The BoE’s decision to raise the Bank Rate to 0.75% is a mistake. It is a mistake comparable to those made by Alan Greenspan’s Federal Reserve in the years between 2003 and 2006.
Savings are not needed for investment. Ever. There is absolutely no need for example, for the Chancellor to rattle the tax collection box, or cut government spending - to build up savings, before the government is able to invest. No need whatsoever.
The shadow money banking system in its use of continuously repriced collateral is reliant on opacity, leverage and global interconnectedness. It is therefore highly pro-cyclical. Will the next systemic crisis occur when markets lose confidence in the 'fair valuation' of collateral used in shadow banking?
PRIME (working with the New Weather Institute) organised an event at the TUC to commemorate the day - 9th August, 2007 - that inter-bank lending froze, central banks came to the rescue, and the Global Financial Crisis began in earnest. We will be publishing transcripts and notes from that event, chaired by Ann Pettifor and with contributions by Frances Coppola, Professor Daniela Gabor and Andrew Simms of the New Weather Institute. We will shortly publish articles written before August, 2007 that warned of the forthcoming crisis. To begin the series, we are posting a longer version of an article written by Ann Pettifor and published in Red Pepper on 8 August, 2017 - The economic crash, ten years on.
The EU’s hugely complex banking resolution framework is generally supposed to have one key goal – to ensure that failing banks are ‘resolved’ without recourse to public bail-outs, thereby breaking the link between banks and sovereigns… The reality, we have seen today, is quite different – and, it seems, legal.
The EU can just about argue that technically, the rules have not been broken - but overall, the appearance is of a policy in logical disarray once again.
This essay articulates the reason behind the prolonged deflationary bias of euro area policies by means of a simple (“T-shirt”) model where private spending depends on desired savings and sustainable indebtedness. The EU Commission’s belief that it is possible to create jobs without creating new debt underscores a serious conceptual fault and a delusion that the savings-debt constraint to spending can be ignored. As long as a cap on public debt remains, the euro area will continue to live dangerously and remain vulnerable to shocks.
There have been two main proposals to tackle the stressed asset problem of the Indian banks since the beginning of this year. Both proposals are based implicitly on the financial intermediation theory of banking. The alternative credit creation theory of banking opens up other possibilities. One such possibility, put forward here, is to create a "bad bank", with a partial Jubilee financed by zero coupon perpetual bonds.
This afternoon, PRIME's director Ann Pettifor is speaking at the Labour Party's 'The Future of the Scottish Economy' Conference in Glasgow.
Ann's speech today focuses once again on the issue of why austerity is not the answer. This raises touched on in her latest book, "the Production of Money", but the main lines of her argument were set out nearly two years ago (7 April 2015) in a blog article, "Is there no such thing as public money, only taxpayers money, as PM asserts?". These arguments, as updated, still form the basic "speech-notes" for today.
Today the New York Times reports that the Japanese conglomerate SoftBank will buy an American private equity firm, Fortress Investment Group, that oversees $70 billion in assets. Fortress specialises in dealing with 'distressed assets' - i.e. assets procured cheaply because of forced sales, bankruptcies or other misfortunes. As the NYT explains, Fortress is "an entity that is regulated - if relatively lightly compared with, say a bank."
PRIME's director Ann Pettifor gave a lecture on 8th February 2017 on "The Production of Money" at the LSE, at the invitation of the Department of Economics and the Centre for Macroeconomics. The lecture was recorded by the LSE, and can be listened to as an audio podcast. Her new book (of the same title) is published by Verso and is available from the Verso website. Read on for the written text of Ann's lecture, which we also link to as a pdf.
The written version of the lecture is set out below, and is also available as a pdf here.
This week sees the launch of Ann Pettifor’s new book, “The Production of Money”, published by Verso, in which she explains how money is created, and how democracies can – indeed must - reclaim control over “money production” and restrain the out-of-control finance sector so that it serves the interests of society, as well as the needs of the ecosystem.
The book’s publication is timely, coming at the very time that minority President Trump announces his intention and measures to once more deregulate the US, and therefore the global, finance sector.
The Lehman moment is the moment when Lehman Brothers—one of the largest investment banks in the United States (US) at the time—collapsed. The collapse happened on 15 September 2008. Almost nobody disagrees with that the Lehman moment has been the most important moment in the ongoing global financial crisis that started in the summer of 2007, at least, up until the Brexit moment.
Since the economic crisis there has been a revival of interest in the nature and creation of money. The work restores a literature that developed significantly from the start of the twentieth century, though that extends back at least three centuries.
Correspondingly there is recognition that the dominant or mainstream school of economic thought has been based on erroneous theories of money for at least half a century.
While authors enjoy citing Keynes’s remarks, none even remotely do justice to the scale of his contribution. Indeed many are profoundly misleading, but Richard Werner’s latest (2015) paper in the International Review of Financial Analysis plumbs new depths.
I was privileged to be invited by the St. Paul’s Institute to discuss (on the 3rd November, 2015) the thesis in Paul Mason's recent book PostCapitalism: A Guide to Our Future with a keynote speech from the author.
Mason’s book is both a riveting and intellectually exhilarating read. It challenged me at a range of levels, and has added considerably to my list of must-read books. However, I have strong disagreements with Mason, and these are outlined in my review, published here as a PRIME e-publication.
* Hoopla: “speech or writing intended to mislead or to obscure an issue.”
October has been an eventful month. In Britain, politics is back in fashion. After years of Blairite vacuity, the media have juicy political red meat to plunge their teeth into. The new Labour leader’s announcement that he would not press the nuclear button led to a veritable feeding frenzy. This was exceeded only by alarm verging on hysteria at the Labour Shadow Chancellor’s U-turn on the Fiscal Charter.
Today the British Parliament discussed the creation of money. The debate was led by Peter Baker, MP for Wycombe for the Conservatives and Michael Meacher, MP for Oldham for the Labour Party.
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.
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 
The Financial Times is hosting a major debate on whether the private banking system should be allowed to continue creating 97% of the credit or money circulating within the economy. Martin Wolf, its respected economics commentator, supports the ‘Chicago Plan’ that effectively calls for private banks to lend out only as much as they have in “reserves”.
The Bank of England has performed a vital service with two articles on the nature of money in their latest Quarterly Bulletin. Its economists have confirmed that most of the money in the modern economy is created by private banks making loans. Rather than banks lending out deposits that are placed with them, the act of lending itself creates deposits.