So, they print money, to swap for the debt. And keep the debt…. until it matures and cancels on its own.

BUT, economically, its the same as been canceled.

I did, Ralph – in the comment you originally replied to, which is about the monetary authority’s ability to control the money supply. I took it for granted that you were aware that adjusting interest rates is one of the few tools they have for doing that, and I assumed that was why you raised the subject of reducing demand. I take it you had some other purpose in mentioning it but I’m afraid I’m unable to guess what it was.

“what’s the difference between “reducing” demand and “frustrating” it?”

I distinguish between demand that’s driven by an active desire of a creditworthy buyer to purchase some good or service, and demand that stems from someone having surplus money and looking around for something to spend it on. The first, which is what I meant by underlying demand, is frustrated when the monetary system fails to provide the medium of exchange necessary for the exchange to take place. The second is reduced when surplus money is diverted into savings rather than competitive spending.

It’s important to recognise that monetary authorities only try to manage aggregate demand as a means of keeping the value of money stable, and it is precisely because they don’t have proper control of the money supply that they’re obliged to try and influence real-world behaviour in order to achieve a purely monetary effect.

http://ralphanomics.blogspot.co.uk/2017/05/the-optimum-national-debt-gdp-ratio.html

Classic neo lib apology for the enrichment of the 1% masquerading as “Labour” support. Don’t forget these same people until last week were doing all they could in the Guardian to get rid of Corbyn. If he gets in he’s either been bought or will be removed in a matter of months. QE will never be used to reduce the wealth gap.

Keynes answered that: If you can do it, you can afford it. The point is that “debt” in the sense meant here is simply the act of using newly created money to stimulate economically viable and desirable activity. If used properly, the very act of doing so should result in there being more wealth at the end of the process than there was at the beginning. So it is indeed a magic money tree in the sense that May claimed it wasn’t.

A better educated ( even in media studies) , better housed and healthier workforce will be more productive. Even Victorian Tory reformers understood that.

“I repeat: except for a few right-wing economic models, every model I’ve
ever seen has leakage from deficit spending into imports.”

It ain’t necessarilly so. It depends on where the spending is directed. Granted, there would need to be a rebuilding of an economy where goods and services are produced domestically.

“Increasing wages is a fresh subject entirely, but your theory that
increasing wages leads to increased productivity rather than increased
unemployment is extraordinary and surely wrong. What’s your evidence?”

It is not a fresh subject. Part of the point of intelligent deficit spending would be to move from being a low wage, low skill economy to one based on a highly skilled and well paid workforce. The evidence that this works is manifest in the economies of most Scandinavian countries.

Do you imagine it hasn’t been a problem throughout that time? Why do you think societies around the world adopted fiat money in place of the commodity-based money that they had before? And why do you think people get paid interest when they put money aside for future use, when pretty much every form of natural wealth either loses value or imposes carrying costs of some kind?

Using a medium of exchange which anyone with a surplus can take out of circulation allows the rich to hold it to ransom. That’s why people receive interest on savings. That creates a steady flow of wealth from the poor to the rich, as it has done throughout history. And you don’t consider that to be a problem? As far as I’m concerned, it’s one of the root causes of inequality.

You challenge me to define a healthy system and say that I ‘will merely assert an unproven and untested opinion’. Actually, I’m not that ambitious. My aim is simply to identify the most glaring deficiencies in the current system, analyse the reasons for them and suggest fundamental reforms which would remove them.

“So, your aim is to alter UK public opinion of government. Not a cat in Hell’s chance.”

Well, you could say that’s my aim, I suppose, since I’ve spent the last few years trying to persuade people that our system of government needs to be fundamentally reformed. And you may be right to say ‘no chance’. But that’s not just because of the self-interested behaviour of politicians, it’s also because so many people prefer to put their energy into complaining about how bad our politicians are, rather than thinking about how the system could be reformed.

In the end of course, the Nazis introduced the Reichsmark which was not tradeable so could not be forced down by speculators in London or New York. Period.

“The relevance to today’s situation is that, in the end, a country’s
production (or assets – this current government seems keen on cashing in
on infrastructure) must be sufficient to pay its debts.”

No. They must be sufficient to service them while still gaining benefit from the spending they facilitate. Provided that remains true, the amount of the debt or the deficit becomes unimportant. The difference with Weimar is that there was no benefit from the debt – neither to the Germans who were enduring poverty to service it nor to the other Europeans who were pressing a debt which could never be paid.

The comparison is utterly fatuous.

This has it’s most severe consequences for the poor and low paid. Especially when so much contains imported elements and it’s transported using fuel ultimately priced in dollars.

That was the mantra of the Republicans before Obama was elected. It turned out to be absoute bollocks.

“Left wing and Keynesian economists on the other hand think it would
increase demand and that at least some of that would leak into greater
imports and therefore a worse trade deficit.”

Really? Who thinks that? Or is the second part of that sentence your extrapolation? To begin with, it is not simply a matter of stimulating demand. The spending itself would have beneficial effects on the economy.

Secondly, when you force wages up you force wages up, you also force capitalists to invest and increase productivty and innovation. Instead of a low wage economy producing low value goods you start producing high value goods which people in other countries want to buy.

Nope. That’s not what happened. It was speculation on the international money markets which drove the the currency down. The Weimar experience is completely irrelevant to this issue.

You need to get to grips with the real world, instead of floating around fancifully in the ether.

Well, I disagree. Since it was first created, money has been both a medium of exchange and a medium of saving. This for thousands of years. So you have to ask yourself the question why it is considered as a problem now.

One likely answer is that deregulated banking has failed to deliver the reliability that is demanded, and people are afraid to trust electronic records of their monetary assets. Another is that governments are out of control, especially in the developed world: Cyprus banks had a bail-in (effectively stealing their Russian customers’ money) and Greek banks have capital controls — stopping you from accessing your money. I would not be in hte slightest surprised if the UK imposed capital controls in the near future, if Brexit goes as badly as anticipated. Of course, the Bank of England dislikes large cash hoarding, because it has lost some control over the UK economy.

As for what is a “healthy system” I defy you to define that. I do not think you can. You will merely assert an unproven and untested opinion — like so many UK experiments with the economy, potentially plunging the UK population in yet another unnecessary crisis and continuous real income deterioration.

So, your aim is to alter UK public opinion of government. Not a cat in Hell’s chance. The self-interested behaviour of all politicians in power in Westminster in recent decades has damaged the credibility of democracy beyond repair. It will be a real achievement for democracy to survive at all, but politicians will continue to be despised for anything other than the very long run.

If you have no interest in looking beyond the current system, that’s fair enough – but as far as I’m concerned that’s a bit self-indulgent. Personally, I’m interested in understanding how a healthy society would function and, in that context, I’d say it’s clearly not a function of the monetary system to protect people from the state. For that, you need political systems which both enable the public to empower people of integrity, and provide ways to spontaneously remove leaders who are corrupt or negligent. But if we don’t bother getting the politics right, we don’t have any chance at all of getting our economic and monetary systems right, and blinkered arguments about which set of flawed economic policies are worse don’t really get us anywhere.

The monetary system exists as a mechanism to mediate the complex web of debt relationships that people create when they trade with each other. It shouldn’t be treated as part of the political infrastructure. And it is quite obvious, to anybody who has given any serious thought to the issue, that the ability of individuals to take the medium of exchange out of circulation is a problem, both in theory and in practice. A healthy system would need to prevent that happening, at least for whatever money the state accepts in taxes (which, in practice, in a healthy society, is likely to be what everybody else will use too).

But, as I said above, this isn’t an ideal place to explore the fundamental problems involved in that.

It depends on how that money is spent on the welfare of the poor. If it is spent on improving housing, health, education, training and job opportunities then the poor will become less poor and consequently take less from the Exchequer in benefits, cost it less in the poor health outcomes consequent to poverty, be less likely to turn to crime, give more to the Exchequer in taxes and, because they would not be as able to “save” as the rich, they would be circulating more money into the economy to employ others and the mean and whinging ( as well as the generous and enlightened) middle class would also benefit from improved profits and career opportunites.

That depends on the purpose of the borrowing. If it is instrumental in creating more wealth than it costs, then it would clearly not make matters worse. Austerity on the other hand, will make matters worse, no matter what. Indeed, that is exactly what it has done.

Who were the people who insisted “Britain had to cut back public services”? A specific example please.

The rich, who have got a highly flexible income (eg caused by bonuses) and who hold most of their assets in real estate or company shares are not threatened by inflation, they may even profit by it because of exploding real estate prices. Also, it is easier for them to escape virtually or physically to countries with stable monetary environment.

If the money gained by the state through quantitative easing is spent mainly on the welfare of the poor, they may profit for a time, on the balance. But experience teaches that this happens on the back of the middle classes, destroying the morale of the most productive section of the population. And the more money is spent in this direction, the faster inflation becomes.

This is no argument for austerity. I believe the money spent with one hand must be gained via taxes by the other hand. And what would be better to tax than real estate, which cannot flee the country? A progressive real estate tax would be one suggestion, not hitting the small home owner but those who own multiple houses or large estates.

As you say, this isn’t an ideal place to explore the fundamental problems of the monetary system but you may be interested in my analysis and proposals for fundamental reform. However, they are aimed at long-term reform rather than the question of how we address immediate problems.

If Labour had a strategy for long-term reform, their proposals would be fine. But, without that, I’d say the Tory criticisms are quite valid. The fact that the Tories’ proposals are incoherent and self-serving doesn’t change that.

Yes, savers only receive interest when money is being used but implicit in that is a flow of wealth from people who don’t have money to people who do – a flow which only happens because of that ability to take the medium of exchange out of circulation. That’s a purely monetary phenomenon, which is at odds with the natural world in which holding onto things generally has a ‘carrying-cost’. Basically, that feature of money makes it a significant driver of the rentier economy.

And inflation is more complex than you suggest. Prices rise when the amount of money in active circulation rises beyond the capacity of the economy to use it productively. QE has created more money but it hasn’t gone into active circulation – as far as I can tell, it’s gone into limited circulation in long-term asset markets (where prices have been rising) and it’s gone into storage, with people maintaining high levels of liquidity. It’s like a big block of ice hanging above a pool of water – it doesn’t make the pool overflow until it melts.

What would be the positive and negatives of this Debt Jubilee approach?

I’m not suggesting that ‘people’s quantitative easing’ isn’t preferable to the Tories’ austerity. I’m simply pointing out that unless the fundamental problems are addressed it will simply be storing up a different set of problems which would quite likely lead to a swing back to the right at the next election.

And, actually, quite a few people have been saying for the last few years that the Tories’ quantitative easing was inflationary.

Given the obvious benefits to millions that modest ‘people’s quantitative easing’ would bring it’s hard to see a downside.

After all the Government was perfectly happy to get the Bank of England to pour in hundreds of billions for the richest amongst us. Not much comment on inflation then.

Please write an article explaining why the Bank of England doesn’t cancel this debt and instantly remove a quarter of debt repayment.

Is it destabilising? Surely it couldn’t be given the Bank of England isn’t a commercial firm.

This is information that is so hard to come by. Despite following politics for many years it’s brand new info and quite surprising.

That would be the case in a healthy system but currently it’s only partially true. The fact that the medium of exchange maintains its nominal value even when it is effectively taken out of circulation means that, in fact, the monetary authorities don’t – and can’t – have proper control of the money supply.

Underlying the problem is the fact that there’s an incompatibility between the different functions of money. As medium of exchange, its value rests on it circulating; but, as a store of wealth, its value rests on holders’ ability to take it out of circulation. As long as those functions are conflated, anyone with a surplus can take the medium of exchange out of circulation and (through interest on savings) charge others for the use of it. The result is a constant flow of wealth from the poor to the rich, and governments have a permanent uphill task trying to mitigate the ill-effects of that.

A healthy monetary system would separate those functions. In the meantime, yes, the government could create more money than they do at the moment. But, unless they also have plans to address the underlying problems, doing so will almost certainly lead to significant inflation.