Money is another thing the professor of practice doesn’t understand

First, let’s be clear we’re not printing lots of money to stay afloat. It is true that the Bank of England has created £435 billion of new money using quantitative easing since 2009. Despite this UK broad money supply (M4, as it is called) has fallen since then. To say that printing money is creating excess money supply is just wrong as a result.


Butchering the jargon a bit broad money is MV. Base money times velocity of circulation. We’ve done the QE because V fell hugely, massively increasing (like 10x) the M thus makes sure that MV doesn’t fall. He’s just entirely missed the very reason we did all of this.

To say that’s we’re heavily in debt is also wrong. I refer to the evidence here. The Bank of England would say we owe 89 per cent of GDP in national debt at present. This, however, ignores the fact that the Bank of England actually owns one quarter of that debt. The true figure for national debt actually owing to third parties (which is what matters) is, then, 67 per cent of GDP, which is historically an incredibly low rate.

And as V recovers then we’re going to have to reverse that QE to get the excess M out of the economy or we will have significant inflation.

Nor is inflation a concern. Inflation is running at just over two per cent now. There is not a hint (barring adjustments caused by Brexit) of more to come. To talk of hyperinflation is absurd.

Why then are the Fed and BoE discussing when they’re going to be reversing QE?

And in that case of all these things are taken into account let’s then be clear that the exchange rate cannot be imperilled by money printing. In fact, again the exact opposite is likely to be true because money printing will boost the economy towards full employment, will encourage investment and will boost productivity, all of which improve the exchange rate. So once more the prediction made is wrong.

Depends how much you print. What’s the value of the Z $ these days?

And isn’t it odd that someone attempting to describe a part of economics seems entirely unaware of effects at the margin? Where, you know, all economics happens?

16 thoughts on “Money is another thing the professor of practice doesn’t understand”

  1. Productivity = output / input. People employed is an input. Tuppence is claiming that increasing inputs will increase productivity. It must be a nice world of his where 1/100 is greater than 1/10.

    But then, I’m not a professor or an economist, I just did a three-day course in basic business accountancy 20 years ago.

  2. First perform a little sorcery on a number, thus:

    The true figure for national debt actually owing to third parties (which is what matters) is, then, 67 per cent of GDP

    Then compare this with the past from which similar sorcery is omitted and, hey presto, we find that the result is:

    historically an incredibly low rate.


  3. This was my favourite

    ‘money creation by our government has been essential when the private sector has refused to create enough cash, which is what has been happening in the UK due to net saving by business and the overseas sector and (until recently) households. It is only government money keeping our economy going. ‘

    I wonder what DBCReed of this parish thinks of that statement…. I mean where do you even begin.

    ‘That’s because too much money in circulation can undoubtedly deliver inflation. But that can and must be addressed by taxing sufficiently, especially if near full employment. If that is done the risk is averted.’

    So We’re going to issue People’s QE and then take it back in tax? Does the fat b%^&ard even read the first paragraph of his own post? He seems to have less short-term memory than my late goldfish (deceased 1992)

    ‘But I stress, if the money printed was used as an investment fund to create jobs in every constituency in the country it could do better still.’

    He’s at best Gordon Brown Mk II and at worst a straight retread of the USSR or contemporary North Korea. A dinosaur…..

  4. …the private sector has refused to create enough cash…

    I thought counterfeiting is a crime….how can I create cash in Spudworld and avoid a prison sentence?

  5. Lots of “Let us be clear” in that, a sure sign of quality bollocks and evasion.


    Nice one. I didn’t notice that.

  6. I think you missed “if V recovers”! It won’t as all the money went into illiquid assets (housing and property) which then either recirculated into more housing or functioned as someone’s savings and didn’t get spent except on financial assets and claims on future profits.

    The great unwind needs asset prices to fall. But they do and the powers that be take action to inflate them again.

    Welcome to the new normal.

  7. Ignoring Murf’s MMT bollox, what I’m getting from the comments above is that the benefits of QE (with hindsight) perhaps increasingly look to have been marginal, and that unwinding QE at some stage is likely to be a delicate process. Indeed, probably best if done over a longish period of time and ideally having started “a while back”?

  8. We know how the unwinding will be done. The bonds mature and currently they buy more to keep up the stock. They’ll just stop the buying and it will gradually run off. They can also buy only some rather than all maturing and control the rate that way. But yes, several years is likely.

  9. Social Justice Warrior

    Part of the V in Tim’s (unconventional) definition of broad money came from Mortgage-Backed Securities issuance. It’s hard to see MBS volume in the UK ever recovering to anything like pre-crisis levels. So perhaps not all QE will need to be unwound.

  10. As I see it the QE caused inflation to rise during a period of negative inflation so the net result was the marginal inflation we have witnessed.
    As time goes on positive inflation may rear its ugly head again and rather than use the blunt instrument of interest rates to try to control it they can use the unwinding of QE.

    The inflation we are seeing at the moment is a result of the devaluation of the pound and is only transitory.

    I still think we are a way off any unwinding.

  11. Personally I like the fact that he has wound currency movements and the capital account into his framework.

    He is basically claiming to have solved (or at least have a workaround for) the impossible trinity.


  12. Tim

    Is MV=PQ actually resolved in real life, “In the wild” as you call it? I’m genuinely interested.

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