Losing Bank Candidates Jostle for Influence

Back in November when the glitzy (by banking standards) Mark Carney was appointed to head up the Bank of England to general acclaim my suspicions were immediately aroused. Although the discussion was all about the radical way he had managed the Bank of Canada the reality is that he is a banker's banker. By contrast several of those who were unsuccessful in the competition have recently proposed some challenging and interesting new measures.

Earlier in the week Paul Tucker, the considerably less glitzy current deputy-governer, floated the idea of introducing negative interest rates to discourage saving and get money out of the banks and into the real economy. The idea is that banks would be charged for holding balances at the Bank of England. If taken up this will be another painful policy as far as pensioners and those who live from savings income are concerned. Interestingly, it tallies with the policy of 'demurrage' suggested by Silvio Gesell in the 1930s and taken up in the design of several local currencies including the Chimegauer. Here, customers are charged for holding the currency, a design feature again intended to encourage circulation rather than hoarding.

Alex Hern at the New Statesman suggests that this might be just an attempt to talk down the value of the pound and therefore be the next move in the currency competition between the world's leading economies. Given the implicit assault on the value of sterling that resulted from the AAA downgrade this seems unnecessary and unlikely, although the suggestion from Tucker that he is open to the idea of further QE, again effectively downgrading the value of UK debt and of sterling, adds weight to the case. The graphic indicates the value accorded to sterling by the markets since the early days of 2007 and makes clear how the currency has suffered as a result of the credit crunch, and relative to other currencies.

Meanwhile Adair Turner, the other leading candidate about whose glitziness or otherwise I refuse to comment, has been putting forward some interesting ideas to the Cass Business School. In a lengthy presentation including some fascinating slides,Turner makes clear that the monetary system is broken and that radical change is necessary. Perhaps the most disturbing slides is that illustrated here, using Bank of England data to plot the percentage change year-on-year in lending. Amongst other policy proposals, Turner considers the possibility of the ending of the fractional reserve system and the requirement of a 100% reserve.

Turner begins his presentation with the following quotation from Milton Friedman (1948):

'Under the proposal, government expenditures would be financed entirely by tax revenues or the creation of money, that is, the issue of non-interest bearing securities... The chief function of the

monetary authority [would be] the creation of money to meet government deficits and the retirement of money when the government has a surplus.'

He also demonstrates how the failure to resolve monetary policy in Japan was the primary cause of the lost decades of economic recession. This brings me to the preferred candidate for the post of bank governor: Richard Werner, whose experience of Japan and invention of the policy of quantitative easing him would have provided him with ample qualifications had it been a fair fight.

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Adair Turner Makes Play for Job as Governor

At last a crack appears in the establishment position over the national debt. Following the statement from the Office for Budget Responsibility that the country is bankrupt, last night Adair Turner, former head of the employers' organisation and now boss of the financial regulator the FSA, came out arguing the case for the Bank to take the necessary steps to eliminate the national debt. He has effectively conceded one of the key planks of the arguments of those who seek monetary reform: if you have maintained the control of your currency, as we did by resisting the push to join the Euro, then you can print as much money as you need to eliminate your unpayable debts. The limit on this is faith in your currency and your national economy.

This is, of course, a deeply political point. It continues the theme of earlier posts that the decision to accept our level of indebtedness is political rather than economic. Turner's proposal is relatively limited. He appears to be arguing about the government debt that was bought from companies through the quantitative easing programme, and that the Bank is cautiously holding onto rather than cancelling. In my article 'Who owes whom?' I quantify this as around 25% of our national debt. It is important to note that Turner is suggesting this as a means of reviving the economy and stimulating growth. He is not conceding the monetary reformers central demand: that the creation of money should be exercised by the state in the public interest rather than by the banks for private profit.

This is clearly a move by Turner to establish himself as the radical and creative candidate to succeed Mervyn King as Governor of the Bank of England. Perhaps King would like to follow this policy but lacks Turner's political nous. The contest within capitalism is now clearly between those who are using the debt crisis to bear down on the power of working people and shift the balance of ownership towards the wealthy, and those who would seek a more workable form of social contract. To those of us who consider that capitalism is inherently an unjust and unsustainable form of organisation this is still something of a sideshow.  We also need to keep our focus on how the massive financial readjustments themselves transfer value between rich and poor - whose assets will be protected? Those of the banks or those of the pensioners?
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Turner Turns Again

In between the story of the sweet child being reunited with his family in Pakistan and episode 37 of the media's latest favourite soap The Ashcroft Files you will have been forgiven for missing something rather important that happened yesterday. I've already referred to Adair Turner as 'crumpet', but my feeling for him grows warmer by the day.

First he broke ranks with the ranks of capitalist pigs by supporting the Tobin Tax, before questioning the social value of much of what happens in the Square Mile. Yesterday's intervention in the unaccountably muted debate about the structural problems of global capitalism and how to resolve them was different in kind. Lord Turner, former head of the CBI and therefore advocate on behalf of the business sector, suggested greater political control over the economy.

The specific policy suggestion that caught my eye was that the government should return to managing credit for the public good, but he has other policies that are clearly directed towards reversing the disastrous and amoral licence which has been enjoyed by the finance sector since Big Bang in 1986. The Turner Review is a regulatory review, that is to say it explores the relationship between private finance businesses and the political authorities. And the man who once argued for the interests of the private sector is now calling for more intervention by government.

It was quite a shock for me, reading a report from what I confidently consider to the opposition, and find in it many of the proposals I have myself been calling for. It would be nice to think that Lord Turner had seen the errors of his ways, or experienced some kind of moral conversion. Much more likely is that, just as Thatcher became converted to environmentalism to make sure she could control that debate, the interests of capital realise that an adaptation is necessary. And if they are beginning to support a change as radical as allowing even a modicum of political control over the worst excesses of the casino economy, we can assume that the the globalist capitalist system is much more vulnerable than it portrays itself to be. Tweet

Tobin or Not Tobin

At first blush we may be surprised to hear Adair Turner, the closest thing to crumpet the City ever produced, supporting a tax which has long been proposed by those who oppose financial speculation, the casino economy, global capitalism and everything the City stands for. But if we dig a little deeper we begin to see that this may be a very cheap way out of a very deep hole for our sharp-suited adversaries.

James Tobin was far from being one of us, and in fact was rather offended that it was the anti-capitalists who picked up on and propagated his idea for a tax on currency speculation. Until he died in 2002, his had been a fairly typical career for an orthodox economist: teaching the bogus ‘science’ at Harvard and Yale, advising the government on same, a seat on the board of the Fed., and a ‘Nobel Prize’ for developing an econometric modelling technique. How disturbed he would be to find his idea working against everything he stood for from beyond the grave.

It should be made clear that the Tobin Tax, which would be levied on all international currency transactions, is proposed at a tiny rate. Tobin originally suggested 1% and even lower rates are now being bandied about. The fact that it is worth introducing a tax at this rate indicates the vast sums of money that move across the international currency exchanges every day. Taxing may extract some of that value to be invested in worthy projects, but relating the tax inversely to the length of time the investor holds their investment would do so more effectively. This principle could then be applied to investments in general, discouraging the short-termism and rapid movement of investment cash that so destabilises the real economy.

The Tobin Tax is Green Party policy and is a good step towards gaining some return from currency speculation for the public benefit. The fact that the financiers are so opposed inclines one to support. The idea for the tax grew out of the last financial crisis – when Nixon unilaterally dismantled the international financial architecture that had been agreed by a group of nations at Bretton Woods, following the Second World War. It may be part of the solution to the current crisis, but only in the context of a new international negotiation, and one in which all countries engage on equal terms. Tweet