If only someone would buy the Senior Lecturer of Practice in International Political Economy at Islington Technical College a textbook. Or even a clue

Prime, prime, stuff here.

The Boston Consulting Group (who are big enough to do the research) have published a new report on global wealth. It’s something they have done for some time.

Oooh, joy!

In other words, they think wealth will grow vastly quicker than earnings possibly can. Or, to put it another way, inequality is going to rise, and rapidly.

Umm, what? Income inequality will rise because wealth does? Wealth inequality will rise as total wealth does? Note that that’s not necessarily true, depends on the split of who owns the wealth. More of it going into funded pensions could reduce wealth inequality for example. Surely he’s not saying that income inequality will rise as total wealth does? That makes no sense of course so he couldn’t possibly be saying that. As to the idea that wealth grows faster than income, that looks pretty likely to me. Income being the err, income from either wealth or labour, wealth thus being a multiple of the income that can be gained from it……multiple.

And what is this wealth held in?…..In other words, we’re talking financial assets

Well, yes, yes we are. Wealth is here being defined as financial assets so a report into wealth will be looking at financial assets. This is tough analysis, no?

but with cash surprisingly significant in large parts of the world. And remember that cash saved is dead money for economic purposes: it’s money effectively withdrawn from the market that contributes nothing to investment, growth or innovation, let alone new employment. These people can’t say their savings are doing something useful because we know they are not. All they’re doing is slowing the world economy down. No wonder we remain in the doldrums, economically.

Erm, what? He then doubles down in the comments:

Richard Murphy says:
July 15 2017 at 11:28 am
Cash is rent seeking

Blimey, who knew? In most parts of the rich world interest rates are below inflation. Thus cash holdings have negative income – this is rent seeking?

Richard Murphy says:
July 15 2017 at 11:23 am
Deposits do not create loans

Loans create deposits

Banks literally never lend deposited money

All loans are made out of thin air

That’s right, banks never, ever, fund their loans through the use of deposits. That’s why Northern Rock didn’t go bust, there just was no problem at all in the fact that it couldn’t attract the deposits to fund the loans it had already made but which had not yet been bundled into those Granite bonds, the sale of which is just another manner of attracting deposits. The Veneto banks weren’t going bust as they lost their deposit bases, Monte dei Paschi ditto. Nope, deposits never fund banks.

Seriously, how did anyone this ignorant ever get employed in British academia? Sure, I know, it’s Islington Technical College but still, don’t even they have standards any more?

13 comments on “If only someone would buy the Senior Lecturer of Practice in International Political Economy at Islington Technical College a textbook. Or even a clue

  1. When the line of funding from the EU funding, he will want to go to North America. This could be the early stage of ingratiating himself with think tanks and NGOs sponging off the world’s greatest ever economy. Imv, of course

  2. Dave: Go on, Tim. Put in a complaint.

    That’s very funny – I had no idea this organisation existed and I don’t suppose Prof Murphy does either.

  3. The whole inequality thing is a typical stupid lefty red herring. It doesn’t matter a flying fuck at a rolling donut.

    You play the lottery. Some girl wins €80 million. You win €500,000. Is your first call that the bitch owes you €40 million or just YES!.

    Simples.

  4. @Dennis the Peasant – “While I always get the sense he’s slipping into his second childhood, I am now getting the sense that the slippage is accelerating”.- have to disagree. I think he’s searching for relevance and his moment in the spotlight – like his 15 minutes of fame with Corbynomics. His bleatings about Brexit are drowned out by even bigger sheep bleating about it- so he’s thrashing around for something to put him back in the spotlight. As he has no academic body of work to fall back on he’s thrashing around grabbing at straws. Expect him to start banging on about the tax gap again – even though his own magic money tree theory negates the relevance of this.

  5. So banks don’t actually need our deposits.

    Meaning the interest they choose to pay is, what, just a form of charity?

  6. He is, I think, referring to the aggregate picture which is one the BoE thought by. The banks, in aggregate create deposits when they loan funds to someone by making a matching deposit into their account at the same bank. It will then get used to pay someone else into their account or via cash so transferring the deposit. Does rather tend to increase leverage in the system though, which is why the leverage ratio seeks to constrain this.

    Trouble with this is it does all rather assume flows of deposits are equal and offsetting, I take my money out to pay you and you pay someone who then pays someone else at my bank, but they are not which is why the central bank makes up differences by lending against collateral. Eventually tough if the flow is unbalanced then you run out of liquidity.

    The Rock happened to need liquidity when the BoE didn’t have a scheme appropriate as the Rock didn’t have eligible collateral. Cue large problem. Of course the Rock could have generated deposits but it didn’t work lik that as who the hell wants to put their money in a bad bank?

    In a bizarre way Ritchie is fighting the current war based on the knowledge of the last one.

  7. @ Andrew Again
    Northern Rock *did* have eligible collateral – but Robert Peston, son of the New Labour Life Peer Lord Peston, created a run on the bank by publishing on the BBC a scare story.
    IMHO, the CEO of Northern Rock deserved to be placed upside down in a manure heap, *but* Northern Rock was *not* insolvent and the accountant hired by Alastair Darling had to undergo exztreme contortions to pretend that Northern Rock was insolvent. I read the report!!! When you charge NR for the fee that HM Treasury paid Goldman Sachs to look at NR … – not to mention the assumption that the BoE will default on its statutory obligations.

  8. My apologies. Is a few years since I read up on NR. If it had colletral then the run should have been survivable but the timing of the ELA announcement was bad. Agree on culpability though. NR wasn’t insolvent at all. Never said that. It appears that the then regulators assumed liquidity would always be available.

  9. His latest assertions:

    The UK doesn’t have a fractional reserve banking system

    The only limit to banks ability to lend is how much people can afford to repay

    Savings are saved.

    The man is clearly a genius.

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