Just Money

Ann Pettifor, the economist and critic of modern finance, explains clearly what money is, where it comes from, and how it is currently controlled. She shows how an improved understanding of money and finance can build more just and productive economies.


PRIME is an economic think-tank that promotes understanding of the nature of credit, and its role in determining macroeconomic outcomes. Fundamental to our approach is an implicit and explicit restoration of ethics in relation to money and credit.

The Economic Contradictions of Mr Miliband

By Jeremy Smith and Ann Pettifor, 22nd July 2014

There is much to welcome in Ed Miliband’s address last Saturday to the Labour Party’s National Policy Forum.

For example, his argument that Britain suffers from a low-pay economy. While the number of those in employment has grown, real pay has fallen dramatically over the lifetime of the present government.

At PRIME, we calculated the fall in real pay from May 2010 to May 2014 as 6.1%, using the CPI inflation and total pay stats from the Office for National Statistics.

In his weekend column in The Independent on Sunday, David Blanchflower estimates the fall in real pay as 8% over the identical period, using the somewhat higher (but now less “official”) RPI inflation numbers.

Whether you choose 6% or 8%, that is a huge decline in real pay over such a short period.

So Ed Miliband’s espousal of an increase in the minimum wage, and promotion of a living wage, are very welcome – and if implemented will help to “balance the budget” (by increasing tax revenues) and enhance the UK economy as a whole, as well as helping millions of (auto-insert “hard-working”) individuals and households.

His speech included many other points with which we agree, and which if implemented would change our country for the better.

But on the crucial issue of economic policy, Ed Miliband also made commitments that will prove disastrous if ever applied in a recession without reference to the actual state of the economy – and which are potentially in direct contradiction with his promises on pay and greater security for workers.

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The new BRICS Bank - force for progress or cause for concern?

By John Weeks, 18th July 2014

For many years various officials of governments in African, Asian and Latin American have urged the creation of a “development” bank that they would control.  On Tuesday 15 July hopes became reality in Forteleza, Brazil, with the formal creation of the New Development Bank by the leaders of the so-called BRICS group of countries (Brazil, Russia, India, China and South Africa.

This event raises several political questions for progressives:  1) what is a type of “bank” do the BRICS leaders propose, 2) why is it needed, 3) are these the appropriate leaders to organize and control the new institution, and 4) is it something progressives should view favourably?

The BRICS proposal has two parts, a “development” bank and a US$ 100 billion reserve of international currencies.  The former has similarities to the operations of the World Bank, while the latter would have some functional kinship with the International Monetary Fund.  At this point the plans for the second — short term support for balance of payments problems — remain a work in progress.  Those for the first are quite clearly specified. So what are the main issues?

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When will UK wages respond positively to the recovery?

by Shaun Richards, 16th July 2014

One of the features of the credit crunch era in the UK has been the way that the output (Gross Domestic Product or GDP) numbers have told a different story to the employment ones. As we stand we have just exceeded the pre-credit crunch peak in terms of output but if we look at the 981.4 million hours per week worked in the spring of 2014 we see this.

up 69.4 million (7.6%) on five years previously.

So according to these figures we are working longer hours to produce what is the same amount. This, in essence, is the productivity issue for the UK economy which begs all sorts of questions. For a start how did we become less efficient and productive over a period when you might logically think that the pressure would be strong to be more productive? Another is the issue of whether part of it was something which UK economists were crying out for pre-credit crunch which was a change of behaviour from companies in downturns where they in effect hoard labour rather than making mass redundancies. The logic behind this was that there are costs in re-hiring a skilled workforce. Should the latter be true companies right now may well be rueing taking the economic advice given as they find themselves criticised for a “productivity puzzle” which is at least in part a consequence of taking the precribed medicine. Continue reading… ›

Partial Justice: the US Courts v Argentina

By Jeremy Smith, 8th July 2014

We have been following the tortuous path of litigation between NML and Argentina for a few years now, with growing concern at the way the US courts have interpreted the respective rights – and wrongs – of the parties in relation to Argentina’s debt, following the economic collapse, devaluation and default in 2001.  See our November 2012 article “Don’t ​(cry for me) pay up now, Argentina!”  for our analysis at that point.

To recall, by 2010, over 90% of Argentina’s original bond-holders accepted new exchange  bonds paying around 30% of the face value of the old ones in return for regular payments under the new, which have been made till now by Argentina. But NML (who bought up old bonds at knock-down prices) and other hold-outs claimed 100% of the principal and interest under the original bonds.

Today, we publish our latest PRIME report, “Partial Justice: the US courts v Argentina” which provides an in-depth critique of the way the US courts at all levels have interpreted the law and exercised the wide discretion available to them.

It complements the issues raised in Professor Raffer’s post yesterday, and goes into more detail in analysing the rights (some) and wrongs (numerous) of the US courts’ decisions.

Partially, the US courts got it right when they decided that Argentina was in breach of the bonds’ pari passu clause, which said that Argentina’s “payment obligations shall at all times rank at least equally” with all its other present and future external unsecured debt. By enacting the Lock Laws which precluded the government from paying anything on the original bonds, Argentina had legally ranked NML’s bonds below later ones.

But we argue that the US courts went wrong in also claiming that “rank” was not limited to legal ranking, as previously understood, but also covered different treatment of creditors in practice.

And above all, the way the US courts exercised their discretion was partial, i.e. the opposite of impartial. They wholly subordinated the general public interest in orderly post-crisis debt restructuring processes to the narrow financial interests of NML.  

Click here for the pdf:  Partial Justice – the US Courts v Argentina

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What is the current stage of imperialism?

7th July 2014

The question of imperialism has come to the fore in the recent period. This follows the conflicts in the Ukraine and the renewed possibility of Western military intervention in Iraq and Syria. There is too the US court ruling in favour of the ‘vulture funds’ holding Argentinian government debt.  The economic aspects of imperialism are examined in the piece below by Michael Burke, who is a co-founder of PRIME.  He recalls that imperialism is primarily an economic system, which uses military might to maintain its dominance.

What is the current stage of imperialism? – Socialist Economic Bulletin


NML - Argentina: An Unemotional Analysis

by Kunibert Raffer, 7th July 2014 [i]

As sovereign debtors do not enjoy any form of insolvency protection and Argentina’s contracts had no collective action clauses, New York courts correctly affirmed that any hold-out has a valid title, the right to accelerate principal in the case of default, and to demand full payment including interest. Technically Argentina broke the norms she herself had accepted voluntarily in her debt contract with creditors. This decision should therefore, not come as a surprise. It has already had impacts: other holdouts followed suit – even though Argentina would not have the funds to pay them all. Taiwan sued Grenada, and Italy changed her debt contracts. The position of sovereign debtors has deteriorated.

But it is highly problematic that exchange creditors (creditors who took a “haircut” and agreed to Argentina’s unilateral re-structuring offer) were taken hostages. Pari passu clauses are a debtor’s obligation, not that of other creditors. The debtor has to treat all creditors equally, breaking the contract if not doing so. Argentina’s pari passu clause formulates: ‘The payment obligations of the Republic’. Court decisions cannot be enforced against a sovereign, even though Argentina waived immunity. Argentina’s outspoken refusal to obey has obviously annoyed US courts. So have loudly voiced opinions that Argentina would not pay whatever courts may decide. As Gelpern[ii] formulated: ‘Perhaps more importantly, a decade of judging Argentina left Judge Griesa thoroughly fed up. Something had to be done lest US courts look feckless’.

But the frustration of judges must not determine judicial decisions, nor the fact that international law does not permit US courts to send bailiffs to Argentina. Continue reading… ›

Out of thin air - Why banks must be allowed to create money

by Ann Pettifor, 25th June 2014

‘I know of only three people who really understand money. A professor at another university; one of my students; and a rather junior clerk at the Bank of England.’  Attributed to Keynes [1]

In a recent paper, ‘Money creation in the modern economy’[2] Bank of England staff explained that:

‘[B]anks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits … Commercial banks create money, in the form of bank deposits, by making new loans.’

Because there is widespread confusion about the role of banks in creating money, it did not take long for the Bank of England’s report to ignite debate on the comment pages of the Financial Times. In his regular column, Martin Wolf called for private banks to be stripped of their power to create money. [3]

Wolf’s proposals are radical, and would give a small committee – independent of the state – a monopoly on money creation. His ideas are based on the Chicago Plan, advanced among others by Irving Fisher in the 1930s, and shared today by the UK NGO, Positive Money. They agree that all ‘decisions on money creation would … be taken by a committee independent of government’.

Furthermore, Wolf argues, private commercial banks would only be allowed to:

‘…loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are.’

Because I am a vocal critic of the private finance sector, many assume that I would agree with Wolf and Positive Money on nationalising money creation. Not so.

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If interest rates rise "God help us all with mortgages"

24th June 2014

Ann Daily Politics

…said PRIME Economics director Ann Pettifor in a debate with Fraser Nelson of the Spectator on the BBC´s Daily Politics programme on 24th June, 2014. Even a gradual rise in the bank´s base rate would put around 2.3 million households at risk. Marginal increases in household incomes make debtors highly vulnerable to any additional borrowing costs. Pettifor also said that a rise in rates would be particularly harmful for those on low incomes that had been actively encouraged to take out high loan-to-value mortgages by the government’s Help to Buy scheme.
Watch the full interview on BBC.

Mapping France - the link between unemployment, GDP and voting Front National

By Jeremy Smith, 10th June 2014

Correlations do not necessarily imply causation, as we know, but we can indeed see a strong correlation between areas that voted for Marine le Pen’s Front National in the recent European Parliament elections, and areas of high unemployment in France.  This in itself is no surprise, but the geographical correlation – though not perfect – is striking.  and it is hard not to conclude (as I do!) that the combination of Eurozone and French economic policies over recent years that have allowed GDP to stagnate high and persistent unemployment to perdure –  for too long in too many regions – is a major factor in the growth of electoral support for the Front National.

In the 1999 European Parliament elections, the FN gained  5.7% of the vote, then 9.8% in 2004.  In 2009, it fell back to 6.4%.  In 2014, it leapt ahead to top the poll at 24.6%.

In this post, we look at a series of maps of unemployment, GDP and voting for the Front National, by geographical region or area.

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Post-war debt was reduced by productive economic activity, not inflation

By Jeremy Smith, 5th June 2014

A quick post: pleased to see my letter in today’s Financial Times.  I was responding to a point made by Andrew Tyrie MP in his recent article criticising the IMF, and its Chief Economist Olivier Blanchard.  In the course of it, Mr Tyrie made the often repeated, but wrong, point that the UK government inflated our way out of the post World War 2 high level of public debt (initially over 200% of GDP).  In fact, real GDP grew at its fastest rate during this period, so it was economic activity that drove down the level of debt as a percentage of GDP.

The title given to the letter was “Debt cannot be slashed by grinding austerity” which I quite like, even if it wasn’t really the point I was making. Ah well.

Sir, Andrew Tyrie, in “Blanchard’s admonitions went beyond good advice”, (June 1), states that “inflation was the UK’s main escape route from the crippling burden of debt after the second world war. No one should want to risk repeating it”.

The facts show otherwise, according to the Office for National Statistics. Annual increases in gross domestic product at current prices ran ahead, often well ahead, of Retail Price Index inflation for 19 out of 20 years from 1949 (the start of the data set) to 1968. 1952 was the sole exception, and by a modest margin.

It is through stimulating useful, productive economic activity that one can most swiftly reduce debt as a percentage of GDP, not through grinding austerity.”

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