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FT economist supports Corbyn's QE plan
The economist Matthew C Klein* has written an article in the Financial Times supporting Corbyn's 'People's QE plan'.
*Matthew C Klein is an economist who has worked at the worlds larget hedgefund, and has written about the economy and financial markets for Bloomburg, and The Economist.
"the core idea is sound and possesses an impressive intellectual pedigree. In fact, it could help solve one of the most troublesome questions in central banking: how policymakers can accomplish their objectives using the tools at their disposal, without producing too many unpleasant side effects."
"Corbyn’s plan to have the Bank of England fund government-directed investment in infrastructure could also work, especially if the pace of investment were adjusted according to the condition of the economy. In fact, Adam Posen supported something similar when he was on the Monetary Policy Committee of the Bank of England"
http://ftalphaville.ft.com/2015/08/06/2136475/corbyns-peoples-qe-could-actually-be-a-decent-idea/
*Matthew C Klein is an economist who has worked at the worlds larget hedgefund, and has written about the economy and financial markets for Bloomburg, and The Economist.
"the core idea is sound and possesses an impressive intellectual pedigree. In fact, it could help solve one of the most troublesome questions in central banking: how policymakers can accomplish their objectives using the tools at their disposal, without producing too many unpleasant side effects."
"Corbyn’s plan to have the Bank of England fund government-directed investment in infrastructure could also work, especially if the pace of investment were adjusted according to the condition of the economy. In fact, Adam Posen supported something similar when he was on the Monetary Policy Committee of the Bank of England"
http://ftalphaville.ft.com/2015/08/06/2136475/corbyns-peoples-qe-could-actually-be-a-decent-idea/
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Klein however isn't an economist, he's a history graduate who subsequently spent 2 years studying the history of the US federal reserve and history of monetary economics for a book and is currently a blogger.
Hmm, this sounds eerily familiar.....:(
Well the UK government (of all persuasions) doesnt actually have the best track record on investment spending..
In essence yes it is new debt by in effect printing money.
It is a central bank creating money and using it to buy bonds (primarily the government's debts) from banks, pension funds and other financial institutions so they have more money to lend to business and individuals thereby increasing activity in the economy. That should increase the money supply, reduce interest rates and the central bank ends up holding the government debt it bought.
It really only works if the above lending happens and the businesses and consumers who borrowed money spend it. The last lot of figures I saw for the UK was £375b worth of QE. Its effectiveness is unknown for sure but it can only go on until the central bank ends up holding all government bonds, the BoE has set a limit of 70%, and is afaik not currently engaged in QE and nor is the US Fed.
There is no reason why he should involve the banks in any of this.
The FT is usually wrong on the big issues! If it was in charge we would be part of the shambles that is the Euro.
However doing this when you have a growing economy is not a good idea as it could cause the economy to overheat, leading to high inflation, which in turn would lead to higher interest rates.
And it's apparently outrageous and extreme that someone wants to use QE to provide ordinary families on average incomes with affordable housing. Instead of speculation the funds would be used to create assets - housing - which would last generations.
Tell me why it's apparently extreme to support the latter but the former is apparently sensible. Cos what we need aren't homes for people but short term speculative asset bubbles?
On this one Corbyn is dead right.
The more fundamental difference is that QE was intended to fill a gap in the economy caused by deflation, inadequate liquidity, reduced tax take and spending and reduced demand. More money then filled a hole- and didn't cause inflation. By 2020 we will have demand back, almost full employment, and inflation starting to rise. If you start printing money then, you have more inflation, which leads to higher interest rates , which lead to lower demand and less economic activity, and more unemployment. As interest rates are low, people will notice even small interest rate rises more than they may be prepared for. Thats why all the major economies have eased off or stopped QE as the conditions have already changed.If it was such a great idea everyone would be doing it. Corbyn just thinks he's found his magic money tree.
There's was also the downside to QE - like higher house prices and lower savings income from building societies for those reliant on savings. There are consequences.
You also have to ask what Corbyn would invest in. Is it to replace the money privatised companies now borrow , or to buy them back? In that case it adds nothing useful. Is it for government projects like Concorde , as run by his idol Benn? Whats the chances of anything useful coming from it?
;-)
Corbyn is wrong. Your facts are just not true. Banks are not making big profits, and their share prices have not recovered. If they had we wouldn't have lost so much revenue. Stockmarkets are still at pre 2000 levels. Inflation hasn't risen - because QE has been done in a deflationary situation. The danger with QE is if you do it in an inflationary situation - which is where we are moving, as the economy thrives - thats a problem with Corbyn's plan not Camerons. Interest rates being held did punish older savers, but it saved younger mortgage payers. Cameron is already moving on housebuilding , and, without additional QE putting mortgage rates up. All Corbyn wants to do is to recreate the council estates of the sixties - to get subsidised dependant voters - while finding a wheeze to pay for it.
Corbyn's QE for people is, I think, untested, but at least it is motivated by a desire to help the country. The QE under Labour and the Coalition did nothing but boost bankers pay packets. That's why I, like many others, would like Burnham and Cooper, both ministers in the Labour regime, Cooper a Treasury minister in 2008, to explain why they think QE to bankers is a good idea, but QE for the benefit of the community is a bad one. As for it being a loony left socialist fantasy, the QE we've had could be described as socialism for bankers. It sure as heck wasn't capitalism!
The difference is that the QE that was carried out was a specific policy to help the economy recover from the recent recession. Yes you could argue that it could have been better targeted but the basic thesis is that it was a short term emergency measure.
What Corbyn is proposing is permanent routine use of QE to keep Public Sector investment off the books and thereby not increase Government debt - it is simply an accounting trick in exactly the same way that PFI was. Every country that has attempted to print money simply to cover day to day spending has come unstuck, but Corbyn seems to think that this time it will be different.
And the remaining 99 percent of economists believe his policies are lunacy.
What is economic lunacy is p*****g £25bn a year - and rising - on housing benefit because we lack sufficient affordable housing.
Corbyn's plan would save money in the long term - if we carry on as we are now in 30 years time the housing benefit bill will cost more than the NHS!
Borrowing to deliver long term assets which can deliver a return is entirely sensible - unlike the QE since 2008 which has delivered nothing tangible.
I see your point but borrowing to build your way out of an ever increasing population isn't the solution either and Corbyn has nothing to say on immigration which is the biggest cause of population increase.
Well given the UK population seem determined to stay in the EU we are going to have to plan to house another 10 million people in the next twenty years.
Do you have any suggestions as to how we are going to deliver this housing - or is the future 20 to a slum house in Barking or East Ham?
Something radical has to be done - the private sector led approach of Blair, Brown and Osborne isn't delivering it.
The only way the UK population won't rise is if the economy gets so bad that people can't wait to get out. We have to accept that and plan for population growth and stop pretending there is any other choice in the matter.
99% of economists told us banking regulation needed to be kept lax, that the banks business model was sound and sustainable, and we had nothing to worry about. Lesson to be learnt? Don't take any notice of economists!
And in a very short term it became apparent it wasn't working. Banks were not using the money to give industry credit, but were raising the pay of bankers by huge amounts. Even this year the BoE survey showed banks are still not supporting business. If QE had been a genuine effort to help the economy it would soon have been stopped.
If we use money printed from the banks we won't be borrowing.
Of course if borrowed from the B of E at 0% we would be saving ourselves billions/year as well.
can you see the basic flaw in that plan?
To be fair, that's not what they said exactly. Recessions happen, it doesn't mean all economic understanding is hogwash and we should have another shot at communist models.