Vince Cable, the UK Business Secretary plays straight into banksters hands.

There are two mistakes he makes over and over, both of which play straight into the hands of banksters.

First, he opposes imposing higher capital requirements on banks, particularly in a recession, because it would allegedly be some sort of burden on banks which would make it more difficult for banks to lend. The flaw in that argument was pointed out by Franco Modigliani and Merton Miller, the flaw being that the proportion of a bank’s funding that comes from shareholders does not influence the total cost of funding the bank. For more on that, see this Bank of England discussion paper.

Banks’ REAL MOTIVE for minimising capital is that it increases taxpayer exposure. That is, what banksters want is a system under which when their bets pay off, they keep the winnings, and when the bets go wrong, the taxpayer foots the bill.

Second, Vince Cable keeps going on about the need to encourage bank lending to businesses. Well banksters will love him for that, won’t they? Nothing must be done to hinder banks! The ACTUAL EVIDENCE is that access to finance comes a long way down employers’ list of concerns. E.g see:

Here.

p.7 here,

Section 2.7  here.

The great Nick Rowe supports Modern Monetary Theory?

To judge by a little exchange of views I had with him, it looks like he goes along with Mosler’s Law (which states that “There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.”). See sentence in yellow at the top of Warren Mosler’s site.

So I assume Nick is somewhere between sympathetic towards MMT and “fully supportive of” MMT.

Monetary policy is nonsense.

Monetary policy consists of adjusting interest rates. Plus QE is a new form of monetary policy, the supposed effect being similar to cutting interest rates. That is, interest rate cuts are supposed to increase investment spending, while the effect of QE is similar.

However, there’s one whapping great flaw in all that, which is that there is no reason suppose that the optimum mix of investment and consumption spending changes as between when an economy is in recession and normal times. And assuming that optimum mix does not change, then stimulus should aim to boost consumption spending, with employers being left to decide for themselves whether to spend more on investment as a result of any increase in consumption spending.

In view of that major flaw in monetary policy, there remains one possible saving grace for monetary policy, which is that it might act more quickly than fiscal stimulus. But the evidence seems to be that the lags in the case of monetary and fiscal stimulus are about the same.

Conclusion: monetary policy is nonsense.

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P.S. (28^th Dec 2013). Plus no one really seems to be sure whether two of the basic planks of monetary policy (interest rate adjustments and QE) are inflationary or deflationary. See here, hereor here. But you’ll find plenty more articles by well qualified economists questioning the supposed stimulatory effects of QE by Googling.

Jeremy Warner tries to criticise full reserve banking in the Telegraph.

Given that Jeremy Warner has views on the debt and deficit that make Rogoff and Reinhart look like beacons of enlightenment, this article of his in The Telegraph on full reserve banking isn’t too bad.

I wouldn’t expect anything very sophisticated from a bog standard newspaper economics correspondent like Warner on the full versus fractional reserve argument. Getting to grips with the latter argument takes a lot of time, and the Warners of this world have too many other aspects of economics to keep up with to be able to get to grips with the full versus fractional argument.

Anyway, he is quite sympathetic towards full reserve, but the main criticism he makes of it is easily demolished. He says (in colour): “One of the most obvious drawbacks is that there would plainly be less credit and less leverage in such a system. Indeed, to the extent that credit existed, it would look much more like high-risk equity. For all the social and economic scarring the credit cycle can inflict, it is also a key part of the creative destruction of capitalism.

Without it, you might have a more stable economy, but it is not clear that you would have as much innovation, entrepreneurialism, business creation and long-term economic growth.”

Let’s run through that.

As regards his claim that there would be less credit, that’s a statement of the obvious. Full reserve does indeed prevent private banks creating money out of thin air and lending it out. The latter is more or less the definition of full reserve.

He then seems to suggest that that lack of credit would be made good to a greater or lesser extent by equity funded investment. Quite right. But why does he need to insert the phrase “high risk”? The average stock market investment is not “high risk”.

In short, replacing a proportion of investments funded by bog standard bank loans with investments funded by bog standard stock market (or other equity type investment) funding does not of itself mean a move to “high risk”. Put another way, it’s a trifle bizarre to claim that bank loans are relatively risk free: we’ve just had a disastrous credit crunch followed by an equally disastrous recession, all sparked off by silly bank lending behaviour, haven’t we?

Next he claims that the “credit cycle” is part of the “creative destruction of capitalism.”  Complete nonsense!

Even if there were no “cycle” at all, numerous firms would continue to go bust every week, and numerous new firms would be set up every week. The “cycle” is totally unnecessary for that “creative destruction” to take place.

Warner than claims that the transition from fractional to full reserve would be “highly destabilising”. Really? Problem is he doesn’t give any reasons.

Presumably that’s because he hasn’t got any.

Europe’s ignorant Greek Commissioner.

Greek European Commissioner Maria Damanaki recently noted, “‘The strategy of the European Commission over the past year and a half or two has been to reduce the labour costs in all European countries in order to improve the competitiveness of European companies over the rivals from Eastern Europe and Asia.’”

Complete rubbish. The “strategy” behind periphery austerity is make the periphery more competitive relative to the core: a way of doing the job that involves large social costs, but that’s common currencies for you.

In contrast, making the Eurozone AS A WHOLE more competitive relative to Asia etc can be achieved by devaluing the Euro relative to other currencies. No need for austerity in the latter case.

Idiot.

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