Some Basic Lessons for the Governor of the Bank of England, Who Seems to be in Dire Need of Them
Yves here. Lambert noted with some incredulity that the Governor of the Bank of England really said that the UK nearly went bust during the coronavirus market upset: “Britain is not a currency-issuing sovereign?”
Boy, do I miss Mervyn King. And it was during his tenure that the Bank of England put out a primer and a little video that explained some key MMT ideas in layperson terms. It didn’t go as far as presenting direct monetization as a policy option; its focus was more on clearing up misperceptions about QE.
Richard Murphy pointed out that the Financial Times’ editorial board had made the intellectual leap to calling for the Bank of England to fund the government directly. So it is particularly disturbing to see this regression by the Bank’s governor.
By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK
Britain came close to effective insolvency at the onset of the coronavirus crisis as financial markets plunged into turmoil, the governor of the Bank of England has said.
Laying bare the scale of the national emergency at the early stages of the pandemic, Andrew Bailey said the government would have struggled to finance the running of the country without support from the central bank.
This is a quite staggering claim which shows the utmost stupidity in the part of Bailey.
What it seems that he has failed to notice is that the Bank of England is owned by the government. And its job is to provide the government with money on demand without limit so that the government can never go bust, which is what happened in March.
He’s also failed to notice that he is not some superhero for graciously agreeing to do this. He’s actually a civil servant who was doing exactly what was required of him. It’s the part of his job that goes with being in charge of the lender of last resort in case he hadn’t noticed. But apparently he hasn’t.
Just as it also seems that the Governor is unaware of the basic rules he needs to learn that govern the size of the Bank’s balance sheet. If we have inflation that balance sheet is too big. If we have unemployment it’s too small. That’s it. That’s all he needs to know. And it’s not hard. But right now we have unemployment and he wants to shrink the balance sheet.
So why is he doing that? Let’s presume he has a reason.
Is it that he thinks he must uphold the failed neoliberal order?
Is it that he thinks central bank independence his priority because the Establishment cannot trust democracy?
Is it that he is unaware of the economy and unemployment to come?
Or does he really believe in a V shaped recovery that will deliver a complete bounce back when no one else does?
Or could it be that he does genuinely think the Bank is independent and really does do the government favours – for which he is to be personally thanked?
Is it that he does, then, think the money he creates is an exogenous variable when Bank of England money is / should be endogenous?
I genuinely don’t know the answers to any of those questions, but amongst them must be the clues as to why he’s done this if he is not incompetent (which the timing would anyway suggest, come what may) so he must hold some or all of these views.
And without exception they’re worrying.