Blog 2023 Malcolm Blair-Robinson

Before the start of the global economic crisis in 2008, it was generally assumed that printing money, the term used for nowadays creating new money electronically, was the road to ruin. Zimbabwe and post WWI Weimar Germany were cited as benchmarks for this madness. This has not turned out to be the case. Quantitative Easing, as the US and UK call the creation of new money, may be the only way forward. The recent decision of the people who control the ECB to allow it to join in where the FED and BOE have led, is confirmation of this.

Economics, as a science, is more focused on interpreting the past than predicting the future, which is why so many predictions by the best and most renowned economists so often turn out to be wrong. Each economic crisis is different. Sometimes the cause has been a readiness to print money without due regard to the substance behind it.  This current crisis is caused by borrowing vast sums without a coherent idea of how they are to be repaid. Essentially it is not a crisis of too much money, but too little. At the start of the crisis the total foreign exchange reserves of the US, the UK and the EU combined, were only 8% of the total in the world. Today China holds three times more than the combined total of these dominant western economies combined. This is a measure of the imbalance within the global system.

It is therefore true and becoming ever truer, that you cannot borrow your way out of a debt crisis, more especially if the economy lacks the cash to function at more than a lot less than full capacity. For this reason the US and the UK began the process of QE. Essentially it is being used to buy back government debt. The effect of this is to reduce the debt burden, since if you own you own mortgage you owe  to yourself, which means that although the mortgage exists in book keeping theory, it has no practical reality. This reduces the weight of government debt pulling on the economy. Unfortunately, though, this does nothing to restore economic growth, because the money ends up in the coffers of bankers, from which it is used to buy and inflate assets. Asset inflation, without real new wealth based upon creative economic activity which provides full employment, is another road to eventual ruin and one down which we do not want to make another journey.

What will be needed is QE to provide direct state investment in green technology, infrastructure renewal, rail modernisation, regeneration of local industry, school and hospital updating, motorway completion and above all at least one million new homes for rent at affordable prices. The aim will be the post war notion, sustained for twenty five years, of full employment, which in itself will generate neighbourhood renewal and the re-establishment of local industry making the things we use everyday. It is critical that increasing consumer demand is not met, as before, with imported goods bought with plastic credit.

At present the government is in hyper mode announcing a multitude of initiatives here there and everywhere in the hope of boosting growth. Every little helps and although there is a lot of political noise, the scale of Osborne’s plans are, in relation to the scale of the problem, hardly more than a timely repair. The problem is that the system is broken and the time for repair is past. What is needed is a fresh start.

Well targeted QE is a way, perhaps the only way, to achieve that. The traditional risks of inflation and currency depreciation are manageable with care and anyway are a lot less than the risks of economic decline crippled by debt, with the shocking waste of human endeavour which arises when a great industrial nation forgets how to make things and loses the ability to employ its citizens. Put another way, it is no longer enough just to be a runner. The time has come to go for gold. GB is ready.

This entry was posted on Sunday, September 9th, 2012 at 4:20 pm and is filed under Malcolm Blair Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.