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.

Workers and non-workers in the EU: access to benefits?

By Jeremy Smith, 12th November 2014

Tuesday’s much-publicized European Court of Justice “Dano” judgment clarified that – on the facts of that case – Romanian single mum Ms Dano was not automatically entitled via EU Treaties or legal provisions to non-contributory benefits under German social security rules. We thought it might help PRIME readers to understand the situation better if we set out the relevant EU Treaty provisions, and summarised the key points of the case. In reality, the case is more about EU legislation than the Treaties themselves.  And while the European Court in effect decided that the claimant was not entitled to the benefit on this occasion, this depended on the German court’s finding that she  was not seeking work.

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A good day to bury bad bank (and Bank) news?

By Shaun Richards, 12th November 2014

Today the Bank of England should be taking centre stage with its forecasts for UK economic performance in and at its Quarterly Inflation Report. Unfortunately for the Bank, some of the demons of its past have hit the news wires only a few hours before it was due. Here we have the relevant announcement from the UK Financial Conduct Authority:

The G10 spot FX market is a systemically important financial market. At the heart of today’s action is our finding that the failings at these Banks undermine confidence in the UK financial system and put its integrity at risk.

Okay, and so the action is?

The Financial Conduct Authority (FCA) has imposed fines totalling £1,114,918,000 ($1.7 billion) on five banks for failing to control business practices in their G10 spot foreign exchange (FX) trading operations: Citibank N.A., HSBC Bank Plc, JPMorgan Chase Bank N.A., The Royal Bank of Scotland Plc, and UBS AG.

This is rather awkward for the Bank of England in its role of supervisor of such markets.

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Central Banking, State Capitalism, and the Future of the Monetary System

By Ann Pettifor, first published on the CFA Institute website, October 2014

The role of commercial and central banks in the process of providing credit may seem to be clearly understood by economists, bankers, and policymakers. But there are common misunderstandings about money creation, equilibrium, public money, central banks, and interest rates. The outlook for the global monetary system is not overly optimistic in the absence of overcoming these misunderstandings and altering the philosophies of bankers.

This presentation comes from the 67th CFA Institute Annual Conference held in Seattle on 4–7 May 2014 in partnership with CFA Society Seattle.

The liberalization of finance after the 1970s led to a significant buildup of debt in many parts of the world, especially in Africa, Latin America, and parts of Asia. The inexorable rise in private corporate, household, and individual debt leads to the question of whether professional economists truly understand money, finance, and credit. Good predictions and sound investments cannot, in my view, be made without a solid understanding of money.

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Vicious loop: rising private debt merging with falling wages, productivity & inflation

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Ann Pettifor of PRIME with Allister Heath, deputy editor of the Daily Telegraph on BBC Newsnight, 17th October, 2014.

by Ann Pettifor, 22nd October, 2014

The Bank of England’s Andy Haldane is a fine economist. He occupies an ideology-free zone. This is highly unusual in central bank circles. He has just made a particularly skilful, and nuanced speech. Many gushed over it. Gillian Tett of the Financial Times suggested that it was good enough to qualify Haldane as a journalist.

But Haldane is not a journalist. He is a central banker. And that makes his ‘Twin Peaks’ speech particularly ominous. For while he bows to his political masters in the Treasury by acknowledging the growth in UK employment, his speech tilts definitively towards gloom. Let’s analyse it more carefully than I was able to do in a brief BBC Newsnight interview (eleven minutes into the show).

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Secular stagnation is the outcome of deliberate policy; it can (still) be reversed

Martin Wolf in the FT  today strikes a  different direction from those secular stagnaters shepherded by Larry Summers towards the cliff-edge of endless doom.  (Larry Summers devised and popularised the term, “secular stagnation”. He has a lot to answer for. His misjudgements, poor advice to the Obama administration, and flawed analysis have been catastrophic for the global economy. Given his record, he should be silenced or ignored, and barred from shepherding anyone, including economists and other naifs, in any direction.  For more on his grave weaknesses see this Forbes article.)

Secular stagnation within a deflationary context, let us be clear, is the outcome of deliberate policy choices. It has not come about by accident. It has not come about for lack of economic understanding, learning or analysis. It has not come about for lack of economic tools – both fiscal and monetary, or indeed for lack of human agency. Instead secular stagnation is the deliberate outcome of policy choices made by those dominant in the world’s most powerful policy-making institutions, including the IMF.

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Our economy: low consumer inflation, high asset inflation, big wage deflation

By Jeremy Smith, 14th October 2014

The latest UK annual CPI inflation statistics, for August 2014, were published today by the Office for National Statistics.  They show annual inflation down to 1.2%.

The last time the annual rate was below this was in September 2009, in the depth of the recession, when it fell to 1.1%.  Assuming that the present lower CPI inflation trend is continued in coming months, as seems probable, we will be back to levels last seen in the late 1990s and up to 2004.  The lowest levels this century were in May 2000 (0.5%) and June 2002 (0.6%).

But there is a very big difference between then and now.  Today, wages are running at an annual increase rate of around 0.7%, still well below CPI inflation.  In the period 2001 to 2008, when the ONS wages dataset begins, total wages were mainly rising annually at around 3-5% – and till the 2008 crisis, never fell below the inflation rate.

The chart below shows the picture clearly for the period 2001 to 2014.  Till 2008, total pay (which includes bonuses etc.) was always above inflation in annual % terms, usually well above. Since then, it has almost constantly been below inflation.  N.b. we have estimated that total wage increases remain at 0.7% (the last figure published by ONS, for July) for the months of August and September 2014.

CPI and wages chart to Sept 2014

ONS today also published their latest house price statistics. UK house prices for the most part maintained their rapid rate of annual increase in August, though in most regions no faster than in July.

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Piketty's determinism?

In this review of Piketty’s book, Capital, we argue that Thomas Piketty’s determinism (which suggests that inequality is set to continue to rise indefinitely and that interest and growth are on a preordained trajectory) is wrong. Things don’t have to be this way. Thomas Piketty’s approach, we argue, arises from his fundamentally neo-classical approach to interest as the marginal product of capital.

On our worldview, substantial and sustained interest rate changes follow from progressive governments taking control of money. The level of output and employment is then a function of interest so obtained.

By Ann Pettifor and Geoff Tily, first published in Real World Economics Review, Issue no.69, 7th October 2014

Feeding the vultures

By Jeremy Smith, 13th October 2014


Photo: Judge Griesa and vultures in Buenos Aires graffito – acknowledgment to wander-argentina.com

A slightly abridged version of this article is published in today’s Morning Star newspaper .  It is the latest in PRIME’s series on Argentina’s debt, the US courts’ persistent bias in favour of the vulture funds – now stretching to finding Argentina “in contempt of court” for daring to pass its own laws – and the crying need for an independent, impartial international process for deciding on sovereign debt disputes.

Paul Singer is one of the USA’s richest billionaires, owner of Elliott Associates and its Cayman Island “vehicle” NML. He financially backed Mitt Romney in the 2012 Presidential election, and is (says Fortune magazine) “a passionate defender of the 1%”.

His speciality is buying up distressed sovereign debt (bonds) dirt cheap, and then, through “vulture funds” like NML, relentlessly litigating to enforce judgments for the face value of the original bonds, plus compound interest. This usurious outcome is only possible because states and their (usually poor) peoples, cannot – unlike companies and individuals – go bankrupt.

Argentina’s economy collapsed in 2001 due largely to the foolish policy of tying the peso one-to-one to the US dollar, with full convertibility.  With IMF support, it borrowed large sums at ever-increasing interest rates to defend dollar parity – to no avail.  GDP fell 25%, and the peso’s value with it.  But external debts were payable in dollars.  Unable to pay, in 2002 Argentina defaulted.

Between 2005 and 2010, 93% of Argentina’s creditors accepted a deal to receive new exchange bonds paying about 30% of the original. Singer, on the contrary, bought up chunks of defaulted original debt on the secondary market at around 20% of face value.

Argentina since 2005 has paid exchange bond-holders their interest as and when due. No question. Until, that is, last month when it “defaulted” again – thanks entirely to decisions by the US Courts (the original bonds give the New York courts’ jurisdiction) that give extraordinary preference to Singer’s financial interests. How come?

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UK Wages - some being much more equal than others

By Shaun Richards, 13th October 2014

As the credit crunch has progressed the issue of wage growth and in particular the lack of it has moved ever more centre stage in economic analysis especially in the UK. It is hard to believe now, but the Office for Budget Responsibility (OBR) forecast wage growth of around 5% back in the summer of 2010. Not only was that the stuff of fantasy, but I also feel that such forecasts encouraged the Bank of England to think that above target inflation would only have a minor adverse effect on the UK economy.

Instead as I warned back then, it had a much more major effect, which was made most public in the way that real wages went strongly negative and became a drain on the UK economy. Actually the OBR seems to have such thoughts automatically programmed into its systems, as its current forecasts have annual wage growth rising to 3.8% in 2018. I would love that to be true but we have to face a current reality which at the very minimum questions that notion:

Pay including bonuses for employees in Great Britain was 0.6% higher than a year earlier. Pay excluding bonuses for employees in Great Britain was 0.7% higher than a year earlier. [from ONSContinue reading… ›

There is a ‘magic money tree’ – it’s investment

By Michael Burke, 13th October 2014

Supporters of austerity have long argued that there is no viable alternative because of persistent government deficits and rising debt. David Cameron put it starkly arguing that ‘there is no magic money tree’.

However these assertions contain two important fallacies. First, it is evident that, if government is increasingly indebted it must be the case that the private sector is also an increasing owner of that government debt – government cannot be a net debtor to itself. Therefore rising government debt represents a transfer of incomes, from the public sector to the private sector.

Secondly, economies can grow. Otherwise human society would still be in its most primitive phase. Therefore there is no fixed amount of output in the economy, or the monetary denominator of that output.

IMF answer

The question posed is therefore, how can a cash-strapped government grow the economy and improve its own fiscal position? The IMF has arrived at an answer. In the latest widely-read World Economic Outlook (WEO), the IMF devotes an entire chapter to the merits of public investment in infrastructure, which it defines as transport, power and other utilities and communications systems. The paper ‘Is it time for an infrastructure push? The macroeconomic effects of public investment’ can be found  here (pdf).

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