Ragging on Ritchie

Pound’s going down. So, what’s the solution?

So, seventh, the answer is in the form of QE. It quite literally cannot be in anything else.

In order to increase the value of the pound we should make more of them.

Well done, vry well done that man.

Then Kwarteng could demand the Bank do £250 billion of QE (which is less than it did for Covid) to provide him with the money he needs in the next year. That would work, just as it did in the 2008 crash and in 2020 and 2021.

In that case the markets would not be asked for new money. They would not need to be spooked to the extent that they are now. The pound could stabilise, and even rise a bit.

Not an experiment I’d want to be anywhere near when it took place……

Richard,
Given the Scottish Govt have introduced a rent increase freeze on landlords, am I right in thinking the interest rate rises will cause havoc in the rental sector, both with landlords becoming unable to pay their mortgages and selling, and also them trying to end tenancies by whatever means, given the only way they will be able to increase rents is when taking on a new tenancy?

Reply
Richard Murphy says:
September 24 2022 at 4:52 pm
Yes

So the sector will have to be socialised

Next problem to solve?

Reply

All so simple in Tuberland, isn’t it?

And given that rents close follow mortgage interest costs these are going to skyrocket too.

That’s interesting news. For it means that a landlord never can end up with negative cashflow. Which isn’t something entirely valid as an assumption really. Go ask Intu shareholders.

Add just that data together and the deficit in the next year might easily exceed £275bn. That is wholly unprecedented in UK economic history.

And now the Bank of England has announced that it will also be selling £80 billion of the government debt that it technically owns back into financial markets over the next year.

Add this factor into the mix and what it means is that the Treasury plus the Bank of England will be seeking total funding of £355 billion (or more) from financial markets over the next year or so.

This will all drive up interest rates. Of course, it will. Which is what they want to do anyway, drive up interest rates. But, according to the Tuber, this is bad. We should, instead, use modern monetary theory.

Third, instead the new money that the Bank of England must necessarily create to fund the planned level of government spending (because all state spending is initially funded in this way) should be advanced interest free to the Treasury.

Yep, the solution to inflation is to print more money. Weimar here we come!

Sigh.

Then there’s a part of it that is just so cute you’ll scream with joy.

Then, fourthly, when those funds are spent into the economy they should be credited to what might be called special reserve accounts to be held by the commercial banks with the Bank of England on which interest of no more than 0.1% should be paid.

I am aware that this sounds like a technical issue, but it matters. These special reserve accounts need never be repaid. The interest rate would make them affordable into the future without limit, or concern.

But if that money’s just been spent into the economy then it’s not sitting in the bank’s special accounts at the Bank of England, is it?

Sigh.

The implication is that boom times are coming and that growth is going to happen. That is Kwarteng’s approach to economic management. He wants to provide a stimulus by injecting more money into the consumer economy.

In contrast, the Bank of England is increasing interest rates. It did so yesterday. It will not be long before it does so again. The implication is that it thinks the economy is overheated and money must be extracted from it.

Only one of these approaches can be right.

Not so. It’s entirely possible that changing the incentives – the tax rates, what is taxed – can have an effect upon the microeconomy distinct from the stimulatory effect of the macro. Actually, we’d rather insist that this is true.

Well, quite:

GDP is also CRAP. It includes completely made-up numbers, like the annual rental value of owner-occupied properties as if rent was paid on them, which it isn’t. And as Eurostat once told me, there is massive denial on the size of shadow economies within GDP data.
…
This is the mistake almost all economists always make. Not only are they not good at maths, but much worse than that they never seem to appreciate that they spend most of their time working on CRAP data to produce meaningless outcomes they then claim to be reliable. They aren’t. Bluntly, those economists are no better than unthinking technicians when working in this way.

That’s what Hayek and us neoliberals say. The data’s shit, it’ll never be any better, therefore accurate management of the economy is impossible because the data’s shit.

The El Tuberoso could actually follow the logic of his own insistence then he too would be a neoliberal.

NeilW says:
September 21 2022 at 1:00 pm
I notice on Twitter you’ve made the argument that Liz Truss’s and Kwasi Kwarteng’s reversal of the NI increase benefits the lower paid by 63p whilst the richer end gets £150 per month.

This sounds like you are opposing the decision to reverse Rishi Sunak’s NI increase after opposing the increase at the time.

Have I misunderstood?

The Institute for Fiscal Studies has warned that the richest taxpayers could gain £150 a month, with the poorest getting just 63p as a result of the tax cuts likely to be unveiled by Chancellor Kwasi Kwarteng after this week.

— Richard Murphy (@RichardJMurphy) September 19, 2022

Reply
Richard Murphy says:
September 21 2022 at 2:33 pm
Creating and reversals are not the opposite of each other

Reply

Cyndy Hodgson says:
September 22 2022 at 10:15 am
Even if you are right about the distribution of mortgages, I think you are ignoring the effect of Buy To Let mortgages. The lower income households who do not have mortgages will, almost certainly, rent privately. The interest rate inceases will, without doubt, lead to rent increases, which will affect them enormously.

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Richard Murphy says:
September 22 2022 at 10:19 am
Well said

I wonder if the data was corrected for that?

The assumption there is that landlords price their rents at cost plus. Instead of being grasping bastards who charge as much as they can.

So, we can now say that Spud insists that capitalists are not greedy bastards then, can’t we?

Nor will this increase have any signifiant domestic impact on inflation. The majority of UK households will already have nothing extra left to spend this winter and so will not cut their spending further because the Bank of England has increased interest rates, because they can’t.

This is not what the Bank of England think though. When they raise interest rates it is because they think there are consumers who have excess money to spend who most have that spending power removed by interest rate increases. That’s how they think these rate rises work.

No, it’s MV=PQ. The money equation. V is – largely enough, a way to think of it at least – the number of times that base money gets lent out. So, interest rates go up, fewer people borrow, the velocity of circulation of money falls, the broad money supply either shrinks or at least doesn’t grow so fast. Inflation reduces.

But Spud can’t have this because Spud doesn’t believe the money equation.

What is the right response to a forecast of a recession and a debt crisis? It is to cut interest rates. And that is exactly what the Bank should be doing today.

An economy heading for recession needs the lowest interest rates it can have.

Yep, 9% inflation, just when to cut interest rates…..

Who is right? The IMF put it like this in the abstract to a 2015 paper

No, no it didn’t.

DISCLAIMER: This Staff Discussion Note represents the views of the authors and does
not necessarily represent IMF views or IMF policy. The views expressed herein should
be attributed to the authors and not to the IMF, its Executive Board, or its
management. Staff Discussion Notes are published to elicit comments and to further
debate.

Oh.

How has someone quite so talentless and apparently stupid got to be prime minister?

Clearly, where there is this possibility we must increase the power of the state, right?

The evidence was unambiguous: as tax paid as a proportion of GDP rises so too does income, usually. Oil states are an exception.

The whole basis on which Truss is building her economic strategy is wrong, in other words.

High-tax states work for the good of those who live in them. Truss is wrong to claim anything else.

Apparently the Potato cannot. For it could be that higher GDP per capita gives politics more of other peoples’ money to looot…..

Murphy said: “The current MPC brings together a range of people with deep experience of economics rather than a wide range of lived economic experience that might be of greater benefit when making decisions with massive real-world implications for the people of this country. We don’t need theoretical answers to the current crisis, we need real ones. Only by changing the composition of the MPC can that be delivered.”

Dump the experts and let’s have it done by emotions, eh?

What’s actually interesting here is that Larry Elliott’s article is entirely a rewrite of the press release. There’s no opinion – and certainly no approval – in it. From which we should gather that there’s no approval of it…..

And now we have a form of hardcore Manchester School nineteenth-century capitalism that believes that so-called free markets, absent of government regulation, are the route to prosperity. This is where the tax-cutting and freeport mantra comes from.

We used to call these folks liberals. The Guardian was set up to propagate the ideas.

Some of us still are liberals of course. Just not those who call themselves such so much.

But the hard-core Brexiteers are unlikely to get much of a kick out of a low tax zone in Great Yarmouth. They don’t do economics.

Oh, right, that’s me told then.

The rest of it is rather cometh the hour, cometh the Potato.

Savers face years of lagging returns because cash-rich banks are unlikely to fully pass on Bank of England rate rises, new analysis shows.

A substantial rise in bank deposits during the pandemic means many high street banks do not need to compete for savers’ cash, according to Deutsche Bank.

Deposits have grown by a quarter since 2019, far outstripping loan growth at 7pc.

Household deposits currently stand at £1.8 trillion, almost matching the amount of outstanding loans in the economy for the first time since records began in 1997, according to Bank of England data.

Corporate savings also climbed sharply during the pandemic.

“There are so many deposits at the moment, and everyone is so flush with liquidity that nobody needs to pass on the savings rates,” said Robert Noble, an analyst at Deutsche Bank.

He added that the trend was likely to remain for “a couple of years”.

Deutsche Bank analysis shows high street banks can afford to lose an average of 14pc of their deposits – or tens of billions of pounds – to other providers before they will need to find other sources of funding. “They could lose a substantial amount of deposits and that wouldn’t matter’,’ said Mr Noble.

If banks simply create the money they lend then why would they ever “need” deposits? Why, if deposits started to either be withdrawn, or moved around, could they “need” other sources of funding?

stan cummins says:
September 16 2022 at 12:22 pm
You are missing the point..we know what happens to money when democracy controls it. High inflation. That’s exactly why the BoE is independent. Because the rest of the world believes that – more that perhaps – there is some control of inflation not in the hands of politicians.

The whole point of the system is to make monetary policy NOT democratically accountable in order to keep inflation away from the incentives of politicians.

Reply
Richard Murphy says:
September 16 2022 at 12:57 pm
Tell me when they happened and why?

There is not a shred of evidence to say independent central banks worked whenbutbis obvious so many other factors did

But you have outed yourself amongst what seems to be a fascist majority here today

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stan cummins says:
September 16 2022 at 2:25 pm
“But you have outed yourself amongst what seems to be a fascist majority here today”

Oh so i am a fascist because i have a counter view you yourself??… if you are so intolerant of disagreement it is you sir that is fascist

Richard Murphy says:
September 16 2022 at 5:56 pm
You posted the racism

Where’s the racism?

As we face an economic crisis of potentially epic proportions Blanchflower and Murphy believe it is time for the Monetary Policy Committee to be both democratically accountable, and to reflect the wide range of business, financial and economic experience that is available right across the UK.

For the point is that we know what happens to money when democracy controls it. High inflation. That’s exactly why the BoE is independent. Because the rest of the world believes that – more that perhaps – there is some control of inflation not in the hands of politicians.

The whole point of the system is to make monetary policy NOT democratically accountable in order to keep inflation away from the incentives of politicians.

I was involved in some Twitter debate yesterday about attacks that have been made recently on what has been described as the liberal left, who have been described by some as ‘enemies of working class people’.

Blah, blah, Soud’s a liberal leftie, sez Spud. Followed by:

But does that mean I am an enemy of the working class? I really do not know why.

Because every actual suggestion you make about anything at all fucks over the working class.

For example, your concentration upon fairness, equity, redistribution, at the expense of overall growth.

Over any meaningful period of time it is economic growth, not redistribution, which makes the difference to working class lives. If we stopped with the post-war Labor dispensation then we’d all be on £7k a year now (inflation adjusted into 2016 £). That’s if we had a perfectly egalitarian income distribution. If we’d stuck with the 1970s one then we’d all be on about £14k.

Over time growth is what matters, not the distribution at any one time. Which is why you’re an enemy of the working class. You not only seek to restrict growth – this GDP cannot be infinite nonsense – even when you think you’re increasing growth you’re actually depressing it.

Essentially, because you know no economics but presume to design the plan for an economy. A right and proper enemy of the people.

This is fun though:

John McDonnell was one of those who said that. Under him the ‘maxed out credit card’ mantra was on official Labour position.

And his chief economics adviser rejected modern monetary theory not because it did not describe very accurately how the money economy works, but because he suggested that it did not include a specifically Marxist class based explanation of the process of money creation. As a result he preferred an obviously wrong neoclassical theory.

That’s why I could not work with McDonnell.

This sense of decline was heightened after the refugee crisis in 2015, when Sweden accepted a record high of more than 150,000 asylum seekers. That’s almost 1.5% of its overall population.

So the racist card was played, very successfully.

The lessons are clear, I think. If the left promotes right-wing fantasies like balanced budgets and refuses, as a result, to deliver for those who expect the services that they need and deserve from the state then they simply open the door for right-wing extremism.

]It’s not hard to see that happening here in the UK as well.

We need a left-of-centre re-set to build the foundation of a new social democracy. Nothing less will do, unless we want an even further right government in the UK when we’re already in deeply dangerous territory.

I believe that we can do that. But it’s going to be hard work.

There’s a very easy way to do it. Stop the mass immigration and watch that – racist if that’s what you want to call it – pressure drop.

Let me deal with the easy ones. Whilst Brexit stress remains, and with a trade war with Europe likely over the Northern Ireland protocol, the chance that exports are going to grow whilst imports will fall is remote. Politely, to suggest that might happen is absurd.

Oh. Right. That the £ is down 20 to 25% against the $, less but still down against the euro, over the past year will make no difference to trade at all. Because prices don’t change the volume of business at all. Nope.