This is very good:
We've scaled the scaffolding at Labour's London HQ to remind Keir Starmer what he once said about proportional representation. pic.twitter.com/oK9q0G5lzE
— Led By Donkeys (@ByDonkeys) August 30, 2023
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I will be visiting the bank of England and meeting with staff.
Can fellow blog readers suggest any questions that could be asked?
Many thanks in advance.
This might be a bit too much to ask, but I very recently came across Richard Werner’s 2016 paper:
‘A lost century in economics: Three theories of banking and the conclusive evidence’
https://www.sciencedirect.com/science/article/pii/S1057521915001477#s0065
From the Abstract:
“How do banks operate and where does the money supply come from? The financial crisis has heightened awareness that these questions have been unduly neglected by many researchers. During the past century, three different theories of banking were dominant at different times: (1) The currently prevalent financial intermediation theory of banking says that banks collect deposits and then lend these out, just like other non-bank financial intermediaries. (2) The older fractional reserve theory of banking says that each individual bank is a financial intermediary without the power to create money, but the banking system collectively is able to create money through the process of ‘multiple deposit expansion’ (the ‘money multiplier’). (3) The credit creation theory of banking, predominant a century ago, does not consider banks as financial intermediaries that gather deposits to lend out, but instead argues that each individual bank creates credit and money newly when granting a bank loan. “
In Section 2:4 of the paper Werner notes that in 2014 staff of the Bank of England appeared to subscribe to all three theories, the staff being respectively Mark Carney, , Dame Clara Furse, external member of the Financial Policy Committee of the Bank of England, and the BoE economists who wrote the article about money creation in the BoE quarterly Bulletin, March 2014
I won’t paste the whole section, it’s there to be read if you think my question isn’t frivolous.
This is Werner’s conclusion:
“This means that staff at the Bank of England currently support all three of the theories of banking at the same time (see also Zoltan and Kumhof, 2015). Since each theory implies very different approaches to banking policy, monetary policy and bank regulation, the Bank of England’s credibility is at stake.”
So, my question would be, ‘Which of these theories does the BoE actually subscribe to?’ (or operate under)
I’d just add that I came to this paper after reading Adam Smith’s account of the operation of Scottish banks (Wealth of Nations p 511 ff) which appears to support the Credit Creation theory and to describe what might be termed the ‘multiplier effect’. Out of curiosity I was searching for other explanations of how 18th C banking ‘worked’; googling comes up with all sorts of results.
I suspect Richard is right
Offocially the Bank does not believe in intermediation, but I am not sure that the current eadership think that
I think of the Lucy Letby case. Raising interest rates doesn’t just cause some discomfort. It harms and kills far more people than the most psychopathic nurse.
Question
What is an acceptable number of people to kill in order to get inflation down to 2%?
Applying a bit of epistemology to the excellent post by Mrs Downier, we know (for sure) that:
1. banks (let’s focus on retail banks) take deposits from people and companies (and often pay interest on these deposits).
2. banks loan people money (and charge interest on these loands).
3. bank loans >>>bank deposits (if this were not the case – why the fuss post crash on Basel III and bank’s asset base? & why banking licenses? )
The above then suggests that
a) intermediation cannot be true since loans >>> deposits (loans do not match deposits)
b) if the fractional reserve is true, then it raises the question: what do we mean by “money creation” (by banks) and in turn “money destruction” (implied when the loan is repaid) – by banks.
c) credit creation seems to be a variation on fractional reserves.
d) where does gov “free money to banks” (QE) sit in all this?
Perhaps a dynamic treatment of the banking system: money flows. When dealing with energy flows, Sankey diagrams are quite useful:
https://ec.europa.eu/eurostat/cache/sankey/energy/sankey.html
One could reconfigure this for money, but with loop backs/feedbacks to cover the realities such as a loan flows from the bank to borrowers and thence to persons selling some thing or other (to the borrowers) and back to another bank (with whom the seller banks – & it is quite possible that money repays a loan or goes on deposit etc etc). Then there is the flow from borrower to bank to repay the loan. Probably already done?
I could imagine an interesting spreadsheet driven system (which is the basis for the energy Sankey).
Q. for Darren to ask.
Why do you insist on raising interest rates when it penalises ordinary people with mortgages and you still don’t know what effect the first rises have had.
Please explain exactly how raising interest rates reduces the inflation that the UK has been suffering from over the last yar and a bit.
The previous BofE chief economist, Andy Haldane authored a paper that explained how banks create money, with all that it implies.
Does that Bank now agree with that paper? How do the Bank’s current policies recognise and address the implications?
Hard to know….
Q. for Darren to ask.
Inflation was set to come down once energy costs were no longer factored into the 12-month inflation calculations.
So what purpose did interest rate rises do?
Why not ask them what the function is of taxation, where money initially comes from, or whether they know of MMT and, if so, what they think of the framework?
Thank you!
Who gets the money extracted by the recent bank rate rises?
Why?
What are the terms and conditions?
Banks…
Why do you have to increase the interest rate paid on Central Bank Reserve Accounts
Yiou do noti need to do so
There is no law requiring it
It is choice
It need not be done, as I have said many times.
Brilliant as usual by Led by Donkeys. I guess they will not get a response.
Is the labour party allowed to take it down?
I am sure it went a long time ago…it only needed to be there long enough for the video to be taken
There needs to be more of this, focused on swing seats. Asking questions to existing MPs and those proposing to stand.
In my view, most candidates get an easy ride, their political “beliefs” are not questioned, ditto the policies of their party.
Sir Kid Starver, another day, another volte face, & more kow-towing to the vile-tory press.
(Sir Starver is like a boy with pocket money: when faced with bullies (the vile-tory press) – he keeps giving in to them – thus encouraging them).
” [T]iered reserves’ [are] employed in other countries (in the Eurozone, Japan, and previously in the UK). This permits the distinct separation of the Bank’s policy rate from the government’s interest servicing costs and the profitability of the banking sector. Importantly, a tiered reserve system would mean the Bank would not have to unwind QE or sell any government bonds at the expense of the taxpayer, and monetary and financial stability” (New Economics Foundation, ‘Between a Rock and a Hard Place’, p3; June, 2022).
The BoE appears to suggest the cost of not tiering interest on reserves is now costing an additional £50Bn in interest costs, without making a case that it is necessary (when other central banks in advanced economies clearly do not believe it is necessary). QE was not designed or implemented to produce this outcome, nor need produce it. What decisive case does the BoE possess for persisting with what is in material effect an outlier policy (compared with economies of similar standing)?
“QE was not designed or implemented to produce this outcome, nor need produce it.”
No, but pretending this outcome is the inevitable result of QE provides a useful adjunct to the “there is no money” myth. The myth becomes “not only is there no money but it is irresponsible to create it using QE.”
When the claim is “there is no money”, but you gratuitously decide to find £50Bn++ each year quite probably far into the future (to pay bankers for precisely nothing in return); on top of all the other money you are committed to spending; while you still have a deficit, and the debt mountain is not falling: you do require to explain what magic money tree you (and the BoE) are clearly relying on far into the future: to stop the whole rickety system suddenly falling over from the Government’s longstanding profligacy (13 years of Austerity; energy phoney market policy disaster, building regulation failures (ruinous public-private partnerships, Grenfell and cladding), Quarteng budget/LDI crisis, the wanton pandemic spending blunders etc., etc), bad rail policy (inefficient, heavily subsidised, wretchedly poor services, HS2 mess). If the Government “there is no money” nonsense was true the British economy would have totally collapsed long ago.
There was no money in 2010. The national debt then was <£1Trn. The debt today is £2.5Trn. We have increased the national debt by 150%, with no money. It's a miracle. Who is waving the magic wand?
I love Led by Donkeys.
There is no doubt in my mind at least that Labour have been simply nobbled – coerced into capital’s agenda and under its instruction.
The Labour Party has been vulnerable to being nobbled fairly early on in its history:-
“Churchill also sought the advice of Philip Snowden, who had served as Chancellor of the Exchequer, in the previous Labour government. Snowden said he was in favour of a return to the Gold Standard at the earliest possible moment.”
https://spartacus-educational.com/Gold_Standard.htm
Very obviously the Labour Party needs to revise its constitution so that a section of it has a coherent and rational explanation of how the UK’s sovereign monetary system really works. In other words a Monetary Reform Group needs to be formed to change the party’s constitution. Such a constitution change would keep morons like Starmer, Reeves and Streeting from gaining positions of power within the party. I would strongly argue the party’s not really worth getting excited about until there’s this constitutional change!
Brilliant and timely.
Hello Labour shadow cabinet is anybody listening?
“Policies that cut energy prices, raised the minimum wage and reduced housing costs proved more favourable than tax cuts, the YouGov poll conducted among 2,000 adults found.”
https://www.theguardian.com/business/2023/aug/31/labour-and-tories-out-of-step-with-cost-of-living-concerns-poll