Good grief, Ritchie really, really, doesn’t understand economics, does he?

also this: “Corbyn’s proposal, unlike orthodox monetary financing, would not add to the national debt ” is a shocker – it means permanent monetary expansion and it validates all the concerns about inflation etc.

Elsewhere Richie has been trying to say that People’s QE would be a counter cyclical tool under the control of the BoE, and tried to make it looks like a sensible version of the idea (a version which is strictly speaking not necessary, not that different from regular QE, but which might help sustain public investment during downturns) but this admission here reveals he still has the loony free lunch idea at heart

Er, no. The whole point of Corbyn’s / People’s / Green QE is that you never ever reverse it. It’s a way of getting around Ricardian Equivalence. He’s using the argument that reversible stimulus doesn’t work to argue for irreversible stimulus.

You would be mad to save any of it, as it would be worth f all very quickly.

So on he one hand Ritchie says that all economists are wrong, the textbooks are wrong, it’s all wrong.

Then someone cites an economic theory to support him and all of a sudden he’s clinging on to the support of economists.

abacab’s description of the Ritchie sitting in the Flash Gordon tree stump is the most accurate I’ve read. I’m tempted to steal it, as there are people I work with who it describes perfectly.

I fear this is mistaken:
“Orthodox QE – let’s call it “monetisation one” – is intended to be reversed, with taxation used to raise the money to redeem the government bonds held by the central bank”
But the reversal of QE doesn’t require higher taxes. All that would happen is that the BoE sells the gilts it owns on the open market; this would tend to raise gilts yields and depress the money stock – a form of monetary tightening.
Yes, the govt could if it chooses raise tax to redeem those bonds. But it could instead choose simply to rollover the debt. That’s a fiscal decision. Whether to reverse QE is a monetary one. They are different things.
(It doesn’t look as if QE will be reversed any time soon – but that’s another story).

chris – well that’s true, but if the government was contemplating a large splurge financed by more borrowing, let’s say a policy that would significantly increase the deficit, people would probably be entitled to think “that’s going to need repaying from taxation sooner or later” or at least that it would take us closer to the limit of the amount of debt the government would be willing to roll over, so that any further increases in spending would need to be tax financed. So whilst you are right that there is a distinct fiscal decision to be taken that isn’t dictated by the BoE deciding to sell bonds into private sector hands, if we are operating close to constraints then we are adding to fiscal pressures. Whereas, these guys things, if we can finance spending by permanent monetary expansion, we will escape those pressures.

“Orthodox QE – let’s call it “monetisation one” – is intended to be reversed, with taxation used to raise the money to redeem the government bonds held by the central bank.”

Hmmm… surely Orthodox QE is the purchase by the central bank of government bonds already issued. The reversal of QE would not be financed by taxation, but by selling the bonds back into the market. There would surely be no difference in the taxation required to redeem them.

But, as Tim is saying, if the prospect of future taxation, because of the issuance and future redemption of bonds, is not an effective method of stimulation, then that rather drives a coach and horses through the argument that we should be stimulating the economy by an increased budget deficit.

@GlenDorran, @abacab

Where / what was the Flash Gordon tree stump description?

(and post a link please if you find it – I’d quite like to find it back myself 🙂 )

There’s an earlier one, the first time I came up with it (and I went on a bit). If it helps searching, I used the name “James Bond” in the explanation – that should eliminate noise.

No need, found it:

https://www.timworstall.com/2015/08/06/ritchies-magic-money-tree/#comment-585143

“And it’s not possible to believe both things, is it? ”

Yes it is.

Ritchie is like the nasty scorpion thingy in the treestump in Flash Gordon. He lives in a cavity a the centre of the stump, and there are a whole bunch of passageways leading off in many directions, into which James Bond has to put his hand to be stung or not.

What does the world look like to the scorpion? He can look out of any one of the tunnels at a time, and see a small part of the outside world. He builds his view of the world from what he sees out of these tunnels. But, he has ADD, so can’t concentrate long enough to form an overall view of the world by putting together what he sees through each individual tunnel.

Furthermore, and just to destroy the analytical facilites, every now and again, some twerp twats him on the head with a big stick.

So, when Ritchie looks through the tunnel that shows him the magic money tree, his ADD makes him see just the magic money tree, cos that’s all that exists outside the stump. And when he looks through the tunnel that shows him the Joy of Tax, then tax is indeed joyous and necessary for funding things, and he forgets the magic money tree. Oh, look, a squirrel!

Finally, the scorpion knows he’s important cos every so often big people like James Bond put their hands into his stump for his adjudication.

This is the most wondrous spectator sport. Let us hope Corbyn wins and Murphy is projected into the spotlights so that his wondrous proposals are given due examination. It will be rough and rather fun.

I thought the gilts bought with QE created money were eventually to be sold and that money deleted. I realise that there are reasons to be sceptical. Does anyone acknowledge that’s what should happen e.g Carney/Osbourn ?

@ Tim

BoE *could* sell into the market – though hasn’t done at present. If he QE stock was reduced by the BoE (in effect, tightening or raising rates) they could elect to sell bonds into the market. It’s less efficient then simply letting bonds simply mature, but it could be done (and indeed, has been done through the repo) when supply of particular bonds/maturities gets too low.

Hi, i think that i saw you visited my website thus i came to go back the choose?.I am attempting to to find issues to enhance my web site!I suppose its good enough to use some of your concepts!!|