Ragging on Ritchie


Then he cites a paper suggesting that there are at least $2 trillion of unrealised losses in the US banking system at present, meaning that assets are overstated by that amount. He comes to the conclusion as a result that the US banking system is running on empty: it has no reserves.

Could be.

Second, there is a need to reform audit so that these hidden losses are revealed.

Why? Losses on available for sale portfolios are marked to market. Losses on hold to maturity portfolios are revealed on Form 10Q. Go read the 10Qs and tot up the losses.


Ooooh, me Teach, MEEEEE!

But what it does not show is debt, because if that debt were to be repaid money would have to be created to pay it. And money is of course just debt. So, in effect, it is unrepayable except by taxing it out of existence. I doubt anyone is suggesting that.

Sure, I think a period of budget surpluses which then both destroy money and pay down the national debt would be a fine idea. As did Keynes himself of course – sunshine and times to mend roofs etc.

Solanum’s new report

Nor was there at the time that QE was introduced any serious discussion about whether
or how the asset purchases to be made under that programme should or would be

Oh, right. So all the talk about how QE was temporary, could be reversed by simply selling the bonds back into the market, didn’t happen then?

I mean I know the conversation happened, I took part in it.

All that we do know is that low interest rates and QE, which together represent loose
monetary policy, were an inevitable response to overly tight fiscal policy from 2010
onwards. Austerity commenced in 2010. The large resulting cuts in public spending
and increases in taxes

What cuts in spending?

What we also know is that during this period inflation was low and on a declining trend
despite the fact that QE is inherently inflationary

Cool, so when we’ve got inflation we should stop[ doing it then. Which, os course, is not what he recommends at all.

albeit that opportunity was not
taken by either the government or the private sector to exploit this opportunity
to make necessary investment at low cost. For example, fixed fifteen or thirty
year mortgages could have been introduced, as operate in the United States,

He does know that system went bust in 2008/9, right? Freddie and Fannie went tits up?

Further, fixed rate mortgages require someone, somewhere, to carry interest rate risk. Meaning bond holders. This, in turn, means a massive expansion of the trade in second hand pieces of paper. You know, people saving without making any investment in real assets because someone, somewhere, has to be buying those bonds. This call is entirely the opposite of his more normal one.

We are in fact of the opinion that a policy of QT would be harmful, and potentially
extremely harmful to the UK economy, because:
a. QT will require increased real (inflation adjusted) interest rates in that economy.
These increases are already forecast by the Bank of England and Office for
Budget Responsibility for the next few years.

Real interest rates are just such a silly idea, aren’t they?

We also think QT and the associated policy of reducing or eliminating the APF is
unnecessary because:
a. There is no evidence that UK or other financial markets have the capacity to
absorb the sale of more than £800 billion of UK government gilts either now or
in the future without

Amazing, folk don’t want that ability to save safely with the government after all. Another argument bites the dust.

It doesn’t get any better either.

So, a reader’s poll. Who is damaging their reputation more here? Blanchflower for writing with Spud? The Solanum for reneging on all his other arguments? Or Larry Elliott for taking this guff seriously enough to write it up in The Guardian? All of the above?


….if only it could have thought like a government instead of like a shopkeeper, was a self-funding deal for a better NHS. Literally, a full-pay offer could have paid for itself.

Them magic multipliers agin.

There is always the bit that he forgets. Here there are two.

1) Whatever the multiplier of public sector employment we gain exactly the same from private sector. Moving resources into the public sector does not, therefore, gain any multiplier greater than we would have got from leaving things as they are.

2) If all wages are falling in general – which in real terms they are – then why shouldn’t public sector wages fall in real terms along with other wages? After all, any recruitment crisis – etc etc – will be based upon relative wages available within the economy. Relative wages, not absolute. Because, you know, that’s how wages work as P. Krugman has been pointing out for years.

The implication of this

I have reviewed the Bank of England’s latest survey of opinion on inflation, which has just been published. The results are, to be kind, quite bizarre.

Most people rightly know inflation is more than 5%, but quite bizarrely a third think it has been less than that

When asked how inflation will change people are hopelessly wrong in the short and medium terms

OK, the general populace are hopelessly ill-informed when it comes to inflation, monetary policy and perhaps macroeconomics in general. Shrug, let’s work with that then.

This means that politics – driven as it is by what the general populace believes – is not to be the driver of inflation, monetary policy and macroeconomics in general. Because the motivating forces behind politics are hopelessly ill-informed.

So, we leave monetary policy to the independent central bank then, not the politically driven Chancellor.

Sounds like a plan.

More new economics

Fifth, this was a budget for recession. I discussed this yesterday, but it is worth repeating. If the government cuts its growth to a rate less than inflation and expects less than inflation rate pay rises then it matters little that profits might rise excessively because they will not spill over into serious growth via multiplier effects, whilst consumer spending and government spending which would do that are not available to drive that process. That means we cannot have growth.

Apparently productivity growth isn’t a thing. Three centuries of economic history wiped out by a faulty assumption.

Yes, there’s more

Fourth, this was a budget that will harm the environment. To suggest nuclear power is sustainable when no one has, after 70 odd years of its use, no clue how to dispose of its waste safely in the long term and most plants are built in places likely to be submerged by global warming, is absurd. The investment would give a vastly better return in tidal power, but as ever the UK government chose to back the wrong technology, being wedded to old notions of power, quite literally in this case.

We know how to dispose of nuclear waste. Vitrification. It’s only politics that won’t allow it.

We also know about tidal. The bigger we built the Severn Barrage the more money it lost. The cost benefit analysis (yes, including CO2 emissions from comparable gas plants etc) proves this. Tial loses money, makes us poorer.

Jeez, he’s really going for it today, isn’t he?

Good God

This is the problem. Silicon Valley Bank may have been solvent, but under stress it did not look like it.

Err, no. SIVB was not solvent. It lost all its capital on that hold to maturity bond book. That’s why it tried a capital issue.

Credit Suisse would not require a €50bn lifeline if it was solvent.

No, CS is – as far as anyone knows – solvent. It’s illiquid. Which is why the Swiss National Bank (their central bank) is offering liquidity against security. As Bagehot said central banks should.

It’s really very, very, impressive to get the two banking problems the wrong way around, isn’t it kiddies?

Third, why do we let banks continue to get away with exploiting the implicit guarantee they are given by the state? I wish I knew the answer to that, because if I did I would also know why, incomprehensibly, it is planned that interest rates stay high for years when that can only help banks and the wealthy.

Banks are going bust – OK, illiquid – because interest rates are rising. This is taken as proof that rising interest rates only benefit banks.

Well, yes, this is true

There was a time, 50 years ago, when this would not matter, much. Banks were at the time relatively small businesses. They did not appear high in the FTSE.

50 years ago is – *checks calendar* – 1973

FTSE100 was launched in Jan 1984.

The precursor, the FT 30, deliberately and specifically excluded financial sector corporates like banks. Tho’ that did change and NatWest, Lloyds, RBS all joined it.

So, currently FTSE100 has 5 banks in it – Lloyds, NatWest, Standard Chartered, HSBC and Barclays. Or 5% of it. FT30 had, by the end of it, 3 banks, or 10% of it.

Banks are currently less of the stock market index than they were.

Err, yes, yes.

So, if every other area does better then we would see every other area doing better. Growth rates in those countries that have a higher government share of GDP would be higher than the UK’s.

Oh. And by all means play around to see whether G7, or EU 14, or whatever do prove that. I’ve just used Euro area because it’s easiest. But let’s put it this way, the Dick ‘Tater’s contention is not exactly proven, is it? The correlation between a higher government share of GDP and greater growth isn’t obvious.

That there’s some minimal level of govt spending, of course, that there’s the possibility of excessive, sure. That means there must be some optimal level. And if we’re to argue that our measure of optimality is greatest growth – which Spud is doing here – then it becomes an empirical question of what that optimal level is, doesn’t it?

So, what do the numbers tell us? My first pass guess would be that Singapore levels of government maximise growth. Hey, maybe we don’t want to maximise growth, maybe equity is more important. But then we can’t go and use growth as our measure of optimality, can we?

This is also lovely

I have posted three new items to the glossary this morning, all in time for tomorrow’s budget. They are on:

Fiscal rules
Fiscal choices
Fiscal space
All of these are part of the mumbo-jumbo of budget day, and all are complete nonsense.

As I explain in more detail below, there are no such things as fiscal rules. There are only fiscal choices. As such fiscal space is simply the spending the Chancellor can make without embarrassing his or herself by breaking their own meaningless rule.

So Liz and Kwasi could have done what they wanted to do then?

This is very cool

In a fiat currency system, government expenditure, the scale of a government deficit, taxation, and the control of inflation (see separate entries) are as a consequence all intimately related issues. This makes the artificial disaggregation of macroeconomic policy into fiscal policy and monetary policy deeply harmful to the overall control of the economy of a jurisdiction by its government.

A proper understanding of fiat money also puts it at the heart of macroeconomics, when at present it is treated as peripheral to that subject by neoclassical economics, or is even ignored by it.

So there’s this entire and whole portion of neoclassical economics – monetary policy – which discusses just how goddam important money and policy about it is to the economy. Milton Friedman being one of the great thinkers here. This is then proof that neoclassical economics ignores monetary policy?

Jesu on a pogo stick

Danny Blanchflower and I discussed this yesterday. We agreed that the Fed has no choice but guarantee all depositors of all smaller banks in the US right now: unless they do there will be a flood of money to JP Morgan and a collapse in US banking. To pretend there is no crisis in US banking, created by the Fed, would be absurd in that case at this moment. Only state guarantees can prevent that crisis unfolding.

But the question is, what then? What price should be extracted for saving US banks, yet again?

Is it more tax?

Or the reversal of Trump’s regulatory relaxation?

Or more regulation?

And better audit?

Or a levy for the cost of capital that the state supplies to these banks?


The FDIC charges banks an insurance premium for the guarantees made on deposits up to $250k. The FSCS does the same (up to £85k) for UK banks. OK, so the move is now to guarantee larger deposits. Fine, the insurance premium rises. As, umm, we already have in the UK with the Bank Levy. It is precisely and exactly this thing. An insurance premium against the state backing provided against deposits not already covered by the FSCS scheme.

The ‘Tater’s all seeing gaze has failed to note that we already do this.

And we need the reseparation of this public service from the rest of banking, whilst mortgages move to a US model of state backed certainty with rates fixed for the life of the mortgage so that the threat to so many in this country, now being seen as rates rise, is removed forever.

Could this be done? Of course it could. But groupthink denies it because groupthink likes things the way they are.

And that’s just gorgeous. For Dick has now just reinvented Freddie Mac and Fannie Mae. You know, the two sources of vast perverse incentives – why worry about credit risk if the government’s going to buy it anyway – and more than a little market turbulence when they fail. As they did, two weeks after Willy Hutton insisted the country should have that Gordon Mac.



In a fiat currency system , which system is now used by almost all money-creating jurisdictions in the world (including the UK, USA and eurozone) all that money represents is a promise to pay, which is otherwise called debt. All money creation must, as a result, recognise the creation of new debt between the parties who give rise to that new money creation.

This process is not as complicated as it sounds. Only two types of organisation can be involved in transactions that create money.

We’ve just defined money as debt. Therefore anyone who creates a debt is creating money.

Standing in a pub in Downham Market – for those legally able to do so – with two friends. Not a full session, but a throat washer. Say, three pints each. Accountant number 1 buys three pints, one for each person present.

We all know that in British social circles this has just created a debt. May not really be callable but it is societally enforced – try not standing your round for a week or two and you’ll not be part of either rounds or even the conversation any more.

15 minutes later, accountant number 2 buys three pints. That creates more debt. The money supply has increased. But also reduced, for he has stood his part of his round to accountant 1 (no, they’re accountants, they do not have names, just numbers). And then the final round of the round – as it were – and our money supply collapses down to where it was at the start. There are no outstanding debts between our three accountants as each has stood his round.

Now, yes, this is trivial in one sense. Rounds aren’t really tradeable but they are those socially and societally enforced debts. Increasing the number of them is indeed increasing our money supply given that we’ve defined money creation as debt creation.

Which is the point that the ‘Tatercounant has got wrong. If indeed it is true that the creation of debt creates money, that money creation is debt creation – and as a useful manner of viewing the world we’re fine with that definition – then anyone who creates debt is creating money.

We don’t only have two people creating debt in our society. Therefore we don’t only have two people creating money.

We could tighten up our definition of course. We could, say, insist that only governments or banks create the right sort of debt which is money, or money which is debt. But then our insistence that only two people do create money is driven purely by our definition, it’s not an outcome of the logic of the situation at all.

Don’t like that pubs and rounds explanation? Running a tab anywhere increases the money supply for the length of time of the tab. Your restaurant bill increases the money supply as you munch through the starters, grapple with the Sancerre, move onto the claret and the beef and then collapses back down again as you settle up. Or the 17th century habit of private money as Charles II and so on were too cheap to mint copper coinage. Or the reason for the Truck Acts and corporate/employer money used to pay wages. Or paying your electricity bill 45 days in arrears as opposed to prepayment on a meter?

Yes, this is important. A high trust society where it’s possible to say “Catch you later on that” has a vastly different money supply from a low trust one where it’s cash on delivery or prepayment.

What matters in this form of money creation is whether people believe the promise to pay of course. We’ve even got an entire system of evaluating such claims – discounting a bill is exactly that.

And that’s only one of the problems with the ‘Tater’s ideas. His definitions are entirely circular. If indeed it is true that debt ios money, money is debt – which as I say is a useful view to illuminate certain parts of the economy – then anyone who creates debt, any act which creates debt, is also creating money. So, we cannot say that only banks and government create money because they are not the only two people who create debt.

If we do want to say that only banks and government create money then we have to accept that debt equals money, money equals debt, is not a usefully true definition within the insistence that we ourselves are making.

We can indeed say that only banks create bank money, only governments create government money. But that’s about as useful as insisting that only cats piss cat piss. Well, yes, and? We can’t mix and match our definitions so that micturation is the evacuation of urine and then go on, at the same time, that only cats piss piss. We must stick with the one or other definition within our same argument.

If money is debt then anyone creating debt is creating money, we do not have only two issuers. If we’ve only two issuers then we’re not talking about the equality of debt and money. Cat piss is indeed cat piss, but urine is produced by many other creatures as well.

This is very fun


Now, we would read that and say Thatcher good, even Blair good – do note that the stater continued to shrink as a portion of GDP well into the second term – and then it all goes to shit when Brown takes office. Then decent growth when the Tories gert in again – note that we’re talking about relative to other similar economies here – and then it all goes to shite again as govt spending as portion of GDP rises with May.

That is what the chart is saying. Here’s the ‘Tater:

After 2007 the UK’s economic wellbeing collapsed.

Matters did get worse after Brexit: investment collapsed from 2016, but the tipping point was not then. It was the 2008 crisis that created that tipping point.

What created that difference? George Osborne did. He delivered austerity, which was a deliberate attempt to undermine wages and simultaneously withdraw the state from involvement in the economy.

That’s not really a conclusion that can be drawn from that evidence, is it? Note, again, that in 2010 to 2016 UK growth was better than the other places.

Danny Blanchflower and I are issuing a paper very soon

Oh good, we are all looking forward to that, aren’t we?

Err, no

The BBC discussed the budget yesterday, and Lineker, and anything but the fact that the NHS has reached the point where junior doctors are paid less than people in Pret

The line comes from:

Junior doctors paid lower hourly rate than workers to get at Pret

Those are not, in fact, junior doctors. Those are trainee doctors.

There are two national pay scales which doctors in training in England may be paid under depending on their contract of employment.

These are people three minutes out from their undergraduate degree.

Before you become a UK doctor you first have to obtain a degree in medicine from a medical school whose medical degrees we accept. Courses normally last five years, or four years for a graduate entry programme. They involve basic medical sciences as well as clinical training on the wards.

After graduation, you’ll enter the two-year Foundation Programme. You’ll be provisionally registered with a licence to practise while completing the first year. Full registration is awarded when you’ve completed year one.

They’re provisional doctors, with an L-plate……


Defining fascism is challenging for three reasons.

The first is that unlike, for example, communists, fascists have been very reluctant to use the term to describe themselves.

Gosh. The Italian fascist party actually called itself the Italian Fascist Party, the intriguingly misleading little bastards that they were.

Second, those groups which have been described as fascist are not all consistent in their attitudes or behaviour.

Oh. So if they’re so different from each other then perhaps they’re not all fascists then?

The third reason is that the term is usually actively resisted by those to whom it is applied. Rather as one of the surest signs that a place is a tax haven is its vehement denial that it is a tax haven, so is it the case that a group that appears fascist in inclination is absolutely vehement in its denial of the fact.

Don’t you just love the logic there? If ‘Tater denies being a fascist then by definition he is one?

As to the actual attributes there see if you can fill out the bingo card y noting examples of ‘Tater doing each and every one of those.

2 for example, rejecting neoclassical economics is rejecting that enlightenment. 7 and 8 are, of course “neoliberals!” and so on.