Tuesday, July 10, 2012

590 Adair Turner: A New Debt-Free Money Advocate. Money Printing (direct financing of Gov't Deficits) "not the work of the devil"

Adair Turner: A New Debt-Free Money Advocate. Money Printing (direct
financing of Gov't Deficits) "not the work of the devil"

Newsletter published on 5-3-2013

(1) Martin Wolf backs Lord Turner on Money Printing (direct financing of
Gov't Deficits)
(2) A case to reset basis of monetary policy, by Martin Wolf
(3) The level of leverage (debt) was dangerously ignored pre-crisis -
Lord Turner
(4) Adair Turner: A New Debt-Free Money Advocate
(5) Money Printing (direct financing of Gov't Deficits) "is not the work
of the devil" - Lord Turner, head of FSA
(6) Positive Money
(7) The alternative: The Greek Catastrophe, by James Petras

(1) Martin Wolf backs Lord Turner on Money Printing (direct financing of
Gov't Deficits)


Martin Wolf: “Lord Turner Thinks the Unthinkable”

by John Lounsbury

(Cross posted from econintersec.com) February 13th, 2013

Paul Kasriel alerted me in an email this morning to check out Martin
Wolf's column today (13 February 2013) in the Financial Times. Wolf's
title: “A case to reset basis of monetary policy.” The widely read
associate editor and chief economics commentator for FT is one of the
world's most influential writers on economics. And he often swims at the
edge of the mainstream and sometimes thinks completely outside the box
that limits many economic thinkers. So when you want a breath of fresh
air, read Martin Wolf. He can pull heads out of the sand; there isn't
much fresh air in that medium.

The 13 February column focuses on discussion of the the call by Mark
Carney, incoming governor of the Bank of England (BoE), for discussion
of flexible inflation targeting as an element if formulating a more
effective monetary policy for the central bank. The call for discussion
should be renamed as a call for debate. The Monetary Policy Commission
of the BoE issued an unusual policy statement at the same time Carney
was making his proposals before House of Common's Treasury Select
Committee last week. Here is a summary of what transpired from Chris
Giles and Patrick Jenkins 07 February in the Financial Times:

The bank's monetary policy committee appeared to pre-empt Mr Carney's
proposed communication strategy while he was still testifying to the
Treasury select committee, issuing a rare policy statement to accompany
a decision not to change policy.

Expectations were dashed, however, that Mr Carney might be even more
radical and propose an immediate sharp loosening of monetary policy to
achieve “escape velocity” for the economy rapidly as he had hinted in
recent appearances.

Without defining the rate of growth he hopes to be able to achieve, he
said: “It is entirely possible … in fact probable that the current
stance [of the MPC] is compatible with achieving escape velocity”.

He also rowed back from suggesting the BoE should target the level of
nominal GDP, saying he was far from convinced of its merits as a
monetary policy target and rejected suggestions from Lord Turner,
current chairman of the Financial Services Authority, that it should
engage in helicopter drops of money – money creation to finance
government deficit spending. “I cannot envisage any circumstances where
I could support that as a strategy,” he said.

Which brings us to Martin Wolf's concluding paragraph on 13 February:

Yet I agree with Lord Turner that the even more important question is
how to make any policy effective. This, inevitably, raises questions
about how monetary policy works in an environment of ultra-low interest
rates. Lord Turner thinks the unthinkable: namely, monetary financing of
the fiscal deficit. So should policy makers. They have to think afresh.
If not now, when?

Just one day earlier Wolf had another column that expanded on Turner's
thinking. From that column:

“It ain't what you don't know that gets you into trouble. It's what you
know for sure that just ain't so.” This comment of Mark Twain applies
with great force to policy on money and banking. Some are sure that the
troubled western economies suffer from a surfeit of money. Meanwhile,
orthodox policy makers believe that the right way to revive economies is
by forcing private spending back up. Almost everybody agrees that
monetary financing of governments is lethal. These beliefs are all false.

There we have it: monetizing debt, long the unthinkable. Five years ago
I would have dismissed that idea as would many in the economics world.
It would have been a thought of scandalous immorality, leading to
egregious debasement of money and a sure-fired pathway to a new Weimar
Republic experience with hyperinflation.

I have since learned much about monetary systems as they have existed
for the past 40 years.

I have learned what monetary sovereignty means and what are the
consequences of debt-free monetary expansion really are.

I have learned that the system has operated to this date with all
expansion in money funded by private bank debt that falls in two categories:

Loans to individuals, businesses and governments without monetary
sovereignty which must be repaid or defaulted. This is all temporary
money which will disappear when each loan is closed.

Loans to governments sovereign in their own currencies. This is either
temporary money (if repaid at debt maturity) or permanent new money (if
continuosly rolled over and never repaid).

These operation have been described by Modern Monetary Theory. (It would
better be called Modern Monetary Operations, in my opinion).

The creation of new money by financing new government debt with private
bank credit expansion is the way fiat money has operated until now, a
direct carryover from pre-fiat currency days.

This is a political choice, obviously vigorously supported by private
banking interests.

If the choice were made, most recently proposed by Adair Turner, to
change the political choice to one where at least some of the monetary
expansion needed to support economic activity came from the issuance of
debt-free money directly by the government, a Machiavellian arrangement
would be broken.

“Too Big to Fail” would become “Too Big To Exist”.

Banking would again become a competitive playing field and Matt Taibbi's
giant blood sucking vampire squid would be removed from the face of
humanity, replaced by efficient financial institutions no longer
tethered by an umbilical cord to the public sector.

Just as the principle of separation of church and state has supported
the prospering of a great county since its inception, isn't it time for
the separation of private and public finance to take it to the next level?

Added note: I do not think that the separation of private and public
finance should be the equivalent of a divorce. There are necessary
functions in an efficient economy for privately held public debt.
Examples of such functions are risk free savings for individuals and
businesses, intermediation of international trade and stabilzing loan
portfolio functions for banks. What is important is to have the balance
of power over money for public use in favor of control by the public
over public interests. ==

(2) A case to reset basis of monetary policy, by Martin Wolf

A case to reset basis of monetary policy

By Martin Wolf

Financial Times, February 7, 2013 6:28 pm

The current regime is meant to stabilise inflation and help stabilise
the economy. It has failed. Are the targets and instruments of the UK's
monetary policy framework “fit for purpose”? For once, this ugly phrase
sums up the predicament well. With the economy in the doldrums and the
arrival of Mark Carney as governor of the Bank of England in July, this
is the ideal time for a rigorous, comprehensive and open debate.

... Yet I agree with Lord Turner that the even more important question
is how to make any policy effective. This, inevitably, raises questions
about how monetary policy works in an environment of ultra-low interest
rates. Lord Turner thinks the unthinkable: namely, monetary financing of
the fiscal deficit. So should policy makers. They have to think afresh.

(3) The level of leverage (debt) was dangerously ignored pre-crisis -
Lord Turner


Debt, Money and Mephistopheles: How do we get out of this mess?

06 Feb 2013

Speech by Adair Turner, FSA Executive Chairman at the Cass Business School

In his capacity as FSA Chairman and visiting professor, Adair has given
his annual address to the Cass Business School with this year's topic
being Debt, Money and Mephistopheles: How do we get out of this mess?

This annual event provided the opportunity to speak about financial
crisis and the harm caused by pre-crisis financial folly and post-crisis
deleveraging. Adair also touched upon the intellectual failure within
mainstream economics to foresee the length of the subsequent recession.

Having provided the audience with the background to the crisis, Adair
went on to outline the three main conclusions he had come to about this

Firstly, that leverage and the credit cycle are important. The level of
leverage in the real economy and financial system are crucial variables
which were dangerously ignored pre-crisis.

Secondly, that arguments for free markets do not apply to banks as they
do to other sectors. They need to be tightly regulated.

Thirdly, that financial crises resulting from excess leverage are
followed by long periods of deleveraging which depress nominal demand.

In his address, Adair said: 'We must think fundamentally about what went
wrong and be adequately radical in the redesign of financial regulation
and of macro-prudential policy to ensure that it doesn't happen again.
But we must also think creatively about the combination of macroeconomic
(monetary and fiscal) and macro-prudential policies needed to navigate
against the deflationary headwinds created by post-crisis deleveraging'.

(4) Adair Turner: A New Debt-Free Money Advocate


John Lounsbury

February 10th, 2013

Econintersect: This past week one of the leaders in global finance,
Adair Turner, chairman of the FSA (Financial Services Authority), gave a
speech of historic importance. In an address to the Cass Business
School, 06 February 2013, Turner proposed that governments should use
money for themselves and for ordinary citizens that is directly produced
and not be restricted to that obtained via issuance of private bank
credit as the global financial system has operated by and large for 100
years. He said that we are only slowly learning what factors got us
into the financial crisis and how they "constrain recovery." And as we
learn more he thinks the evidence indicates there are options that
should be considered and have not been on the table.

Follow up:

Here is a quote from the introduction to the talk:

We must think fundamentally about what went wrong and be adequately
radical in the redesign of financial regulation and of macro-prudential
policy to ensure that it doesn’t happen again. But we must also think
creatively about the combination of macroeconomic (monetary and fiscal)
and macro-prudential policies needed to navigate against the
deflationary headwinds created by post-crisis deleveraging.

Turner says that monetization of government debt should not be excluded.
He referred to "helicopter money", obviously thinking of the U.S.'s
"Helicopter Ben," Federal Reserve Chairman Ben Bernanke. He went on to
say that the process of printing money to finance deficits has "the
status of a moral sin - a work of the devil."

Turner rejects the moral sin status. He invokes Milton Friedman (an
ultimate exorcist):

Friedman argued in an article in 1948 not only that government deficits
should sometimes be financed with fiat money but that they should always
be financed in that fashion with, he argued, no useful role for debt
finance. Under his proposal, “government expenditures would be financed
entirely by tax revenues or the creation of money, that is, the use of
non-interest bearing securities” (EXHIBIT 1) (Friedman, 1948). And he
believed that such a system of money financed deficits could provide a
surer foundation for a low inflation regime than the complex procedures
of debt finance and central bank open market operations which had by
that time developed.

Later on in this article we will see that Ben Bernanke did not develop
the concept of dropping money out of helicopters - it was actually
Milton Friedman.

Turner also cited the work of Chicago School founder Henry Simons in
support of direct government fiat money creation. And, of course, as
readers of GEI contributor Derryl Hemanutz will be aware, Irving Fisher
also supported the creation of debt-free money and was cited by Turner
as well.

Turner said:

As for debt contracts between private sector agents and in particular
bank loans that create matching quantities of bank credit and bank
money, they are not mentioned in Goethe’s Faust. But as great economists
of the 1930s such as Irving Fisher and Henry Simons correctly pointed
out, uncontrolled creation of bank credit and money can be a major
driver of financial instability and subsequent economic harm, even when
the creation of irredeemable fiat money is tightly controlled, with
fiscal deficits small or non-existent and inflation low.

Turner's two conclusions:

First, that in the deflationary, deleveraging downswing of the
economic cycle,we may need to be a little bit more relaxed about the
creation, within disciplined limits, of additional irredeemable fiat
base money.

But second, that in the upswing of the cycle we should have been
massively more worried than we were pre-crisis about the excessive
creation of private debt and private money; and, that we should be wary
of relying on a resurgence of private debt and leverage as our means of
escape from the mess into which excessive debt creation landed us.

Turner suggests that the QE activity of the U.S. Federal Reserve may end
up being the equivalent of providing additional fiat money to finance
deficits if the Fed balance sheet is never completely unwound. The
alternative discussed by Turner, OMF (overt money finance), which is
just directly "printing" money to finance deficits, he finds has
situations of merit. He does discuss the problem of containing
inflation if OMF is done "irresponsibly."

Editor's notes: The word printing is placed in parenthesis because
little currency is actually printed - it's all just electronic debits
and credits. The discussion of control of OMF so as to avoid inflation
is a problem that this editor has repeatedly referred to to as the
"right sizing problem."

Anatole Kaletsky discussed the Turner paper Thursday 07 February 2013 in
a Reuters column. He called the address an "emperor's new clothes"
moment. He went on to call it a "truly historic speech." Kaletsky wrote:

The idea of distributing free money to end deep recessions has been
promoted theoretically by serious economists since the 1930s, when it
was one of the few practical policies that Keynesians and monetarists
agreed on. John Maynard Keynes proposed burying money in disused coal
mines to be dug up by unemployed workers, while Milton Friedman
suggested dropping money out of helicopters for citizens to pick up.
Friedman also argued in a 1948 paper that governments should rely solely
on printed money to finance their regular cyclical deficits. More
recently, as conventional policies to revive growth have faltered, with
widespread disappointment about the impact of zero interest rates and
quantitative easing, proposals for distributing money directly to
citizens have been quietly gaining traction among critics of orthodox
central banks. I discussed this trend, sometimes described as
“quantitative easing for the people,” in several columns last year.

This editor has expressed thoughts about removing private banking from
the public teat here.

Can the rational still possibly overcome the oligarchy?

(5) Money Printing (direct financing of Gov't Deficits) "is not the work
of the devil" - Lord Turner, head of FSA


A debate about 'Helicopter money'; Why money printing is not the work of
the devil; Milton Friedman was a money printer; OMF is better than QE

Bernard Hickey <bernard.hickey@interest.co.nz>

[...] Helicopter money - The head of Britain's Financial Services
Authority, Adair Turner, has thrown a huge cat amongst the monetary
policy and banking policy pigeons with this February 6 speech titled:
'Debt, money and Mephistopheles: How do we get out of this mess?'. HT to
Anatole Kaletsky and David (in yesterday's Top 10) for pointing me to this.

This is my must read for today.

Turner's speeches often are.

He has to be the most established and connected member of the economic
establishment in the Western World who is seriously questioning the
orthodoxy of monetary and banking policy. His argument is detailed,
considered and backed up with all sorts of academic research and data.
It's about as far from 'funny money' as you could get.

Just a reminder. This guy is in charge of regulating banks in Britain.
He is no fringe party nutter or blogger.... ;)

Here's the speech
<http://www.fsa.gov.uk/static/pubs/speeches/0206-at.pdf> and here's the
speech slides

{quote} It is five and a half years since the financial crisis began in
summer 2007 and four and a half years since its dramatic intensification
in autumn 2008. It was clear from autumn 2008 that the economic impact
would be large. But only slowly have we realised just how large: all
official forecasts in spring 2009 suggested a far faster economic
recovery than was actually achieved in the four major developed
economies – the US, Japan, the Eurozone and the UK. UK GDP is now around
12% below where it would have been if we had continued the pre-2007
trend growth rate: and latest forecasts suggest that the UK will not
return to 2007 levels of GDP per capita until 2016 or 2017.

In terms of the growth of prosperity this is truly a lost decade. This
huge harm reflects the scale of pre-crisis financial folly – above all
the growth of excessive leverage - and the severe difficulties created
by post-crisis deleveraging. And failure to foresee either the crisis or
the length of the subsequent recession reflected an intellectual failure
within mainstream economics – an inadequate focus on the links between
financial stability and macroeconomic stability, and on the crucial role
which leverage levels and cycles play in macroeconomic developments. We
are still crawling only very slowly out of a very bad mess.

And still only slowly gaining better understanding of the factors which
got us there and which constrain our recovery. We must think
fundamentally about what went wrong and be adequately radical in the
redesign of financial regulation and of macro-prudential policy to
ensure that it doesn’t happen again. But we must also think creatively
about the combination of macroeconomic (monetary and fiscal) and
macro-prudential policies needed to navigate against the deflationary
headwinds created by post-crisis deleveraging.

2. And then he thinks the unthinkable and says the unsayable.

{quote} At the extreme end of this spectrum of possible tools lies the
overt money finance (OMF) of fiscal deficits – “helicopter money”,
permanent monetisation of government debt. And I will argue in this
lecture that this extreme option should not be excluded from
consideration for three reasons:

(i) Because analysis of the full range of options (including overt money
finance) can help clarify basic theory and identify the potential
disadvantages and risks of other less extreme and currently deployed
policy tools;

(ii) Because there can be extreme circumstances in which it is an
appropriate policy; and

iii) and because if we do not debate in advance how we might deploy OMF
in extreme circumstances, while maintaining the tight disciplines of
rules and independent authorities that are required to guard against
inflationary risks, we will increase the danger that we eventually use
this option in an undisciplined and dangerously inflationary fashion.

3. He calls it overt monetary finance (OMF).

{quote} Even to mention the possibility of overt monetary finance is
however close to breaking a taboo. When some comments of mine last
autumn were interpreted as suggesting that OMF should be considered,
some press articles argued that this would inevitably lead to hyper
inflation. And in the Eurozone, the need utterly to eschew monetary
finance of public debt is the absolute core of inherited Bundesbank
philosophy. To print money to finance deficits indeed has the status of
a moral sin – a work of the devil – as much as a technical error.

In a speech last September, Jens Weidmann, President of the Bundesbank,
cited the story of Part 2 of Goethe’s Faust, in which Mephistopheles,
agent of the devil, tempts the Emperor to distribute paper money,
increasing spending power, writing off state debts, and fuelling an
upswing which however “degenerates into inflation, destroying the
monetary system”(Weidmann 2012).

4. Even Milton Friedman was a fan, says Turner

Before you decide from that that we should always exclude the use of
money financed deficits, consider the following paradox from the history
of economic thought. Milton Friedman is rightly seen as a central figure
in the development of free market economics and in the definition of
policies required to guard against the dangers of inflation. But
Friedman argued in an article in 1948 not only that government deficits
should sometimes be financed with fiat money but that they should always
be financed in that fashion with, he argued, no useful role for debt

Under his proposal, “government expenditures would be financed entirely
by tax revenues or the creation of money, that is, the use of
non-interest bearing securities” (EXHIBIT 1) (Friedman, 1948). And he
believed that such a system of money financed deficits could provide a
surer foundation for a low inflation regime than the complex procedures
of debt finance and central bank open market operations which had by
that time developed.

When economists of the calibre of Simons, Fisher, Friedman, Keynes and
Bernanke have all explicitly argued for a potential role for overt money
financed deficits, and done so while believing that the effective
control of inflation is central to a well run market economy – we would
be unwise to dismiss this policy option out of hand.

5. Friedman suggested 100% money financing of government deficits.

{quote} His (Friedman's) conclusion was that the government should allow
automatic fiscal stabilisers to operate so as “to use automatic
adjustments to the current income stream to offset at least in part,
changes in other segments of aggregate demand”, and that it should
finance any resulting government deficits entirely with pure fiat money,
conversely withdrawing such money from circulation when fiscal surpluses
were required to constrain over buoyant demand. Thus he argued that,
“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”. Friedman argued that such an arrangement –
i.e. public deficits 100% financed by money whenever they arose – would
be a better basis for stability than arrangements that combined the
issuance of interest bearing debt by governments to fund fiscal deficits
and open market operations by central banks to influence the price of money.

His conclusion was that the government should allow automatic fiscal
stabilisers to operate so as “to use automatic adjustments to the
current income stream to offset at least in part, changes in other
segments of aggregate demand”, and that it should finance any resulting
government deficits entirely with pure fiat money, conversely
withdrawing such money from circulation when fiscal surpluses were
required to constrain over buoyant demand. Thus he argued that, “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”. Friedman argued that such an arrangement –
i.e. public deficits 100% financed by money whenever they arose – would
be a better basis for stability than arrangements that combined the
issuance of interest bearing debt by governments to fund fiscal deficits
and open market operations by central banks to influence the price of money.

6. How money is really created - Turner talks about Friedman and
post-Depression economist Henry Simons here too. Those who saw Seven
Sharp's banking piece last week and wrote it off as crackpot should read
this in particular.

{quote} Friedman thus saw in 1948 an essential link between the optimal
approach to macroeconomic policy (fiscal and monetary) and issues of
financial structure and financial stability. In doing so he was drawing
on the work of economists such as Henry Simons and Irving Fisher who,
writing in the mid-1930s, had reflected on the causes of the 1929
financial crash and subsequent Great Depression, and concluded that the
central problem lay in the excessive growth of private credit in the run
up to 1929 and its collapse thereafter.

This excessive growth of credit, they noted, was made possible by the
ability of fractional reserve banks simultaneously to create private
credit and private money. And their conclusion was that fractional
reserve banking was inherently unstable. As Simons put it “in the very
nature of the system, banks will flood the economy with money
substitutes during booms and precipitate futile efforts at general
liquidation afterwards”. He therefore argued that “private institutions
have been allowed too much freedom in determining the character of our
financial structure and in directing changes in the quantity of money
and money substitutes”.

As a result Simons reached a conclusion which gives us a second paradox
from the history of economic thought. That the rigorously freemarket
Henry Simons, one of the father figures of the Chicago School, believed
that financial markets in general and fractional reserve banks in
particular were such special cases that fractional reserve banking
should not only be tightly regulated but effectively abolished.

7. Turner goes on to say it's time to wind back the leverage of banks -
Remember, he's the regulator of banks in Britain...

{quote} Even if we reject the radical policy prescriptions of Simons,
Fisher and early Friedman, their reflections on the causes of the Great
Depression should prompt us to consider whether our own analysis of the
2008 financial crisis and subsequent great recession has been
sufficiently fundamental and our policy redesign sufficiently radical.
Three implications in particular may follow.

First, that while there is a good case in principle for the existence of
fractional reserve banks, social optimality does not require the
fraction (whether expressed in capital or reserve ratio terms) to be
anything like as high as we allowed in the pre-crisis period, and still
allow today6. As David Miles and Martin Hellwig amongst others have
shown, there are strong theoretical and empirical arguments for
believing that if we were able to set capital ratios for a greenfield
economy (abstracting from the problems of transition), the optimal
ratios would likely be significantly higher even than those which we are
establishing through the Basel III standard.

Second, that issues of optimal macroeconomic policy and of optimal
financial structure and regulation, are closely and necessarily linked.
A fact obvious to Simons, Fisher and Friedman, but largely ignored by
the pre-crisis economic orthodoxy. As Mervyn King put it in a recent
lecture, the dominant new Keynesian model of monetary economics “lacks
an account of financial intermediation, so that money, credit and
banking play no meaningful role”. Or, as Olivier Blanchard has put it,
“we assumed we could ignore the details of the financial system”. That
was a fatal mistake.

And third, that in our design of both future financial regulation and of
macroeconomic policy, it is vital that we understand the fundamental
importance of leverage to financial stability risks, and of deleveraging
to post- crisis macro-dynamics.

8. Turner then goes on to say the unsayable again by suggesting pure
inflation targeting be reconsidered. New Zealand is the purest (and
first) of the inflation targeters.

{quote} The increasingly dominant assumption of the last 30 years has
been that central banks should have independent mandates to pursue
inflation rate targets. The specifics vary by country, but orthodoxy and
practice has tended to set price stability as the objective and to
define price stability as low but positive inflation, for instance
around 2%. Central banks typically pursue that objective looking forward
over medium-term timeframes e.g. over two to three years. That orthodoxy
is now extensively challenged, and a plethora of alternative possible
rules have either been already applied or are now proposed.

Blanchard et al questioned in 2010 whether a period of somewhat higher
inflation might be required to cope with the challenges of high debt
levels and attempted deleveraging (Blanchard et al., 2010). The Federal
Reserve has adopted a policy of state contingent future commitment, with
a clearly stated intent to keep interest rates close to the zero bound
and to continue quantitative easing until and unless employment falls
below 6.5% or inflation goes above 2.5%.

Mark Carney has suggested that a range of possible options, including a
focus on nominal GDP, should at least be considered. And Michael
Woodford, author of a canonical statement of pre-crisis monetary theory
(Woodford, 2003) has proposed that central banks should conduct policy
so as to deliver a return to the trend level of nominal GDP, which would
have resulted from the continuation of pre-crisis NGDP growth.

So why is our own central bank and our new central bank governor
stonewalling this debate in the face of a massive reassessment overseas?
Are we somehow immune or not involved in the global economy? Are our
heads in the sand?

9. Turner says macro-prudential policies, 0% interest rates and
conventional Quantitative Easing (printing money to buy government bonds
from banks) may not be enough.

That's when Overt Monetary Finance (OMT) is needed.

He points out, for example, that the existing form of QE may turn out to
be more like pure deficit financing because it may not be reversed. Ie.
The bonds could be cancelled. So there's not much difference.

{quote} All QE operations therefore carry within them the contingent
possibility that they will turn out post facto to have been (in part or
whole) permanent monetisation: and that this may be an appropriate
policy. The gross debts of the government of Japan, after netting out
holdings by the Japanese government amount to 200% of GDP: of this 200%,
around a sixth (i.e. 31% of GDP) is held by the Bank of Japan (EXHIBIT
32). Whether this debt exists in any meaningful economic sense, or
whether an element of Japan’s past fiscal deficits has been de facto
money financed, is a moot point.

10. And OMF isn't necessarily hyper-inflationary, says Turner.

{quote} There is, moreover, no inherent technical reason (as against
political economy reason) to believe that OMF will be more inflationary
than any other policy stimulus, or that it will produce hyperinflation
It is no more inflationary than other policy levers provided the
“independence” hypothesis holds. If spare capacity exists and if price
and wage formation process are flexible, the impetus to nominal demand
induced by OMF will have a real output as well as a price effect, and in
the same proportion as if nominal demand were stimulated by other policy

Conversely if these conditions do not apply, the additional nominal
stimulus will produce solely a price effect whether it is stimulated by
OMF or by any other policy lever. And the impacts on nominal demand and
thus potentially on inflation will depend on the scale of the operation:
a “helicopter drop” of £1bn would have a trivial effect on nominal GDP:
a drop of £100bn a very significant effect and as a result create
greater danger of inflation. And if the stimulative effect of OMF
subsequently proved greater than anticipated or desired, it could be
offset by future policy tightening, whether in the extreme form of
Friedman’s “money withdrawing fiscal surpluses” or through the
tightening of bank capital or reserve requirements.

The idea that OMF is inherently any more inflationary than the other
policy levers by which we might attempt to stimulate demand is therefore
without any technical foundation.

(6) Positive Money

Date: Tue, 12 Feb 2013 03:15:12 -0600
From: Dude Duder <dude@devils.com>
Subject: Re: 'German-Japanese' model economies challenge 'Englishspeaking'
Libertarian model

I thought I would also make you aware of the English group
http://www.positivemoney.org who campaign for an alternative credit
system and whose antecedents would include the likes of the Social
Credit Movement, who also of course were a big influence on the likes of
the Australian League of Rights.

This group though are predominantly coming at this from a more left wing
perspective, meaning they don't have some of the same hurdles to
surmount as the other groups in this area on the right. They have thus
far done pretty well, getting MPs and academics to speak at their
conferences, a few pieces in national newspapers here and so forth, so
not in the full public glare, but more in the background, they are
making inroads.

Comment (Peter M.): visit their website <http://www.positivemoney.org>
to buy their book MODERNISING MONEY: Why Our Monetary System is Broken &
How it Can Be Fixed

Lord Turner's speech advocates a policy close to that Positive Money
have been campaigning for.

Martin Wolf's article likewise, The case for helicopter money.

(7) The alternative: The Greek Catastrophe, by James Petras

Ken Freeland <diogenesquest@gmail.com> 5 March 2013 08:21


The Greek Catastrophe: Three Generations of Greek Workers

James Petras

March 3, 2013


As Greece enters the sixth year of Europe's worst economic depression,
with 30% of its labor force unemployed and over 52% of its youth
jobless, the entire social fabric is unraveling; a suicide rate are
skyrocketing and close to 80% of the population is downwardly mobile.
Family and inter-generational relations are deeply impacted; previous
certainties evaporate. Uncertainties, fear and anger evoke daily mass
protests. Over a dozen general strikes have drawn Greeks from middle
school pupils to octogenarians in a desperate struggle to conserve the
last shreds of dignity and material survival.

The European Union and its Greek collaborators pillage the treasury,
slash employment, salaries and pensions, foreclose on home mortgages and
raise taxes. Household budgets shrink to one half or one third of their
previous levels.

In a growing number of households, three generations are living under
one roof, barely surviving on their grandparents' shrinking pensions;
some households on the brink of destitution. The prolonged – never
ending and worsening – capitalist depression has caused a deep rupture
in the life cycle and living experiences of grandparents, parents and
children. This essay will focus on grandfathers, fathers and sons due to
greater familiarity with their life experiences

The intergenerational rupture can best be understood in the context of
the contrasting 'life experiences' of the three generations: The focus
will be on work, political, family and leisure experiences.

Work Experiences: The Grandfathers

The grandfathers' families in most cases migrated from rural areas or
small towns during the post-civil war period (1946-49) and many settled
in the poor suburbs of Athens. Most barely finished secondary school and
found poorly paid employment in textile, construction and public
enterprises. Trade unions were non-existent, 'semi-clandestine' and
subject to harsh repression by the US-backed rightist regimes into the
early 1960's. By the mid to late 1960's the grandfathers gravitated
toward the 'center-left' parties and the revival of trade union
activity. This was especially the case among the growing assembly plant
and public sector workers in the electrical, telecommunication, seaports
and transport industries. The US-backed coup in 1967 and the resulting
military junta (1967-1973) had a dual impact: Outlawing trade unions and
collective bargaining, on the one hand, and stimulating foreign
investment-led economic growth and corporate style clientelism on the other.

The clandestine anti-dictatorial struggle, the student uprising and
infamous massacre at the Polytechnic University (1973) and the collapse
of the military dictatorship following its abortive coup in Cyprus,
radicalized the grandfathers. Legalization of political parties and
trade unions led to a surge of trade union organizations, struggles and
social advances. Wage increases accompanied the fall of junta. Entry
into the European Union and the large-scale influx of 'social cohesion
funds' led to an expansion of public sector employment and increased
political party clientelism extending well beyond the traditional
right-wing regimes.

Job security, pensions and increases in severance pay created a
relatively secure and stable labor force except in the manufacturing
sectors, which were harmed by imports from the more industrialized EU

With the election of the Pan Hellenic Socialist Party (PASOK) in 1981,
populist welfare legislation and wage increases served as a substitute
for any consequential socialization of the economy. The economic and
social security gains were steady, cumulative and led to rising living
standards. The grandfathers joined trade unions, their leaders
negotiated wage and workplace improvements and they faced the future
with relative optimism: A cOMFortable retirement, better educated
children and a modest paid-up apartment and small automobile. They
looked forward to enjoying leisure time with family, friends and
neighbors. Or so it seemed in the run-up to the Greek Catastrophe of 2008.

As we shall see Greece's economic progress was built on rotten
foundations – on EU loans that were secured through fraudulent accounts,
a public treasury pillaged by bipartisan kleptocrats and public
'investments' in large-scale unproductive clientelistic activities with
corrupt business 'partners'. In a word, the 'golden years' of the
grandfathers' cOMFortable retirement was based on the illusion that a
half-century of work and social advances would translate into a
respectable dignified life.

The Fathers: Work and Play and Play Later

The fathers were urban born, better educated than the grandparents and
highly influenced by the consumer ethos that permeated Greece. They
entered the labor market in the early 1990's. They saw themselves as
more 'European', less nationalist, less class conscious and less
involved in social struggles than the previous generation. Interest in
sports and celebrities and their own social advancement precluded any
engagement in the great social struggles of the grandfathers. They
experienced rising salaries through top-down negotiations. They paid no
attention to the grotesque enrichment of the kleptocratic socialist
political elite and they ignored the growing debts, both personal and
public, which 'funded' their overseas vacations, the second home and the
imported German cars. They paid handsomely for tutors to prepare their
children for the University entry exams. Their future was assured by
ever more optimistic (falsified) government data and the positive
assessments by EU experts. Trade unions and business associations
focused exclusively on current increases in salaries, revenues, cheap
credit and access to the latest techno toys.

The fathers spoke English, welcomed ever-greater European integration
and discarded the doubts and criticism that the grandfathers directed at
NATO and Israeli wars, inequalities within the EU and the effects of
economic liberalization. They ignored the criticism of the close ties
between the PASOK kleptocrats, local and overseas bankers, ship owners
and millionaire plutocrats.

Cynicism was their 'modernist response' to pervasive corruption and
growing indebtedness. As long as they got theirs why challenge the
status quo? With the onset of the Greek Catastrophe, the fathers lost it
all – jobs, social security, homes, cars and vacations. The
'Europeanists' among them suddenly became virulent critics of the Euro
bankers – 'the Troika' –, which mandated that the fathers should
sacrifice everything they possessed in order to save the kleptocratic
rulers, the millionaire tax evaders and the indebted bankers. The
economic catastrophe gradually eroded and finally shattered the 'modern
European' consumerist consciousness of the upwardly mobile middle and
working class fathers.

First they suffered successive salary cuts and then they lost their job
security, followed by massive firings with and without severance pay.

Dismay, fear and uncertainty were followed by the recognition that they
were facing the financial firing squad. They realized they were trapped
in an unending free fall. They took to the streets and discovered that
their entire generation and their entire class was uprooted and
discarded. The fathers discovered they were worthless and they had to
march and struggle to reaffirm their self-worth.

Sons: 'Who Works?'

The vast majority of sons are unemployed: Over 55%, by the beginning of
2013, have never had a job. Each day and each week their numbers grow as
entire families are impoverished and households disintegrate. School
attendance has fallen off, as the prospects of employment disappear and
the specter of long-term large-scale unemployment haunts everyday life.
The prospects of establishing stable couples and new families among the
young are non-existent.

'Street culture' has multiplied and the video arcades are more often
places to meet rather than to play. Attendance at 'pop concerts' has
fallen while the sons now turn out in greater numbers at mass protest
marches. The growing politicization and radicalization of the sons now
begins in the middle school and deepens in secondary and technical
schools and the university.

Many, by their late 20's, have never had a job, never moved out of their
parents or grandparents home and cannot envision a future marriage or
family. The lack of work experience means a lack of workplace
comradeship and union membership. In its place is the centrality of
informal, peer group solidarity. Perspectives for work focus on
emigration, hustling for a miserable odd job or joining the struggle.
Today they wander the streets in anger, despair and deep frustration. As
the years pass, the sons increasingly vote for the Left (Syrian) but are
fed-up with the ineffectual parliamentary opposition, the ritual marches
and the inconsequential social forums, featuring local and overseas
radical lecturers who spin theories about the crisis but who have never
lacked a job or missed a paycheck. The vast majority of the young
unemployed feel that 'words are cheap'. The intellectuals, new-left
politicians and overseas Greeks do not resonate with their day-to-day
experience and offer no tangible solutions. Sons have joined with
anarchist street fighters. So far few of the unemployed sons have
responded favorably to the neo-Nazi appeal of the Golden Dawn. But they
are hardly enthusiastic over the Left's embrace of immigrant job
seekers, especially when their neighborhoods are victimized by Albanian,
Middle Eastern and Balkan drug dealers and pimps

Political Experience: The Grandfathers and the Radical Legacy

The grandfathers' political trajectory differs sharply from their
progeny. Many of their own parents were partisans in the Communist-led
million-member national liberation movement (ELAS-EAM). They fought the
Italian fascists and the German Nazi occupation army and took an active
part in the civil war. Following the Anglo-American intervention and
defeat of the insurgents, hundreds of thousands of Greeks were sent to
slave labor/concentration camps, where many died. Villagers and farmers
were savagely repressed and driven off their land. Property was
confiscated and millions migrated to the cities in search of anonymity
and employment. When the Communist Party was outlawed, many members and
ex-members joined 'progressive parties', the United Democratic Left
(EDA) in search of an alternative.

The grandfathers came to political age with the revival of 'populist
politics' in the early 1960's, promoted by the Center Union Party. After
the 1967 coup, they faced six years of US-backed military rule
(1967-73). Under junta rule, some grandfathers engaged in clandestine
political and trade union activity. With the collapse of the junta, most
grandfathers joined the newly formed Socialist Party led by a
radicalized Andreas Papandreou. The post-junta 1970's were a period of
intense political debate and the proliferation of previously suppressed
Marxists books, lectures, journals, forums and popular cultural events.
Mikis Theodorakis, the great Communist composer, drew tens of thousands
to his concerts, many of them workers, evoking scenes similar to Pablo
Neruda's poetry readings to the thousands of workers and peasants in
Chile. In the election of 1981, the grandfathers voted overwhelmingly
for the Left: PASOK won over 50% of the vote and the Communists received
close to 15%. Almost two-thirds of Greeks, and over 80% of Greek
workers, voted for socialism (or so they thought!). The grandfathers
celebrated the defeat of the far right and over a half century of Nazi,
US and right-wing military rule.

The grandfathers had great hopes that Papandreou would fulfill his
promise to 'socialize' the economy. They saw the electoral ascendancy of
the Left as a prelude to a break with NATO and as a transition to an
independent socialist welfare state. Despite several massive socialist
and trade union conferences on 'worker self-management of a socialized
economy' and the bankruptcy of scores of indebted private firms,
Papandreou argued that 'the crisis' precluded an 'immediate transition
to socialism'. He argued the right wing's capitalist recovery and only
afterward could 'socialist' policies be implemented. He ignored the fact
that it was the very capitalist crisis, which led to his election! Many
grandfathers were disappointed but, Papandreou, with the skilled
speeches of a populist balcony demagogue, proposed a series of
substantial wage increases legalized and expanded labor rights and
implemented and increased social welfare and pension payments. The
grandfathers settled for the populist reforms and the de-radicalization
of the political process. From mid-1980 onward, the grandfathers
continued to vote Socialist, but now exclusively with the goals of
economic gain and expanding social coverage in health and pension benefits.

Under Papandreou, PASOK degenerated into an inconsequential 'gadfly'
within NATO. Its enthusiastic entry into the EEC and its maintenance of
US military bases eroded the last vestiges of anti-imperialist activity
among the grandfathers. They narrowed their focus and looked toward
PASOK as a clientelistic political machine, necessary to secure
employment and guarantee their pensions.

With the onset of the Economic Catastrophe in 2008 and the savage social
cutbacks implemented by the utterly inept, corrupt and reactionary
George Papandreou, Jr., the grandfathers felt the first shockwaves of
instability and the threat of losing their secure and living pensions.
By 2010, the grandfathers totally abandoned their support for PASOK.
Revelations of corruption and the slashing of pensions by 35% drove the
grandfathers into the streets in massive protests. Later, a majority
voted for the new leftist SYRIZA Party.

The grandfathers have come full circle: Re-radicalization has
accompanied the return of authoritarian rightwing rule under the
colonial dictates of the European Troika.

But now the grandfathers' pensions have to support three generations.
Once again, the search for a new political party is as urgent as during
the period immediately after the fall of the military junta.

The Fathers: The Politics of Downward Mobility

The fathers came to political age at the height of electoral
clientelism. During the 1990's they voted PASOK, without any of the
ideals or illusions of the grandfathers; nor did they engage in any
historic struggles. They voted the candidates and parties who provided
access to credit and low interest loans and offered lucrative
concessions or promotions within a highly politicized public
administration. The fathers rarely addressed larger ideological issues.
They saw the 'capitalist versus socialist' debates as an anachronism of
the past. They studied English and Anglicized their speech and writings.
They no longer paid attention to the negative consequences of Greece's
affiliation with NATO and the European Union. The big issues were
Greece's sponsorship of the Olympics and how to cash in on the spending
spree and cost overruns. PASOK leaders set the example by taking their
cut off the top of every building contract, cooking the books, evading
taxes and consulting with Goldman Sachs on how to accumulate debts and
convert deficits into surpluses. When the economic crisis hit, the
fathers were caught unprepared. At first, they rationalized it, hoping
'the crisis' was temporary; that new loans would flow in to the rescue;
that they - especially those in the public sector – would not be
affected. As the Catastrophe ensued, the fathers abandoned their apathy
and indifference: Political decisions now affected their salaries, their
wages, their social benefits and their ability to pay their mortgages
and credit card debt. Cynical conformity was replaced at first by
uncertainty and anxiety. As the PASOK regime lowered the boom and signed
off on the massive layoffs of public sector workers and salary
reductions, the fathers first protested to 'their' leaders to no avail
and then punished them via the ballot box. Most turned to the Left,
joining SYRIZA, in hopes of regaining the past as much as constructing a
new socialist future.

Sons: The Politics of No Future

The sons have come to political age having no prior experience of
struggle or of upward mobility. They are stuck at the bottom or are in
perpetual descent. Never having a job or any opportunity, they take
action to affirm their existence, their presence and their capacity to
act against wave after wave of savage EU-sponsored assaults on their
everyday life. They join their fathers and grandfathers in the huge
marches: inter-generational solidarity. But they alone carry the burden
of never having been a member of a political party or a trade union and
never having experienced 'the good life'. They never received loans or
political favors, but they are now expected to sacrifice their future in
order to enrich the creditors, the tax evaders and the kleptocrats.
Their political wisdom is rooted in their gut recognition that the
entire political class is rotten; they have their own doubts about those
politicos who abandoned PASOK, joined SYRIZA and now claim to be their
saviors. They turn away from those academic political philosophers and
journalists who speak a language and elaborate a discourse totally
divorced from their everyday experience. They frankly question whether
the Aesopian language of a dead Italian philosopher (Gramsci) can lead
them out of this catastrophe. The overseas theorists may come and go,
but life becomes ever more desperate. Some sons believe that only those
who hurl a Molotov cocktail can bring temporary light into the dark
tunnel of their everyday life. The most combative of the sons engage in
street fighting and join the black bloc. The less audacious scan the
Internet for ways to relocate, to emigrate: They reason that it would be
better to emigrate to the imperial centers than to suffer a lifetime in
this ravaged and plundered colony.

Family: Grandfathers and the Return of the Extended Family

The Sunday dinner was a hallmark of Grandfather's time: A family
gathering with roast lamb and potatoes, a peasant salad with feta cheese
and olives and sweets for desert.

The grandparents upheld that practice until the Catastrophe put an end
to another 'fine family tradition' – like everything else that was
pleasurable. Three generations living together, under one roof, on one
source of income (grandfather's shrinking pension) is a situation not
conducive to sustaining good relations. Savings diminish, debts
accumulate and frustration leads to conflicts and resentments. Anger is
occasionally directed against those closest to one's heart. The loss of
independence leads to arguments; family loans never get paid back. Meal
times become moments to relate hardships. The easy banter, good humor
and storytelling disappear in a miasma of worries over the next meal,
the precarious household budget and the fruitless search for employment.

Meals have become a time to mull over the stresses of everyday survival.

Fathers: Families - A Precarious Safety Net

The fathers ask: 'What will happen when my father dies and his pension
disappears?' 'How can five of us survive when the regime, under orders
from the Troika, has reduced my father's pension by half?' 'How can two
families live on 500 Euros a month?' The last barrier to utter
destitution for many fathers is the extended family, as social cuts
reduce unemployment payments and savings are exhausted.

Prior to the Catastrophe, the fathers took their wives out to a taverna
with other couples on Friday or Saturday night to hear the bouzouki and
enjoy a full meal with mezedes, a carafe of good wine and plenty of
laughs. Unlike the grandfathers, who patronized the neighborhood butcher
and baker, the fathers shopped in multinational supermarkets and at
malls, signs of European modernity and 'cost effectiveness' and paid
with their credit card.

The vacations to London have become a distant memory. The family house
in the Aegean is long sold, the proceeds spent to pay off debts. At most
they can hope for a trip to the crowded, polluted beaches of Attica to
escape a sweltering August weekend.

The Sons: Families are Where You Find Them

Family has become a grim affair, not a relief from the hopeless outside
world: At home, it's always 'grieving time'. The sons come and go. They
listen to music alone. Who wants to bring a girlfriend into a cramped
bedroom with a grandmother's disapproving look and sour faces
everywhere. They walk to the corner, take a trip downtown to Exarchia
and hang out in a doorway, a video arcade or shoulder a black flag in a
march against the entire rotten mess, against the thieves, bankers and
creditors. If their teacher dares to talk about 'democracy and civic
duties' – and very few do, because even their jobs are in jeopardy – a
lone giggle turns into a tsunami of laughter and insults; classes
break-up and schoolmates meet to share a few moments of intimate
friendship so lacking in the grim austerity of their disintegrating

Who cheers for their football team? Who jeers at the phony Papandreou,
the porky face of Venizelos, the blood-sucking Stournaras and Samaras …
Politicians smell like the putrid fish that even a starving cat wouldn't
touch. The sons attend meetings of SYRIZA. It's all high minded and
fierce denunciations with calls to action – but another march? Another
call for 'engaging the youth'? But the sons think: Here we sit; we are
never in the front rows; we listen to them; they seem to know each
other; they talk in codes that only they understand... So we wander out
and smoke a joint or cadge a beer or meet friends and talk our own talk.

Paternalism, patriarchy and filial piety are all dead. Casual relations
with no long-term perspectives are the new reality.

Leisure: Grandfathers: The Café as Refuge

The grandfathers have their own favorite neighborhood cafés. They walk
past boarded-up businesses - over 160,000 bankruptcies since the onset
of the Catastrophe. Nowadays, a cup of black coffee is the ticket to a
table, a deck of faded cards that still show some of the colors of the
kings and queens. There was a time, when in the course of an afternoon,
a grandfather could order glasses of ouzo and plates of mezedes –
Kasseri cheese and olives – for his card-playing comrades. Then the
crack of the dominoes and the rapid movement of the backgammon chips
would echo in the noisy, smoke-filled café. Now a waiter moves among the
clientele looking for a stray tip. Even professional waiters are at a
loss to survive in a crowded room of survivors. Where is the generation
that will replace the grandfathers? The fathers won't have any pension
to pay their way to a cup of coffee and a seat in the café.

The Fathers: The End of European Leisure Time

The fathers once spent endless hours on the Internet, reading consumer
ads to a background of pop music with English lyrics while planning
weekend excursions. They watched televised football games on Sundays for
discussion at Monday lunch with workmates or colleagues. It was not a
luxurious life but it was a cOMFortable routine. Leisure time, spent
with friends or family, with workmates and neighbors, was an enjoyable
break from the stress of everyday work, a drive to the shore or to a
pleasant outdoor country inn for a weekend dinner.

With the Catastrophe, leisure time is now enforced and plentiful: There
are no stressful jobs; there are no jobs and no cash. Coins jingle deep
in the pocket, perhaps enough to buy a liter or two of petrol to knock
on closed doors that do not answer - or have nailed bankruptcy notices.
So whom do you see and where do you go?

There is another political meeting where one can wave at friends,
envious of those who still hold a job or those who pass out flyers for a
meal. There are protest marches and the warmth and solidarity of the
moment. There are the explosions of jeers at the well-dressed
kleptocrats, holed up in the Congress or creeping out the backdoor after
signing another death warrant - called an Order of Austerity -
condemning another dozen to suicide for the coming week. Leisure-time
now is not pleasure, it is worry: Who will pay the grandparents medical
bills, the insulin injections, the son's school fees, the car payments?
Right, the mortgage payments are no longer an issue: The apartment has
been repossessed. The father is 'free' from that obligation which is why
he sleeps with his wife in a spare room at the grandparents. Those
evenings of lovemaking are now sleepless nights of deepening anxiety.
Restless sleep evokes nightmares of paranoid – or real- pursuit through
dark labyrinths, running everywhere without direction or familiarity
with the streets, the buildings or the people! The purpose in life is
gone, along with the memories of happy excursions and future plans. Now,
the overriding reality is finding a job - that dominates everything. The
father faces the end of his unemployment payments. Will he and his
family join a soup line: Will it be SYRIZA's or the Golden Dawn's?
Whichever party offers a piece of chicken leg in the soup?

The Son: Leisure: Light, Blight and Street Fights

It was great fun, hanging out after school: The jokes, the joints, the
public hugs and kisses. The ferry trips with back packs and the time
spent studying with friends … the exams, difficult courses and the
anxiety of having to choose a career in a few years. Those 'worries'
have disappeared: The catastrophe eliminated the 'problem course', the
difficulty of career choice … now even the teachers have left the
classrooms – involuntary release – firings have thinned the offerings.
The sons face a blighted future … any 'career' will do.

'The biggest crooks do not rob a bank, they own one' – a philosophy
student told a crowd of sons as he demonstrated how to make a Molotov
cocktail. A math major calculated the number of times local and overseas
revolutionary scholars have mentioned the 'crises' in an hour and come
up with an equation, which equaled zero positive outcomes. The loss of
future perspectives and the burden of a grim home life are eroding all
respect for a political and legal system that imposes destitution,
indignities and humiliation in order to pay foreign creditors. 'We pay
them, so they can squat in the sun on our beaches, buy up our homes, eat
our food, swim bare-ass in our ocean and then tell us we are lazy and
deserve what misery we are getting.'

The timid, playful or fearful sons are growing up fast. Maturity begins
at fifteen. The marches started earlier. Radical political loyalties
followed. What next, 'little man'?

The sons are a growing army of unemployed and maturing quickly. Today
they are dispersed. Some want out – leave Greece … But most will stay …
Will they organize and move beyond the current electoral opposition and
fashion a new radical movement breaking with the rotten repressive
electoral system? Can they become the militants for a new heroic
resistance movement? Whose grandson will climb the walls of the
Parliament and defy the colonial collaborators and their Troika masters.
Who will raise the flag of a free, independent and socialist Greece?

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