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Printing Money

Adair Turner is a British Lord as well as a businessman and academic. He is, according to Wikipedia, a member of the UK’s Financial Policy Committee, a chairman of the now abolished Financial Services Authority, a former chairman of the UK Pensions Commission and a member of the Committee on Climate Change.

Recently, this celebrated Baron Turner of Ecchinswell issued a paper that he delivered to the 16th Jacques Polak Annual Research Conference, hosted by the IMF in Washington on November 5-6, 2015.

Turner’s article is heavy reading but it is summarised and commented on more simply, by John Cassidy of The New Yorker under the title, ‘Printing Money’.

As most of us know, the term ‘printing money’ is a misnomer. Apart from a small percentage of notes and coin, today all money is processed via electronic transfers from the Central Banks to the private banks who in turn credit their respective account holders. Money today is, essentially, just numbers in a computer moved around in millions of transactions every day.

Turner’s article is essentially about Overt Monetary Financing (OMF) which is the creation of debt free money to fund government deficits.

At present most Western fiat currency issuing governments finance deficits by issuing interest bearing bonds to the private bond market.

Such a process is a hangover from the fixed exchange rate mechanism of the gold standard era.

OMF, as described by economist Bill Mitchell “brings together the central bank and the treasury functions of government into a coherent framework whereby the central bank merely credits private bank accounts on behalf of the government to indicate the spending initiatives implemented by the Treasury.”

Modern Monetary Theorists (MMT) support OMF. It is money creation without debt.

The difficulty supporters of MMT have faced in the neo-classical world is that whenever we attempt to explain it, the words, ‘printing money’, ‘Weimar republic’, ‘Zimbabwe’ and more recently, ‘Greece’ are thrust in our faces as if to suggest that such a proposal would send us bankrupt, that hyperinflation or at least some kind of inflation would destroy our economy.

The reality is that none of these outcomes would result with OMF. Inflation occurs when excessive spending outstrips the ability to supply. However where a nation has underutilised resources, i.e. unemployment, and OMF draws on those resources to increase supply and meet that demand, inflation will not happen.

In reality, it is the pathway to full employment which brings about an increase in the tax base, a debt free fiscal position, as well as growth and higher living standards.

There are those that argue that continued growth based on the exploitation of finite resources is unsustainable and they are right. However, people are our most important resource and within us we have one resource that is not finite: the mind.

Ground-breaking discoveries in technology and social cohesion continue to reduce our dependence on natural resources. They will continue to do so as our minds continue to search for better ways to do things. And money, a product of the mind, which has evolved over time to be what it is today, is now another of our most powerful resources.

It is as infinite a resource as is organisation, initiative and discipline. But money has, almost from its inception, been corrupted by individuals and governments to service greed.

Money needs to be restructured to serve its most wholesome purpose: equality. Modern Monetary Theory seeks out that wholesomeness, that equality.

As a direct consequence of the corruption of money as a resource, evidenced by the GFC, we now have the gurus of macroeconomics throwing their hands in the air, bereft of ideas on how to restore economic growth. Little wonder they are now slowly but surely turning their heads towards the simple principle of Overt Monetary Finance.

Turner writes, “My proposals will horrify many economists and policymakers, and in particular central bankers. Printing money to finance public deficits is a taboo policy. It has indeed almost the status of a mortal sin.”

While Cassidy writes, “Given the problems of debt overhang and slow growth, and the high toll that an extended period of economic stagnation could take on Western democracies, we face a choice of dangers. We could revert to the standard model, hoping that another round of debt issuance in the public and private sectors will juice the economy. Or we could resort to something different and radical: the electronic printing press.”

Bill Mitchell’s blog on the subject of Adair’s article and Cassidy’s response to it, reflects his own take on the changing attitudes to the way economies are managed.

He writes, “It is interesting that more people are now talking about things that the MMT crowd have been writing and thinking about for a fair while now.

It is clear that ideas that were considered ‘crazy’ some years ago and now being entertained as being plausible by the mainstream media.

Given the vilification that our small group endured when we set out on this MMT journey, I find all of this rather amusing. Apparently it takes a British lord to give an idea credibility. So be it.

It is better that these ideas penetrate the mainstream debate through which ever means than be sequestered by the mainstream media and wheeled out as a way of humiliating commentators who dare to challenge the mainstream paradigm.”

Let us hope that as the world continues to struggle with flat demand and little improvement in employment, some national leaders with a sense of vision and a passion for equality, will catch on to the idea and implement a strategy to mobilise our underutilised resources. Such a vision would go a long way toward that mythical image John Lennon created when he penned, ‘Imagine’.


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  1. Matters Not

    Modern Monetary Theorists (MMT) support OMF

    support? .What meaning do you intend here. Is it support in the sense of ‘description’ of how it actually operates. Or is it support in the sense of ‘recommendation’ or ‘prescription’ of how it could or should operate?

    I suspect it’s the first. But not sure.


    ZIRP, zero % interest and QE to infinity for the chosen few disconnects the virtuous cycle and destroys price discovery. Why work to save to invest when there is no return? Why invest to get returns when you can borrow at zero and buy your own shares back. The most profound indicator of this monetarist myth is that we don’t have money we have currency, currents must flow to exist and the way monetary velocity is going the real economy is dying no matter how inflation or unemployment is spun.

  3. Matters Not

    IAO PRISM, you seem to be ‘big’ into pejorative terminology. Examples include:

    disconnects the virtuous cycle … this monetarist myth … we don’t have money we have currency

    And so on. As an ‘opener’ could you expound on this ‘virtuous cycle’? Or is this to be equated with the ‘vicious circle’?

    You know, just a matter of difference in description(s) of what can be observed?

    Perhaps you are a ‘believer’ in the notion that there is a ‘market’ over and above human activity and we are somehow slaves (mentally at least) to what we ourselves created. Just like ‘religion’ in the sense we as humans create particular and peculiar ‘gods’, then (some) give ‘meanings’ to same and forever (almost) we are ‘bound’?

    Please explain.

  4. Matters Not

    John just read Cassidy’s response a few times. What he suggests seems compulsive. Yet there are those like IAO PRISM above who construct a different ‘reality’.

    As for me. I am still in the process of doing same. And probably always will.

    The notion that there’s potentially productive capacity in the form of ‘labour’ power sitting idle when there’s so much that might be achieved or problems that might be solved seems ridiculous, particularly if the only hurdle is a ‘currency’ that can be readily created.

    I do admit, however, the ‘assumptions’ under which the current economic orthodoxy proceeds leaves me shaking my head.

    So many unexamined assumptions. Is economics just a religion?

  5. BarleySinger

    Money works only because people believe in it. 3000 years ago gold had no “use value”. It is only recently that you could use it to make real useful items (like high end electronics). Back then you could not eat it, drink it or use it for shelter. Yet the wealthy traded in it, and the poor often craved it. The same is true of diamonds, pearls, etc – all which which were essentially NOT useful OTHER than for decoration. This is proof that “currency systems” do indeed have “money” which is only worth what people believe it is worth. Currency is traded for items, but it is “earned” by people spending the limited years of their lives (and their skills at whatever level they have them) to acquire it.

    So money is just a means of exchange with no inherent “use value”. Yet is is used as a defacto measurement of skill and of time (in a consensual reality where large numbers of people BELIEVE it has value).

    As long as governments employ enough people to do various jobs, and then pay them in that currency…. as long as governments continue to create infrastructure and pay for THAT with the currency they create – then governments continue to pump physical and digital cash/currency into the economy… straight into the hands of people who will then spend that currency (for food, shelter, transport, power, medicine, etc) and it all works because people believe that currency has worth.

    This is not a mystery to the wealthy. The US government now has over 1000 trillion in theoretical “debt”. However neoliberalism uses a different spin on the power of “valuing currency”( still based on consensual belief that currency has value). They are use the power of desperation (another form of belief).

    In order to make the wealthy even MORE wealthy they take the total income of businesses and give most of it to a small group of people up at the top and pay everyone else badly.

    Keep in mind that the real point of this is *again* the power of belief on the currency system.

    By increasing poverty, they decrease the percentage of people who can “get by” easily and feel stable in life. By doing this they increase social FEAR levels and increase the economic desperation of the general public. The people then value the little currency they HAVE even more than they did when they were middle class. They become more and more willing to do just about anything to get more currency.

    Back when those same people had more income (in a currency whose only value came from “group belief”) they had more hope and less desperation. As a result they did not value their currency quite as much (it was easier to get). With prices going ever upward (only for the sake of greed – ie, without any ‘increase in real value’) and wages going downward it gets harder to survive…and desperate people are easy to control. They are already afraid (so it is easy to manipulate them with fear). They have no real access to training or education to help them gain more of an income. They are stuck…and the end result is that the smallest percent of the upper class get more and more wealth, while everyone else becomes more and more desperate.

    That increased desperation is a form of belief. It has social power. It can be used to manipulate people and it also increases the value that people place on their money.

    The USA now has 80% of its population at or below THEIR official “poverty level”. Note that different nations have different official “poverty levels”. An official “poverty level” is just a number – a definition created by those in power, and in the USA the “yearly income” of the official “poverty level” is dramatically lower than it is in the EU.

    The UK has increasing poverty (including actual starvation for the first time in ages). The US has no middle class to speak of and the middle class in other nations (UK, NZ, AUS, GREECE) is shrinking rapidly, as their currency (and real goods like property) move to a smaller and smaller group, who have more and more wealth. Germany has a middle class that is doing quite well, and they are a large exported of manufactured goods.

    However in the USA this is so bad, that one of their largest corporations (Wallmart – an extremely wealthy company) pays it people so little that their managers actually HELP their new employees fill out the paperwork for government assistance programs. A huge percentage of Wallmart employees are on federal benefits (even those work full time jobs).

    Currency has the value that we place on it.
    It works because we believe in it.
    Desperation increases the “functional value” of currency.
    It causes the same amount of currency to have more social power as desperation increases.


    I know it’s quaint in the Keynesian times but traditionally the virtuous cycle was the connection between production and consumption. Markets used monetary supply to service exchange with interest signaling to both sides of the exchange as interest, as return for investment cost for borrowing. Make the supply of currency unrestrained, the cost of borrowing zero and that cycle breaks. It reminds me of the society in the Hitchhikers Guide To The Galaxy that made leafs currency. Only in that example because everyone had access it hyper inflated, in our as stated because credit isn’t dispersing we’re seeing a decline in velocity.

  7. Royce Arriso

    Thanks John. Your article from AIMN (May 15), ‘The mystery of money, or how I learned to stop worrying about debt and deficits’ played a role in having me see the light. Current musings; never saw an issue that provokes such a visceral response! And not just from the NeilofSydney/ flat earth types. Seemingly sensible people react as if you suggested you have proof they were fathered by Pol Pot. But once you’ve grasped it, you can say without false pride that yes, you do know more than many paid big bikkies to be across macroeconomics. Judging by his comments, ScoMo is probably in this category and Abbott, Hockey and Cormann absolutely so. Keep educating us!

  8. Pingback: Printing Money | THE VIEW FROM MY GARDEN

  9. Robert Searle

    The idea of a QE for the people is an excellent one, but it is only the beginning. The greatest revolution in economics will probably come about via a New Paradigm known as Transfinancial Economics, or TFE. It can be seen as a form of Cybernetic Economics, but one which would work within the present Capitalist System.

    Anyway, TFE involves the electronic creation of new money which could be gradually phased into the economy without serious inflation, or hyperinflation. In Advanced Stage TFE, changes in the Free Market Price could be monitored, and controlled in ways that would not damage businesses. Such controls are similar to the “old” price controls but they are infinitely more advanced, and super-flexible….

    TFE is a huge subject, and could even be key to the survival of the human race itself if it is successfully phased into the world.

    Ref link

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