27th January, 2010

Letter to the Guardian:

Dear Sir,

I was astonished to read Lord Myners’s assertion that banks use our deposits to lend out to businesses and homebuyers. (Comment, 25 January). This is simply not the case, and has not been the case since 1694 when the British banking system was established, and intangible bank money began the process of creating deposits in the banking system.

We have just lived through a period of asset price inflation fuelled by credit-creation that bore little relation whatsoever either to a) our deposits in banks, or b) to the underlying value of assets.

Far from the bank starting with a deposit or reserves as a basis for lending, the bank starts with an application for a loan, the asset (eg property) against which to guarantee or secure repayment, and the promise to repay with interest. A bank clerk then enters the number into a ledger/computer, and charges it to the account of the borrower. This is credit and has been known since 1694 as bank money – intangible and essentially free.

The bank does not need savings, deposits or reserves to create credit. If this were the case there would only be as much credit as there are deposits in the bank. These limits would have constrained an asset price bubble, as assets would not have been artificially inflated by underregulated credit creation. Once the loan is agreed, the bank then applies to the Bank of England for the cash element, which is a very small proportion in these days of debit/credit cards.

The fact that small businesses cannot obtain loans from banks, except at high rates of interest, has nothing to do with our deposits, but with the failure of bankers to fulfil their role and meet the needs of society and the economy. Which is why Lord Turner was right to dismiss them as “useless”. That failure may not have occurred if the Treasury had a better understanding of monetary theory and practice.

Ann Pettifor

Fellow, New Economics Foundation

Its getting late here now, but I am hearing from informed sources in the US that the Democrat candidate in Ted Kennedy’s seat is already blaming President Obama. for the loss of the ultra-safe Democratic seats.

“We were hurt by White House Failure to confront Wall St.” says the candidate’s pollster.

Celinda Lake pointed to polling released by the Economic Policy Institute showing that 65 percent of Americans though the stimulus served banks interests, 56 percent thought it served corporations and only ten percent that it benefited them.

If the Democrats lose this seat, they lose healthcare, according to my sources – because they need 60 senators to the Republican 40 to get healthcare through the Senate. 59 to 41 will not do it.

Of course the polls are not closed yet – but Wall St. is confident. The Dow shot up 106.7 points.

Is there still time for Labour to learn from the spectacular misjudgement of a President considered the most sophisticated of politicians?

15th January, 2009.

Patient readers this blog is triggered by Jeff Randall’s column in the Daily Telegraph today.

In it he inadvertently discloses the identity of the puppet-masters dictating the Tory political agenda around public spending cuts.

In a somewhat histrionic column in which he describes the public deficit as a ‘disaster’ ( he should mind his language: Haiti’s earthquake is a disaster) Randall quotes a piece of ‘research’ by the French bank, Société Générale.  The paper is titled “Popular Delusions” and its authors explain some simple facts about government spending cuts to Telegraph readers:

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5th January, 2010

Sorry about the delay in posting, but this is my latest blog for the Huffington Post.

“One is president of a country of about 300,000 people — Iceland — a country about the size of Virginia, President Olafur R. Grimsson. The second is president of a country of about 300,000,000 people, the United States. President Obama.

Both their presidencies have been scarred by the financial crisis. Both have had to balance the interests of their people against the interests of their bankers.

President Obama has allowed that balance to tilt in favor of the bankers.

President Grimsson yesterday took a stand against bankers and international creditors, including the British and Dutch governments.

Instead, he stood up to defend the interests of his people.

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7th January 2010,

Read Ann Pettifor and Jeremy Smith’s letter on why Iceland must NOT repay the debt in the FT today:

” Sir, The president of Iceland’s refusal to approve repayment to the British and Dutch governments should be welcomed (January 5). The pause gives the Anglo-Dutch governments an opportunity to withdraw their demand for full repayment from the government of Iceland, a country whose population at 317,000 is somewhat smaller than Leicester’s.

The UK and the Netherlands, with a combined population of 76m, should cease to use economic force majeure on a tiny country, and accept the principle of co-responsibility for the crisis. Repayment of the nationalised losses of a private bank amounts to €12,000 per Icelandic citizen, and will inevitably impact harshly on their lives and public services. By contrast the cost to Dutch and British taxpayers of the bail-out will be about €50 per capita.

We understand the strong desire of the present government of Iceland to restore the country’s tattered reputation.

But anyone reading the financial press in 2007 and 2008 (as opposed to the academic reports commissioned by Iceland’s chamber of commerce) would have known that Iceland’s banks were far from risk-free. That was why British and Dutch depositors enjoyed good rates of return on their deposits.

The British and Dutch governments have sound political reasons for protecting small savers lured into shark-infested financial waters. What is unjust is that the tiny population of Iceland should be forced to bear the full costs of the laxity of Icelandic, British and Dutch regulators and the reckless behaviour of private bankers and risk-takers. “

Read the letter on the FT website here.

5th  January, 2010.

The latest news from Iceland, as reported in the Guardian today:

” The president of Iceland has refused to sign a bill to repay more than €3.8bn (£3.4bn) to Britain and the Netherlands following the collapse of the country’s Icesave bank in 2008.

Olafur Grimsson threw the long-running issue into fresh uncertainty today when he declared that a national referendum must be held to determine whether or not the legislation is passed.

This is thought to be only the second occasion when the president of Iceland has refused to ratify a bill passed by the country’s parliament. Grimsson took the decision after hearing the depth of public anger in Iceland against the bill, which was narrowly approved by MPs on 30 December.

“The cornerstone of Iceland’s constitution is that the nation is the highest judge for the validity of law,” said Grimsson. “Now the nation has the power and the responsibility in its hands.”

At last!  A political leader that sides with the people, not the bankers.

5th January, 2010

There has been much sturm and drang generated by the Guardian and others on the threat posed to government finances by the flawed and often irrational rating agencies, and by the supposedly despotic, vengeful and greedy bond markets.

Methinks they protest too much.

We at the Green New Deal group have long argued that there is no reason why governments should rely for their financing on the capricious private bond markets. Instead, we write in ‘The Cuts Won’t Work’ -  finance ministers should oblige the banks in which taxpayers have a substantial stake to lend to the Treasury at very low rates of interest.

That’s how World War II was largely financed in Britain – and no one was the worse for it. The loans were given a title: Treasury Deposit Receipts.  These TDRs – bless them – financed a war that saved Britain from the threat Nazism posed to its very existence. Today they could be used to finance the public investment needed to substitute for the collapse in private investment – and to stave off the threat posed by climate change.

Analysts on the Financial Times Lex column (FT 1st January, 2010) have obviously read our latest report, and describe our proposal as “an intriguing alternative” . Governments they write “may lean on the commercial banks in which they hold large stakes to take up the strain instead. Forcing them to purchase government bonds would help replace the market heft of central banks.”

Quite so. You read it first in the Green New Deal.

4th January, 2010

I am proud of the great Jubilee 2000 petition, which I helped draft.

Within a short time, and making revolutionary use of the internet, we had circulated the petition worldwide.  Millions were printed, signed and returned in battered packages to our small HQ in London.

As Paula Goldman noted in an article in the Financial Times (17 May 2008) “the Jubilee 2000 petition holds two world records, according to Guinness World Records: it was the largest petition ever signed (24,391,181 signatures) and the most international (with people from 166 countries signing). Sheer size was no doubt key to the Jubilee petition’s success: when talking to decision-makers, campaigners could rightly claim historic levels of public interest.”

Now our example is being followed by the people of Iceland.

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