Watch Ritchie\’s Logic here

The news that the Cooperative Bank needs more capital is not, as such, news. It’s been known for sometime, but a credit downgrade has highlighted the issue today.

What it does pose is a more important question, which is that given the over inflation of the property sector – which is not going away – and the resulting over leverage of many bank customers leading to excessive bad debt risk for all banks – is there anyone who can now bear the risk of banking but the state?

And in that case has the market economy now failed?

A minor participant in a market has screwed up and could go bust. Therefore the market as a whole has failed.

We should therefore nationalise the pub industry as pubs go out of business every week.

26 thoughts on “Watch Ritchie\’s Logic here”

  1. Watch Tim’s logic too. Murphy makes the critical argument that banks are over-exposed to the yo-yo property market ( but never considers the possibility that something like the JS Mill Land Tax could stabilise it).Tim does the old switcheroo and argues by a false analogy to the licensed trade.(Actually there is a sound case for nationalising pubs: it has been tried round Carlisle and was a great success with newly built pubs showing films and supporting a lot of sport etc while returning a profit.)

  2. with newly built pubs showing films and supporting a lot of sport etc while returning a profit.

    ……

    How are you defining profit, there, DBC?
    Is that with all the normal expenses of running a pub taken into consideration. Or a figure after half of them have been absorbed by the ‘public ownership’ fiddle? Like House of Commons bars

  3. Simple. Take away the banks’ grant of privelege in the form of a right to create new money, take away all bail outs and State support, end government borrowing (which underpins the money generatiing machinery) and see how much longer they can keep pushing house prices up into the stratosphere.

    When the dust settles, sound genuine banks which simply borrow money and lend it out, without the contraptional thingamujig of the central banking machinery, will arise and operate within rather than above the market, and the now constrained money supply will prevent excess lending.

    It’s called a free market. Let’s try that, for once.

  4. any denunciation from the Graun, NEF or TJN of the shameful use of tax breaks to attract the next Star Wars to film in Britain? Maybe as creative arts are thoroughly approved of we won’t actually hear a peep out of the hypocritical buggers

  5. Actually I was referring to an article in The Publican by Phil Mellows called the People’s Pubs :on Net. He says the nationalised pubs returned 17% on capital. Since the Publican is a trade magazine, this shows that it is possible to consider the case for pub nationalisation on its merits free of ideological blinkers.
    @ian B Your solution is verging on the impossibilist; though that is n’t a problem in itself. If you do away with the powers of the banks to create money,it might be that the State has to create it, which would remove the necessity for Government borrowing anyway. All I was suggesting was that the banksters carry on their merry way creating money for mortgages and then for JS Mill LVT to stop the inevitable housing bubble (This only kicks in when land prices rise; leaves existing house prices untouched) . I feel this is a gift horse for the bankers and totally and completely bleeding bloody obvious as a way of stopping bubbles ruining them.

  6. @Ian B

    Banks do not create new money using some special privilege. They simply lend out what they have from depositors or what they can borrow in the interbank and other capital markets.

  7. DBC-

    It’s the expansion of the money supply that causes an eternal bubble. Without that, you can still have, erm, “local bubbles” in tulips or railway shares. But to keep housing rising faster than inflation, you need to continually pump with new money. So the basic problem is the new money.

    Even if you want to attack the symptom rather than the cause, it is unclear that only taxing land values will solve the problem, since the bricks and mortar will continue to bubble and you’re not taxing that part of the profiteering. If, say, a property value rises by £10,000 and half of that is land value (£5,000), the property owner is still £5,000 better off.

    In general terms, there is no reason for anybody to create new money. The ideal state would be a fixed money supply, since this allows all prices in the economy to find their correct level, and then only change due to normal changes in supply, demand, fashion, desirability, etc, as they should.

    In Keynesian terms, housing is not an investment good. It is a consumer good. Only price inflation makes it look like an investment good. It seems to me that that is better corrected at source. Simply put, if no new money is being created, eventually the market runs out of money to pay higher prices, and they will stabilise.

  8. Frederick @7, there have been a lot of threads arguing this point here. The banking system as a whole creates new money, which is why there is much more of it about now than there used to be.

    I smiled a wry smile a few weeks ago when I was reading the infamous Labour 1983 manifesto. At several points, it bemoans that due to high unemployment, it was now costing the country as much as 15, 16 or even 17 billion pounds a year. Such figures are small change these days. There is much more money than there was, and it has been created by the banking system.

  9. @Ian B

    Sorry Ian but this “privilege” thing is the vocabulary of the “positive money” fruitcakes and is not something I expected here. And yes this issue has been covered here before so I was surprised to see this “privilege” thing being bandied about by a regular.

    Yes the banking system as a whole expands the “money” supply when new loans are given. But each bank individually does not see this. It receives interest on the loan, pays interest to the depositor and uses the difference to cover costs, profit and reserves against default.

    The system can also contract the amount of money every time a loan matures or defaults or is prepaid early.

    It is also expanded by governments who do print money (digitally) all the time. QE is just an extreme version of this.

  10. Well, I vote UKIP so I’m a fruitcake anyway.

    Yes the banking system as a whole expands the “money” supply when new loans are given. But each bank individually does not see this.

    You really think that distinction matters in a practical sense? Why did you put “money” in “quotes”?

  11. Also, regarding the question of privilege; let’s take an obvious example. Deposit insurance. By the State guaranteeing deposits, the banks are able to run a riskier (and thus more profitable) business model. In what way is this not a privilege granted by the State?

  12. That makes two of us ;0)

    That distinction certainly matters since it is clear when you know how it works that there is no special privilege involved. Banks are not printing presses which is what some think.

    I will explain the quotes later. Gotta go.

  13. DBC Reed, a return of 17% sounds good – over how long however? Over a year would be excellent, over 10 years would be pretty poor.

    So what are these nationalised pubs doing that privately owned/corporate owned pubs are not doing?

  14. Ian B

    You desire “sound genuine banks which simply borrow money and lend it out” but that’s how the banking system creates money.

    If you don’t want banks creating money their lending would have to be funded by equity like investors and those investments not being acceptable forms of payment. Or something like that.

    Anyway, if they are taking debit account deposits and lending it out, they are creating money

  15. Luis-

    Under the commonly described Fractional Reserve For Dummies description, no new money is created beyond the multiplier; that is, it may be up to (say) ten times the reserve. Nothing wrong with that.

    But we have this curious thing that people say things are like that, when they clearly are not, because- well, let us say, something or other– is continually expanding the monetary base. It’s that something or other that is the interesting thing that we need to sort out.

    Perpetual motion machines of the second kind don’t work in physics. They don’t seem to work in economics either, which is why everything fell apart in ’08, and neither the King’s horses nor men seem able to put it all back together again.

    We want a base money supply that is stable. We want a broad money supply that expands and contracts proportionate to economic activity. The government and the bankers, though, want a broad money supply that just expands forever, without limit, because it allows the State to buy votes and the banks to have ever higher profits. This brings ruin to everybody else. Whose interests should we favour?

  16. “a sound case for nationalising pubs: it has been tried round Carlisle and was a great success”: no it fucking wasn’t; I lived there at the time.

  17. @d
    Why don’t you critique Phil Mellows well-documented and disinterested article, rather than swearing and relying on your anecdotage , or rather dotage, as the nationalised pubs closed in 1971?For what its worth, and personal anecdote is not worth much,I also visited a handsome pub in Carlisle in about 1964 where I have happy memories of undisturbed underage drinking and playing cards for money in plain view. I have dim memories of girls of the bar girl type hanging about also, although this may be wishful thinking. The pub was near the YHA hostel at the time. Happy days before The Fall.

  18. “the state pubs failings”: lack of choice, particularly, and a fair bit of grubbiness.

    People also complained about the prices but then people always complain about prices. I can, however, vouch for the underage drinking.

    I suppose that a 17% return on capital is consistent with overcharging and underinvestng, but it’s all a bit arbitrary: who estimated the capital value and by what method?

    Anyway, local people were keen enough to go for a drink outside the State Control area; I never heard of floods of beer-lovers flooding in.

  19. >What it does pose is a more important question, which is that given the over inflation of the property sector

    Someone must be on drugs.

    It’s been in freefall since abut 2007, except for a few bits of London, until last year.

    -25% or so, I believe.

  20. His solution to reducing the property bubble is to put the whole shebang in the hands of people who get voted into power when there is a property bubble.

  21. @d Congratulations on Tim leading you up the garden path to swap anecdotes about those fine architect- designed Carlisle pubs instead of considering the substantive argument of banks getting too exposed to fluctuating property prices.(Yes they are going down in some regions SeeMatt# 22 .This is why the banks are so loth to lend to lend into such an unstable market; they got their fingers burnt in 2007>2008.The banks should be crying out for JS Mill Land value Tax on land prices when they go up-but they won’t. Have n’t got the brains or guts)
    Ian B
    I cannot imagine how an economy is going to grow without an expansion of the money supply.
    The Populists in the US complained loudly about being on The Cross of Gold because the gold standard was artificially restricting the supply of new money but the oldest and most primitive banking system based on gold in Lombardy soon started creating new money when it issued paper promissory notes ( so travellers would n’t have to carry gold etc )The pyramid of loans in fractional reserve banking is practically unavoidable. I say nationalise the banks and use interest rates as a form of taxation (of money),putting the banks create money problem to good use. Such an argument is considered loony now but Keynes routinely looked at wild schemes and found one monetary crank (Silvio Gesell) who was on the ball and so nicked his ideas. (Not all of them unfortunately: Gesell realised that if you freed up the money supply land values would bubble .Keynes didn’t get this at all)

  22. @Ian B

    The bankers have no interest in seeing the amount of money in the economy increase. It is the government who via the BoE use open market operations who are expanding the money supply constantly in order to maintain inflation at around 2%. Why ?

    They simply believe that an economy with a small positive amount of inflation is better than one with a negative inflation since a deflationary economy can result in a deflationary spiral as people delay consumption hoping for a lower price. This will cause economic slow down and recession. A small positive inflation number avoids this.

  23. Prehaps if the courageous state would stop inflating housing bubble to win votes, such problems would be far less.

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