt issuance means money creation, while centralized nonbank financial institutions’ and decentralized bond market intermediary lending does not, the paper aims to convey two related points: First, the notion of money creation as a result of banks’ loan creation is compatible with the notion of liquid funding needs in a multi-bank system, in which liquid fund (reserve) transfers across banks happen naturally. Second, interest rate-based monetary policy has a bearing on macroeconomic dynamics precisely due to that multi-bank structure."
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Here's Professor Richard Werner (known for his definition of quantitative easing, QE) gently schooling City veteran and commentator David Buik (who you'll probably recognise) on the subject of banking, the financial sector and money creation
Money Creation by Werner
Professor Werner is of course widely known too for his celebrated 'Lost Century' paper in which he makes the case mathematically that banks create new money by lending. Of interest is that in it he observes "The fact that banks create credit and money out of nothing which, if used productively, results in non-inflationary growth, is important for developing countries. Often it will not make sense to borrow from abroad in order to stimulate domestic growth: the foreign money does not enter the economy, and the country gets ensnared in spiralling foreign currency debt, when actually the foreign banks just created the money out of nothing, something the developing country could have arranged for through its own domestic banks."
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Celebrated (and sadly late) anthropologist David Graeber correctly notes that what we use for money is simply IOUs and importantly that the Bank of England, the central bank, supplies government spending: "When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the
simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they
can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing. In fact, with "quantitative easing" they've been effectively pumping as much money as they can into the banks, without producing any inflationary effects...What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite."
truth-money-iou-bank-of-england-austerity
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Britain's British Broadcasting Corporation, the BBC, have needed some encouragement into adopting this new, accurate, narrative, which at first they ignored. Complaints eventually led to:
"a response from the Head of the BBC’s Executive Complaints Unit; Fraser Steel who admitted there had been “a serious breach” of BBC editorial
standards.
“…we agree the original version of the article misrepresented the way modern banking works. As you have pointed out, it is not correct to imply banks act as financial intermediaries by simply lending out the deposits which savers place with them.”
“I share your concern that the BBC should accurately reflect the way modern banking works…a number of senior BBC News managers have been made aware of your complaint and our finding and I hope this will help to ensure journalists and editors are properly briefed and informed on this issue.”
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Oh, by the way... anyone still under the impression the Bank of England has any significant independence from the Government might like to consider the Bank of England Act 1998 where it states in so many words they don't. It's arguably best to consider the BofE and Government as one and the same, with the Treasury higher in the food chain.
Further, if that still isn't good enough, you could simply ask the Bank itself, who'll tell you; "We are wholly-owned by the UK government. The capital of the Bank is held by the Treasury Solicitor on behalf of HM Treasury."
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While we're on the subject of the Bank of England and it's actual lack of independence, let's go into its operations a little deeper with Neil Wilson: "The Bank of England is just a bank and operates in the same manner as any other bank (to the extent that it requires capital injections from HM Treasury to maintain its loss adjusting buffers). A bank that is and remains, both legally and structurally, subsidiary and subservient to HM Treasury in all ways. Its primary task is to discount liabilities imposed upon it by HM Treasury into bank liabilities. It does that by order of HM Treasury, has done since at least the 19th century, and continues to do so today. The Bank has no legal authority to refuse those orders."
https://new-wayland.com/blog/how-uk-government-payments-are-made/
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The study referred to, "An Accounting Model of the UK Exchequer – 2nd edition" can be downloaded in PDF format from the link below. The accompanying notes tell us: "In this timely study, the authors investigate the structure and function of the UK’s public financial institutions, in groundbreaking depth and scope. Drawing on historical sources from the birth of the modern sterling economy, testimonies from government departments, official documentation, and parliamentary abstracts, the study forensically disassembles the components of the UK’s government finances, debunking ideology and half-truths along the way.
The authors expose the myth of Bank of England “independence”, and illustrate the central, driving role of HM Treasury in the UK financial system and the primacy of Parliament in determining spending and resourcing in the UK.
The study describes in detail how the financial operations of the UK Government work, and the accounts and structure of the UK Exchequer, including its relationship with the devolved UK administrations.
Supported with references from forgotten or little-known sources and extensive appendices detailing the history of the UK financial system, this important work destroys the myths and obfuscation of governments, economists and the financial services sector that has allowed decades of needless austerity to wreak social and political devastation in the UK and beyond.
As such, this is an overdue exposé that has implications beyond the field of economic literature and challenges the basis of UK economic policy since the 1980s."
https://gimms.org.uk/2021/02/21/an-accounting-model-of-the-uk-exchequer/
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And then there's this: "This paper constitutes a first detailed institutional analysis of the UK Government’s expenditure, revenue collection and debt issuance processes. We find, first, that the UK Government creates new money and purchasing power when it undertakes expenditure, rather than spending being financed by taxation from, or debt issuance to, the private sector. The spending process is initiated by the government drawing on a sovereign line of credit from the core legal and accounting structure known as the Consolidated Fund (CF). Under directions from the UK finance ministry, the Bank of England debits the CF’s account at the Bank and credits other accounts at the Bank held by government entities; a practice mandated in law. This creates new public deposits which are used to settle spending by government departments into the economy via the commercial banking sector. Parliament, rather than the Treasury or central bank, is the sole authority under which expenditures from the Consolidated Fund arise. Revenue collection, including taxation, involves the reverse process, crediting the CF’s account at the Bank. With regard to debt issuance, under the current conditions of excess reserve liquidity, the function of debt issuance is best understood as a way of providing safe assets and a reliable source of collateral to the non-bank private sector, insofar as these are not withdrawn by the state via quantitative easing by the Bank of England. The findings support neo-chartalist accounts of the workings of sovereign currency-issuing nations and provide additional institutional detail regarding the apex of the monetary hierarchy in the UK case. The findings also suggest recent debates in the UK around monetary financing and central bank independence need to be reconsidered given the central role of the Consolidated Fund."
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Before we move on from the BofE, Economania's grateful to financial journo Pauline Wynter for reminding us of this paper Banks are not intermediaries of loanable funds - and why this matters from the BofE's Zoltán Jakab and Michael Kumhof which crucially reveals that bank loans get made before bank reserves at bank's accounts at the BofE are created to cover them; “Central banks are committed to supplying as many reserves (and cash) as banks demand... The quantity of reserves is therefore a consequence, not a cause, of lending and money creation.”
Pauline (as Pauline Skypala) has done an excellent write-up on the paper at, appropriately enough, the Financial Times.
Again courtesy of Pauline, a reminder that team Jakab/Kumhof also worked up a useful paper for the IMF, explaining how "Banks create new money when they lend" and the potentially concerning consequences, "which can trigger and amplify financial cycles."
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Economania gets nudged by one Keith Slater at about here, (this page having gone live also on Prof. Richard Murphy's blog), pointing out that looking back in time a little reveals none other than Allen Greenspan publically declaring, "I wouldn't say the pay-as-you-go benefits are insecure in the sense that there is nothing to prevent the Federal Government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase? So it is not a question of security. It is a question of the structure of a financial system which assures that the real resources are created for retirement as distinct from the cash. The cash itself is nice to have, but it has got to be in the context of the real resources being created at the time those benefits are paid and so that you can purchase real resources with the benefits, which of course are cash."This is doubly relevant as it not only makes the point that the Fed can potentially create infinite amounts of money but for that money to have value there have to be goods/services available for that money to buy. This is what the system has to ensure, Economania understands Greenspan to be saying.
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Modern Monetary Theory
Why the government here in the UK and of countries in similar situations like the USA, Japan and Australia (for example) can never be short of money to spend but can, it must be remembered, be short of resources to productively spend it on. Money created into the economy for frivolous purposes will clearly lead us towards inflation, while money created to mobilise productive purposes will be less inclined to do so, being soundly backed essentially by the productive uses to which it's put. Many will suggest productivity is that which will result in goods coming from the factory gate, metaphorically if not actually. Economania is of the opnion money created and spent in pursuit of the well-being, health abnd security of citizens is productively utilised. We accept not everyone is of that opinion. Perhaps more debate on this point is needed.
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A video explanation of how money actually works here in the UK, long overdue IMO.
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Professor Richard Murphy gives his detailed opinions on MMT. He covers a lot of ground, as do those who comment. "First, in a country with a fiat currency, which means that there is no asset backing to the money in circulation, which money does as a result only get value as a consequence of a government's promise to pay, there is, at least in theory, no limit to the amount of money that a government can create. Second, a government creates money every time it spends because it instructs its central bank to extend it the credit to do so on every such occasion. It is not constrained by the availability of taxation funds when doing so: money can always be created by a bank on demand and at will, and central banks will always do this when instructed to do so by the governments that own them. Third, to prevent this new money creating excess inflation a government has to tax to withdraw currency from circulation. This is the primary fiscal purpose of taxation, although tax also has other, as significant, purposes as noted below."
There's lots more.
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Again from Professor Murphy but this time a simple primer.
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"Modern Monetary Theory is partly a description of how our modern fiat, floating exchange rate currencies actually work, and partly a prescription of what we ought to do with this knowledge. MMT realizes that many of the constraints we place on our money system today as well as many of our models for understanding it are actually holdovers from the era of gold-standards and fixed exchange rates that don't apply at all today."
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"For years I believed the mantra "tax and spend" as though it were a law of physics: indisputable and unquestionable. We have been told that this is how government pays for public services: it taxes people and then it spends the money. This idea has been promoted in the press and by political parties for years and especially at election time, "We'll raise income tax by 1p to pay for new schools, hospitals and roads: the things we all use and need!" This mantra is connected to a belief that the government and political parties must explain which tax will pay for which public service. But why should we question this mantra? The government - or any party wanting power - should explain how it is going to fund public services. That's part and parcel of honest and transparent government. That may be true, but that doesn't mean tax must be raised first to pay for anything. It turns out, after all these years, "tax and spend" doesn't exist at all."
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"Let’s start by dispelling a myth: Modern Monetary Theory is not something that a government can choose to adopt. MMT is not something that can be turned on or off. In and of itself, MMT is neither of the Left or of the Right and it is not a policy, although there are policy prescriptions which flow from it. Modern Monetary Theory is simply a description of how the monetary system works — right here, right now. In providing that description, MMT lifts the veil on a carefully crafted fiction about spending and taxation, one that provides the ideological backing for the form of late capitalism we commonly call ‘neoliberalism’. Unfortunately, that fiction is accepted as a universal truth by almost everyone, irrespective of their political affiliations."
http://www.matchesinthedark.uk/we-pay-for-it-by-spending-the-money/
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"What is ‘the economy’? If you listened to any Chancellor since the late 70s, you would be forgiven for gaining the impression that it is all about ‘debt’ and ‘deficit’ and how the country has to ‘live within its means’ and ‘pay down its credit card’. But under these conditions inequality has soared, public services have been de-funded, the UK failed to recover its living standards post-2008-crash, and it has suffered the biggest drop in average real wages of any OECD country except Greece. Whilst accepting that living within your means may be a good rule for households, the reality is that a government like ours, with its own currency and its own central bank, is not at all like a household. The economy is a far broader subject, covering not just what the government spends but what we spend too, as private individuals and the wider non-governmental sector, including how much debt we get into. After all it was private debt, not public, that caused the 2008 crash. It is time for the public to have a better understanding to replace the clichés about the government ‘having no money of its own’. In a sovereign currency nation like the UK with its own central bank it is, in fact, the sole currency issuer. Its spending is not limited by its ability to tax."
A brief introduction to Modern Monetary Theory
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Professor Stephanie Kelton explains deficits and why they aren't the Big Scary they're claimed to be. 2020 Harcourt Lecture (video).
https://www.youtube.com/watch?time_continue=6&v=sLTCZhdz6zo&feature=emb_logo
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Here might be as good a place as any to toss in this revealing observation on the National Debt from (lately, Sir) Jacob Rees-Mogg where he helpfully destroys whole acres of confected hysteria by pointing out that money created via quantitative easing included in that Debt figure actually represents money owed by the government to the government... meaning in effect it shouldn't be included at all as you can't owe yourself money. Oops!
http://www.progressivepulse.org/economics/probably-the-most-important-sentence-mogg-has-ever-uttered
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Or, to put it another way... here's Professor Kelton answering questions on MMT in an easy to follow format.
https://www.youtube.com/watch?v=mmuysv17T9M
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Inexplicable problems require a whole new kind of economic thinking - and MMT is more logical than you probably think it is, says James Weir
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German economist Dirk Ehnts tells DW why the critics should think twice before rejecting MMT out of hand.
https://amp.dw.com/en/modern-monetary-theory-government-spending-debt-and-inflation/a-52270872
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More MMT resources can be found here
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Hyperinflation - it's been blown up out of all proportion
We think we know all about hyperinflation... print up a few extra fivers on a wet Tuesday and by Friday we'll all be pushing our wheelbarrows loaded with near-worthless banknotes to the baker's. Actually, t'ain't so at all... witness to begin with the statements from the central banks quoted above. They're saying money creation is happening daily as a matter of normal everyday banking practice. If you're reading this and you're in the UK, or France, or Germany, or Canada, or Norway, look out of the window; where's the evidence of hyperinflation? Yet the suggestion creating new money inevitably results in hyperinflation persisists. Why is this? Let's see if we can find out by looking at the real story behind the most often cited examples.
“Monetarist theory, which came to dominate economic thinking in the 1980s and the decades that followed, holds that rapid money supply growth is the cause of inflation. The theory, however, fails an actual test of the available evidence. In our review of 47 countries, generally from 1960 forward, we found that more often than not high inflation does not follow rapid money supply growth and, in contrast to this, high inflation has occurred frequently when it has not been preceded by rapid money supply growth. … To analyze the issue, we developed a database of 47 countries that together constitute 91% of global GDP and looked at each episode of rapid money-supply growth to see if it was followed by high inflation. In the majority of cases, it was not. In fact, the opposite was true — a large percentage of the cases of high inflation were not preceded by high money supply growth. These 47 countries all rank within the top 70 largest economies as measured by GDP and include each of the top 20 countries. If a country was not included, it was because we could not get a complete enough set of historical data on that country.”
https://evonomics.com/moneysupply/
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The War on Venezuela
(taken from an earlier issue of Economania)
Michael Hudson on Venezuela, always hostage to America: “Venezuela was an oil monoculture. Its export revenue was spent largely on importing food and other necessities that it could have produced at home. Its trade was largely with the United States. So, despite its oil wealth, it ran up foreign debt. From the outset, U.S. oil companies have feared that Venezuela might someday use its oil revenues to benefit its overall population instead of letting the U.S. oil industry and its local comprador aristocracy siphon off its wealth.
So the oil industry – backed by U.S. diplomacy – held Venezuela hostage in two ways: First of all, oil refineries were not built in Venezuela, but in Trinidad and in the southern U.S. Gulf Coast states. This enabled U.S. oil companies – or the U.S. Government – to leave Venezuela without a means of “going it alone” and pursuing an independent policy with its oil, as it needed to have this oil refined. It doesn’t help to have oil reserves if you are unable to get this oil refined so as to be usable. Second, Venezuela’s central bankers were persuaded to pledge their oil reserves and all assets of the state oil sector (including Citgo) as collateral for its foreign debt. This meant that if Venezuela defaulted (or was forced into default by U.S. banks refusing to make timely payment on its foreign debt), bondholders and U.S. oil majors would be in a legal position to take possession of Venezuelan oil assets.
These pro-U.S. policies made Venezuela a typically polarized Latin American oligarchy. Despite being nominally rich in oil revenue, its wealth was concentrated in the hands of a pro-U.S. oligarchy that let its domestic development be steered by the World Bank and IMF. The indigenous population – especially its rural racial minority, as well as the urban underclass – was excluded from sharing in the country’s oil wealth. The oligarchy’s arrogant refusal to share the wealth, or even to make Venezuela self-sufficient in essentials, made the election of Hugo Chavez a natural outcome.”
Which neatly explains to Economania at least why Chavez's successor in the same mold, Maduro, is unwelcome with the USA, why he gets so much bad press and why the US is chasing regime change, as we expect they would have done here had Corbyn become PM.
http://www.unz.com/tsaker/saker-interview-with-michael-hudson-on-venezuela/
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Ellen Brown on Venezuela: “Venezuela’s problems are not the result of the government issuing money and using it to hire people to build infrastructure, provide essential services and expand economic development. If it were, unemployment would not be at 33% and climbing. Venezuela has a problem the U.S. does not, and will never have: It owes massive debts in a currency it cannot print itself, namely, U.S. dollars. When oil (its principal resource) was booming, Venezuela was able to meet its repayment schedule. But when the price of oil plummeted, the government was reduced to printing Venezuelan bolivars and selling them for U.S. dollars on international currency exchanges. As speculators drove up the price of dollars, more and more printing was required by the government, massively deflating the national currency.”
https://www.truthdig.com/articles/the-venezuela-myth-keeping-us-from-revolutionizing-our-economy/
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From Positive Money's Frank Van Lerven: "Throughout history, governments have used their ability to create money to fund public spending. While none of these policies were called, “People’s QE”, “Strategic QE”, “Sovereign “Money Creation”, or “Helicopter Money” (what Positive Money collectively refers to as Public Money Creation), they shared the common trait of using newly created state money to finance government spending, rather than relying on commercial banks to create new money through lending.
Significantly, the times when Public Money Creation has resulted in high inflation or even hyperinflation (inflation of over 50% a year) have been well documented. However, the times when governments have created money in a careful and responsible manner to grow the economy are usually ignored or overlooked.
This neglect of the positive history of Public Money Creation is one of the reasons the subject is still largely taboo. Consequently, there has been little effort to understand the relationship between state-led money creation and inflation; it has become a widespread and strongly held misconception that money creation by the state will always result in hyperinflation. Rigorous analysis and the application of economic theory have been thus dispensed with – only to be replaced by this fundamental misgiving.
At Positive Money we want to set the record straight and bring to light the many case studies where state-led money creation has successfully boosted the economy without leading to economic disaster. This will hopefully challenge the knee-jerk reactions of many economists to any suggestion of state-led money creation, and encourage them to bring theory and analysis back into the debate."
https://positivemoney.org/?s=history+of+public+money+creation
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"From the New Economics Foundation on public money creation in New Zealand, a subject we hear very little about, probably as it worked very well indeed: "Central Bank public works investment in New Zealand, 1935–1939.
In 1934, New Zealand (still a British colony at the time) established its own (partially privately owned) central bank,
the Reserve Bank of New Zealand (RBNZ), with the blessing of the Bank of England. The main objective of the
Conservative government of the time was to stabilise the national currency and help reflate the economy following the
Great Depression... Nash ordered the Reserve Bank to make advances available as a deliberate test of the effect of ‘a limited amount of
credit expansion’ for the building of state housing. The sum involved was significant at £5 million. The new homes built
were mainly for poorer households and targeted New Zealand’s most serious slums. Aside from housing, the Reserve
Bank supported a range of other infrastructure and public works activities and supported farmers by guaranteeing
their exports. In total, in the period from 1936 to 1939, the RBNZ created NZ£30 million of credit to support the
government. In the latter two years this was 5 per cent and 7 per cent of GDP and 13 per cent and 17 per cent of
commercial bank assets.
According to detailed econometric analysis by Greasley and Oxley, the RBNZ’s expansionary credit policy was a key
feature in reflating the domestic economy and enabling the country to grow more rapidly out of the 1930s depression
than many other countries. Over the four year period from when the Bank commenced its credit creation policies, real
GDP increased by 30 per cent,167 with 15 per cent growth in 1936 and 1937 alone.168"
https://b.3cdn.net/nefoundation/e79789e1e31f261e95_ypm6b49z7.pdf
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"Professor Michael Hudson has studied hyperinflation extensively. He maintains that “every hyperinflation in history stems from the foreign exchange markets. It stems from governments trying to throw enough of their currency on the market to pay their foreign debts.”
It is in the foreign exchange markets that a national currency becomes vulnerable to manipulation by speculators.
The Zimbabwe economic crisis dated back to 2001, when the government defaulted on its loans and the IMF refused to make the usual accommodations, including refinancing and loan forgiveness. Zimbabwe’s credit was ruined and it could not get loans elsewhere, so the government resorted to issuing its own national currency and using the money to buy U.S. dollars on the foreign exchange market. These dollars were then used to pay the IMF and regain the country’s credit rating. According to a statement by the Zimbabwe central bank, the hyperinflation was caused by speculators who charged exorbitant rates for U.S. dollars, causing a drastic devaluation of the Zimbabwe currency."
https://www.huffpost.com/entry/another-look-at-the-zimba_b_790074
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Professor Bill Mitchell on Zimbabwe/the Weimar
"The problems came after 2000 when Mugabe introduced land reforms to speed up the process of equality. It is a vexed issue really – the reaction to the stark inequality was understandable but not very sensible in terms of maintaining an economy that could continue to grow and produce at reasonably high levels of output and employment. The revolutionary fighters that gained Zimbabwe’s freedom from the colonial masters were allowed to just take over productive, white-owned commercial farms which had hitherto fed the population and was the largest employer. So the land reforms were in my view not well implemented but correctly motivated. Like the allies after Versailles, you sometimes do not get what you wish for. The whites in Zimbabwe had always been reluctant to share with the majority blacks and ultimately reaped the nasty harvest they sowed. From an economic perspective though the farm take over and collapse of food production was catastrophic."
http://bilbo.economicoutlook.net/blog/?p=3773
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From Charles Adams, professor of physics at Durham University in the UK: "Money is our means to undertake economic activity. It’s incumbent on the agents of government to ensure that money flows to all parts such that the economy can flourish. Money is not the constraint on what we can achieve—we are—and a growing economy requires a growing amount of money. So why are politicians telling us that we cannot afford better healthcare or better education because we do not want to end up like the Weimar Republic, Zimbabwe or Venezuela?
To understand their motives and how they are deceiving us, we need to grasp some basic economics. The priesthood of economics are trained to instil a fear in all of us – a fear of hyperinflation."
https://braveneweurope.com/charles-adams-the-hyperinflation-myth
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How do you avoid inflation in general while creating money to mobilise resources? Briefly, those resources have first to be there. Even your humble scribe can grasp you can't create the labour of eleven men if only ten are available. What does informed and recognised authority Stephanie Kelton advise on these matters? Remember, the example here is the USA but this applies too to all govts in similar situations (the UK and Australia coming immediately to mind).
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It's the 'information age' they tell us, so why is there still such confusion about what money is? Duncan Poundcake (possibly, we suspect, not his real name) suggests what's needed is; "A fundamental shift and an education of all tax payers and the political establishment, to understand that: As long as labour and sustainable resources are available, Government Spending is not only a good and positive but absolutely essential for the economy and the democratisation of wealth. The ONLY limitations HMG has to spending for Public Purpose are: 1. The physical resources available. 2. The labour available. 3. Its own aspirations. 4. The Tax Payers willingness to learn, deconstruct and the 1% and their cheerleaders across politics, the media and society who have used the the confusion around Government Money Creation spending and taxing for the purpose of wealth extraction and power."
Bill Kruse - http://www.economania.co.uk/various-authors/various-authors.htm
Members can discuss this and other articles on the economics forum at International Mensa.