Investment in the real economy would be exactly what is needed in the Eurozone. But that is FISCAL policy, not MONETARY policy.

This article peddles all the usual mainstream drivel about Central Banks and the monetary system.

I can understand why mainstream economists with careers totally invested in the last 40yrs of monetarist rubbish, educated falsely in money and banking, as the Bank of England has just admitted earlier this year. (Banks need neither ‘reserves’ nor ‘deposits’ in order tro make loans from thin air, creating new credit money in the process. By implication, the ‘money multiplier’ theory in economics textbooks is also complete drivel. As is the idea that ‘savings’ creates ‘investment’ – the causation is in reality the reverse, a corollary to the truth that loans create deposits, not the other way round.)

But why are we still seeing all this rubbish still being peddled on by ignorant ‘churnalists’ ???

There is +no+ transmission mechanism into the real economy from the ‘QE’ enlargement of banks’ reserves. None. Nada. Capiche??

How many times do the idiots in politics & media need to be told this?

The BoE are not the only ones who have been quite explicit about this… “… loans create deposits… I know this, I’m a banker…” quote from Michael Kumhoff, Chief Research Economist, IMF. The truth is there in BIS (Bank for International Settlements) papers as well as many others.

Seriously, ‘cognitive dissonance’ doesn’t even begin to describe this….

But perhaps not in Draghi’s case… he is one of the ruling elites & a career banker – one of those responsible for this entire deception on society in order to enrich themselves at the expense of the rest of us.

Of course… the Euro is a fiat, free floating currency, issued on computer keyboards, and there is +no reason+ why it could not be issued on a free, gratis basis to purchase the services of every last jobless person or unused and available resourcs in the Eurozone for the benefit and prosperity of citizens generally…. purely a ‘poltical’ choice not to do this, & waste 15% of our available workforce…

Read the ‘MMT’ (non mainstrem) economics blogs & you will know exactly why all this is true..

If banks don’t need reserves to create credit then how do they meet cap reserve ratios? And the reason any fiat currency can’t be issued gratis to purchase the labour of the unemployed is hyperinflation, I believe that’s known as Weimar economics.

‘Resreve ratios’ are pure nonsense – more smoke & mirrors. As the BoE explains in their recent papers (and on youtube), any Reserve requirements need only be met some weeks later, and as the newly created money must exist +somewhere+ in the system, it creates its own ‘reserves’.

If you bothered to actually read what the BoE and others say about this, you would know – but you won’t do that will you ‘SM’ ?

Further, as even a (Weimar) simpleton like yourself must realise, there exists an appropriate amount of money in circulation for each level of economic activity. As the data shows, for every country, the money in circulation & GDP +always+ track very closely.

It should be obvious to even a fool like yourself that when we have economic activity WAY BELOW our productive capacity – AS NOW – that a +primary+ reason for that is a shortage of money in circulation.

Not really rocket science – that was supposedly the rationale for QE. To ‘encourage’ more lending from banks, thus putting more money into circulation. The problem is, not enough of us want to take on more personal debt. In sovereign currency countries like US, UK, Japan, despite their own economics/monetary ignorance, they have far more ‘fiscal space’ for counter cyclical Gov spending than Euro land, and this is why they have recovered far quicker & have far lower unemployment.

But commercial banks are not the only possible source of increasing the money in circulation. Central Banks can issue it, and Governments can spend it into existence, regardless of whether there is some notional ‘debt’ instrument attached.

Therefore, any sane consideration of an economy operating way below capacity would consider the amount of money required to be in circulation as an absolute priority.

It is a trivial matter for any Government to later reduce or stabilise the amount in circulation, by taxation or reduced spending, as required, WHEN, and not before, the economy has reached (near) full capacity & employment – the most prosperous condition for the majority of citizens.

Thus controlling inflation…. but in a way that does not simply enrich bankers via the current, very crude, interest rate increase mechanism.

Well undoubtedly insulting people who question your theories is a time honoured tactic of the confident & intelligent, well played sir. I don’t disagree there is a shortage of money in the system, that is what happens in a credit contraction (the hint is in the word contraction). However, the economic systems we do use are designed to, although lamentably rarely truly achieve, the most efficient use of resources & capital. Simply printing money ad infinitum to ensure excess labour and resources are utilised in any manner possible may well be good for individuals, but what controls do you propose to ensure that these factors of production are utilised efficiently?
Further to that point, what controls do you propose on your money tree to ensure a Weimar situation does not emerge? Increasing money supply inevitably reduces the purchasing power of money already in circulation; without stringent controls, your proposal would completely erode the purchasing power of money. Remember, money is ultimately worthless, it is only the goods and services for which it can be exchanged that have value, and those goods and services will remain finite even if currency production becomes infinite.

There are no significant ‘controls’ over the purpose for which new money enters from any source, bank lending etc. or where it is spent. All banks care about is your ability to repay & the collateral available. Things like the ‘productive efficiency’ nonsense that people like you obssess over don’t come into it.

All this ‘efficient use of resources’ stuff is pure drivel derived from the notion that ‘markets’ somehow naturally achieve this. As we saw in 2008 – they absolutely don’t. We have no other option than to simply muddle along & try to get a few essential political economy directions encouraged by Gov tax & spending policy – as now – without resorting to some centrally ‘planned’ economy. Whether planned by either Gov or Private elites. How well we do this ultimately is going to be a function of the plurality & health of our ‘democracy’. At present lamentable. But there is +no+ magical market ‘fairy’ that will deliver it for us. The last 40 yrs of belief in this non existent fairy tale is precisely why we are in this mess.

The ultimate source of new spending power is peoples’ wages. There is no difference in their effect by those wages being supplied – AS STIMULUS – from whatever source.

Any ‘Weimar’ comparison is completely stupid. Our political, monetary & technological systems now are completely incomparable to near 100 yrs ago.

What do you think they said back then about air travel? Motor vehicles required someone waving a flag to walk along in front warning people!

We are talking about a few percent of GDP required in stimulus money.

Money which can be removed in future – when the economic activity has recovered – in an instant via adjustment to taxation. (Taxation ‘destroys’ money..)

Really, it is absurd to imagine some ‘problem’ with doing this. It requires little more deliberation than already occurs in the ‘monetary policy’ committtee meetings to discuss base interest rates to control inflation.

The onus imo is on all YOU ‘WEIMAR’ NUTTERS to explain why you think such controls would magically fail? Somehow beyond our collective whit to…. well, pretty much make taxation decisions as we do now, which we already KNOW potentially affect inflation.

There is no damn difference in principle to what we do now.

Efficient use of resources is nonsense? That’s why famine is raging across the western world then is it? As I said, we don’t achieve perfect efficiency, but we’re not far shy in truth. This “mess we’re in” could alternatively be described as the pinnacle of human civilisation, where the world is supporting a global population of 7 billion people, over 7 times what it was not two hundred years ago.
But back to your point, basically all you propose is a temporary increase of liquidity? Isn’t that just QE, but you just don’t agree with the delivery mechanism for the new cash? Well, if we’re to go back to the “mess we’re in”, temporary increases of liquidity are what caused it. Credit increased, this increase didn’t last, so the increased liquidity turned out to be temporary.
Your motives may well be honourable, but no matter what initial delivery system you propose for this new liquidity, it will always end up back in the same places, be it through savings, purchases or pension funds. You’re too enthralled with the cyclical nature of currency, unfortunately this is incredibly inefficient. Capital will always be hoarded; figure out a way to combat that dynamic properly and you’ll have yourself a Nobel.

Straw man every time from you SM…

I didn’t say ‘efficient use of resources’ is nonsense. Rather, it is totally meaningless to introduce such a concept into a discussion without YOU explaining the MECHANISM by which YOU THINK it is/can be achieved. (Or even what you define as ‘efficiency’)

You claim ‘inefficiency’ but have no terms of reference or explanation of that.

In other words, all it actually boils down to here is some fancy smokescreen words – pure nonsense – to express your dislike of something.

When you say ‘Capital will always be hoarded’… you de facto state that that there is and will never be be ANY DEMOCRATIC control over the owners of Capital. That is, explicitly stating that ‘democracy’ will always be subservient to the Capital owning elites.

Well, it clearly is now, as, I agree, it has been throughout history.

But I argue, and state why, that need no longer be the case.

If and when THE PEOPLE decide to truly assert their democratic sovereignty, the means to make that ECONOMIC REALITY are entirely available.

You don’t explain why you think that’s not true, beyond simply saying ‘…can’t ever happen..’ !

Good night :)

Capital will always be hoarded, as you say it always has been. Figure out a realistic way to stop that happening and as I say, there’s a Nobel with your name on it. Remember, civil liberties & property rights can’t be wilfully superseded though.
You’re still looking for parlour tricks & quick fixes. They don’t work, they never have.

I take it Richard Rodgers works for the banks! Still an interesting comment!

Winning the currency war, and Europe is winning. US might appear to have improving economic indicators at present, but this is based on economic parlour tricks, not actually improving fundamentals. With stuttering real economic growth, why are their major indices all posting record results? You cannot contain inflation the way they have been doing indefinitely, and when it does start to spill over the dollar will be finished. If the ECB plays this right, the Euro could become the global reserve currency, and if that can be achieved then single point trade reductions will seem a very small price to pay.

The Euro has failed in every single measure as a currency in the last decade.

America’s debt is falling fast once more. It had a lot but it is in a good position now. It has all the shale gas and will be exporting energy and have cheap energy at home for decades to come, so will be very competitive.

American consumer debt is returning towards stable levels.

A 5% trade reduction over a decade is not a very small price to pay, it is incredibly big. We should have seen high double digit falls, if it had only grown 20% in the last decade it would still have raised questions, never mind actually falling.

The Euro is a dud, it is too unstable to be the sole reserve currency, think it will be baskets of currencies and commodities from now on.

Dollar in decline for years to come but the Euro is in a lot worse shape and no upsides from its economy.

If anything, some Eurozone economies need to experience deflation (not inflation) outside of the Eurozone in order to make their economies more competitive and return to growth and, in turn, reduce deficits. During the good years a number of economies used cheap money to increase wages (and in turn prices) which, in turn, stripped them of their competitiveness. Even if the new money did find its way out of the banks (which I doubt) it would only lead to greater competitiveness problems in the long run.

Euro is still best option for many European economies, but I can’t see how QE is anything more than kicking the problem down the road again. Proper reflection on the mistakes made by all and a rethink of how the Eurozone operates is what’s needed (significant debt relief in return for stricter budgetary controls for example). Have to consider an opt out for countries in the Eurozone who realistically cannot meet budgetary constraints whilst in the Eurozone with the option to return once everything is back in order.

I’m not the Euro’s biggest fan by any stretch, it was a bad idea from the outset. Nonetheless, we’re in it now so trying to imitate the failures of others would be counterproductive. How are US debt levels falling though? They’re at about 18trn at the moment and this is forecast to exceed 21trn by the first quarter of next year afaik. Their recovery is based on printing money, nothing else. They might be energy independent in the future, but that can hardly be used as justification for current growth. European struggles are real economic problems, the US has very similar problems that they think they can just print away, they will regret taking the easy road in future.

Mike – which part of what I said are you disagreeing with?

I can’t tell from your comment.

There is no problem with the ‘productivity and efficiency’ of European workers.

That is simply ‘code’ for the desire to reduce standards of living, health care, public services etc. to Chinese or Indian peasant wage slavery levels.

The MACRO economy is circular. Someone’s job always relies on someone else’s wage & spending. When we have insufficent circulation, some have no work. And as civilised human beings we do not let them starve, rather share what we have with them.

There is no sane reason whatever to deliberately continue a situation (as in Euro zone) where over 15% (at least) of the workforce have no work to do. It is a staggering waste. All that is required is an appropriate ‘stimulus’ investment to expand the economy to employ them. As employment grows, the spending of their wages quickly creates a self reinforcing spiral.

Yet political policy has been precisely the +opposite+, ‘Austerity’. Only the natural tendency toward +some+ growth has prevented an even worse disaster.

The stimulus investment required across the Euro zone to quickly stimulate the growth cycle is a mere few percent of GDP. Peanuts & trivial for a fiat, free-floating currency zone to provide, even by free issuance.

No more, in fact, than will +eventually+ be created by commercial banks as net new loans to expand the money in circulation…. but not until households decide they can accept more debt derived spending.

As ever, the topic here is MACRO economics, of the +whole+ circular flow of an economy.

If you do not understand the distinction you will +never+ choose correct public economic policy.

What about technological advances? You don’t seem to be factoring that variable in at all. We have c.15% unemployment in Europe but in terms of goods and services what are we lacking? European populations have steadily increased over the last century while our standards of living (if we ignore the communist years in Eastern Europe) have risen exponentially. Despite the economic problems of the past few years, Europe produces more now than could even have been dreamt of in times past, but due to technological advances, this massively increased production capacity is far less labour intensive than our less productive past. There’s a lot more to macro economics than monetary policy.

wow that was a long one!

A stimulus spend you say?

That’s sounds good Mike but you seem to have forgot to mention where we’d get the stimulus from – can you specify where you’d get it?

He’d just print it Ray. His whole MMT theory is based on the premise that you can create money infinitely and it will have no inflationary effect. Apparently this theory is only being kept out of the mainstream because of the elites, or the reptilians or some such, never because of common sense or mathematics though, never mathematics. Your initial post was spot on, increase productivity & efficiency and you’re on a winner, pretty much everything else is just economic parlour tricks to try to avoid that harsh reality.

That is categorically NOT what MMT states – which if you’d bothered to read any source materials you would see inflation control explicitly explained.

The point is that decisions ARE ALREADY MADE as to the amount of money in circulation which MUST and DOES already increase and decrease according to the level of economic activity.

All people like you SM are really doing here is to simply try to close down any discussion about how such decisions on the money supply are taken, by whom, and what actual effect they have on peoples lives.

Let’s start with numero uno effect – mass unemployment. As we’ve already ALL agreed, the cause of this and our lack of growth to create new jobs and prosperity is insufficient MONEY IN CIRCULATION.

I state quite simply & factually that there is NO REASON why governments cannot spend stimulus money into the economy, whether by ‘debt’ or ‘issuance’ – in a currency that is ‘fiat’, created from thin air on keyboards. No MONETARY REASON whatever.

All idiots like YOU can talk talk about is some ‘structural reform’ or ‘productive efficiency’ gobbleygook nonsense that does ABSOLUTELY NOTHING to address this shortage of money in circulation that you have already agreed is the primary problem!!

Cognitive dissonance? Effing completely… stop drinking the mainstrean Kool Aid – it is complete incoherent, self-contradictory drivel.

The Bankers and other ruling elites have been 40+ years brainwahing you with this rubbish. Wake up.

When did we all agree that? Money in circulation is A problem, but by no means the primary problem. You’re just looking for quick fixes and economic parlour tricks to solve deep seated & complex economic issues. Parlour tricks never work in the long run.

Mike – you seem to be saying we’ve “all agreed” that a shortage of money is the problem.

I’ve just read back through my comments and can’t seem to find where I agreed to that – can you confirm? Thanks

Jeez..

You two are pure clowns…

How are you going to get increased economic activity – as measured in ‘money’ ! – without getting more money into circulation ??

Are newly employed workers to be paid in mung beans? Conch shells? What?

By definition, the money in circulation will have to increase… even the entire mainstream agrees this. That’s what all the talk about increasing bank lending is all about!

As I’ve said before, the topic is MACRO economics, not some dumb ‘household’ finance nonsense..

Keep insulting dissenters Mike, it gives your ideas validity. And economic activity may be measured in money, but it is by no means defined by money. The US has increased the money supply by 40bn a month for the past few years, by your reckoning their growth stats should mirror this right? I understand macro economics quite well too by the way, a hell of a lot better than you do I’d guess, despite you reading papers by a few fringe kook economists, so save the condescension. You talk like an academic or a Chicago schooler, ignoring all real world implications that defy your preconceived notions. There’s a reason that despite years of trying MMT is still ignored, and it’s not a conspiracy. You’re on the wrong page, and the wrong side of history.

To say you cannot get increased economic activity without increasing the money supply is undoubtedly one of the most ridiculous things I’ve ever heard. You have absolutely no understanding of economics, so keep rabbiting your fringe theories all you like, you will continue to be ignored.

Mike – can you highlight any examples we can look at of your theory in action?

Also can you quantify how much money and over what period off time?

A few sentences or so will suffice – no need for the essays.