Posted by Ann Pettifor

Central banking, state capitalism, and the future of the monetary system

pound-coins-e1327533990776The role of commercial and central banks in the process of providing credit may seem to be clearly understood by economists, bankers, and policymakers. But there are common misunderstandings about money creation, equilibrium, public money, central banks, and interest rates. The outlook for the global monetary system is not overly optimistic in the absence of overcoming these misunderstandings and altering the philosophies of bankers.

This presentation comes from the 67th CFA Institute Annual Conference held in Seattle on 4–7 May 2014 in partnership with CFA Society Seattle.

The liberalization of finance after the 1970s led to a significant buildup of debt in many parts of the world, especially in Africa, Latin America, and parts of Asia. The inexorable rise in private corporate, household, and individual debt leads to the question of whether professional economists truly understand money, finance, and credit. Good predictions and sound investments cannot, in my view, be made without a solid understanding of money. Continue reading →

The downward spiral: private debt rising, wages, productivity & inflation falling

Agony by Mark Turnauckas CC BY 2.0The Bank of England’s Andy Haldane is a fine economist. He occupies an ideology-free zone. This is highly unusual in central bank circles. He made a particularly skilful and nuanced speech last week. Many gushed over it. Gillian Tett of the Financial Times suggested that it was good enough to qualify Haldane as a journalist.

But Haldane is not a journalist. He is a central banker. And that makes his ‘Twin Peaks’ speech particularly ominous. For while he bows to his political masters in the Treasury by acknowledging the growth in UK employment, his speech tilts definitively towards gloom. Let’s analyse it more carefully than I was able to do in a brief BBC Newsnight interview (eleven minutes into the show). Continue reading →

‘Secular stagnation’ is the outcome of deliberate policy — it can (still) be reversed

19604915_sMartin Wolf in the FT today strikes a  different direction from those secular stagnaters shepherded by Larry Summers towards the cliff-edge of endless doom. Larry Summers devised and popularised the term, “secular stagnation”. He has a lot to answer for. His misjudgements, poor advice to the Obama administration, and flawed analysis have been catastrophic for the global economy. Given his record, he should be silenced or ignored, and barred from shepherding anyone, including economists and other naifs, in any direction (for more on his grave weaknesses see this Forbes article).

Secular stagnation within a deflationary context, let us be clear, is the outcome of deliberate policy choices. It has not come about by accident. It has not come about for lack of economic understanding, learning or analysis. It has not come about for lack of economic tools – both fiscal and monetary, or indeed for lack of human agency. Instead secular stagnation is the deliberate outcome of policy choices made by those dominant in the world’s most powerful policy-making institutions, including the IMF. Continue reading →

Twenty-two days that changed the world

The SummitReview of The Summit by Ed Conway, published by Little, Brown, 2014

In this carefully researched book Ed Conway tells a gripping human tale about the July 1944 Bretton Woods Conference – “the biggest battle of the Second World War – fought behind closed doors”. He provides remarkable insights into the personal, geopolitical and intellectual dynamics that played out that summer within the confines of the Mount Washington Hotel, nestled within New Hampshire’s Bretton Woods.

His story of how 730 delegates from 44 nations worked together to build the post-war international monetary system is a highly readable account of a gathering that was to transform the global economy. Pivotal to the success of the conference was President Roosevelt’s and Keynes’s determination to bar Wall St. and the City of London from participating in preparations for the conference; and to deny the private finance sector (with one exception) access to the conference proceedings. After the catastrophic economic failures of the 1930s Haute Finance was to be denied a role in the construction of the post-war international economic order. Continue reading →

Why banks power to create money should be regulated and directed (but not ended)

Banking trade screensAnn is author of “Just Money: how society can break the despotic power of finance”, published by Commonwealth, 2014. 

The Financial Times is hosting a major debate on whether the private banking system should be allowed to continue creating 97% of the credit or money circulating within the economy. Martin Wolf, its respected economics commentator, supports the ‘Chicago Plan’ that effectively calls for private banks to lend out only as much as they have in “reserves”: “Banks could only loan money actually invested by customers.” Private banks would be prevented from creating money, and instead all money would be issued by the state. The quantity issued would be decided by an independent committee as argued by amongst others, the IMF’s Kumhof and Benes and Positive Money. Continue reading →