Being a Positive Money supporter is frustrating at the moment because of the poor quality of the opposition to Positive Money’s ideas: I’d prefer quality or clever opposition. That would test my brain.
Anyway, there is an article by Mike Robinson on the “UK Column” site which criticises Positive Money. The criticisms are poor quality and are easily rebutted. So don’t expect any brilliantly intelligent arguments and counter-arguments below.
Mike Robinson agrees that allowing private banks to create money is undesirable. Then under the heading “Is that it?” he claims that PM’s two account system (safe accounts and investment accounts) will “do nothing to prevent banking bailouts”.
Now it’s a little difficult to criticise his reasons for saying that because he doesn’t give any reasons!! All I can do is to briefly spell out for Mike Robinson and likeminded persons why the two account system does indeed make bank failures very unlikely.
As regards current accounts, nothing is done with money deposited in such accounts – though possibly the money could be deposited at the central bank. Thus no risk is taken with the relevant money. So that money can’t be lost.
And as regards investment accounts, those depositing money take a hit when the underlying loans or investments go wrong, rather than only banks taking a hit. (The investors and banks share in the profits when things go particularly well and share in the losses when things go bad.) All quite simple, really.
I look forward to Mike Robinson giving us an actual REASON as to why the latter idea is flawed.
Mike Robinson then claims people won’t put their money into those safe accounts because such accounts pay no interest. Clearly he does not have much of a grip on reality: tens of billions are currently in zero or near zero interest rate accounts in Britain because interest rates are currently at a record low.
The Bank of England
Next, there is Mike Robinson’s section headed “The Independence And Accountability Of The Bank of England”. This deals with the idea that under Positive Money’s proposals, the Bank of England would create new money and supply it to government who would spend it into the economy (and/or cut taxes) when stimulus is in order. Here, Mike Robinson points out that the BoE has numerous customers other than the British Government (e.g. the Queen and various foreign governments). He then claims the BoE “may well have more loyalty to a foreign power, or a Rothschild.”
Well frankly that’s a joke. If anyone knows of any instance of the slightest suggestion that the BoE has been working for a foreign power, please give us the details. My guess is that if there had ever been the slightest suggestion to the latter effect, the governor of the BoE would be out of a job within twenty four hours.
The Bank’s Ability To Create Money
Last, there is the section of Mike Robinson’s article entitled “The Bank’s Ability To Create Money”. He claims here that Positive Money’s above idea about the BoE creating and spending money into the economy as appropriate implies that Positive Money is unaware that the BoE already creates money.
Now that is utterly bizarre because there are any number of Positive Money articles and videos which make it perfectly clear that the BoE DOES CREATE MONEY. In particular, those articles and videos explain that the BoE creates the 3% or so of the money supply that consists of physical cash (£20 notes etc).
My advice to Mike Robinson is to read some of the literature produced by an organisation before criticising it.
Separating casino from high street banking
In a separate article (also critical of Positive Money), Mike Robinson argues for what is currently the conventional wisdom, namely that casino banks should be separated from high street banks. That can be done either by insisting on entirely separate institutions or by placing a ring-fence between the casino and high street divisions of banks, as proposed by Vickers.
However there is just one glaringly obvious flaw in the above idea: IT WOULDN’T HAVE SAVED NORTHERN ROCK!
Indeed, the idea will not save any bank which is just a high street operation, as was Northern Rock. And that’s a mighty big defect in the “separation” idea because saving high street operations is the basic object of the exercise. Put another way, we aren’t too bothered about casino banks. Barings collapsed in 1995 and no one turned a hair (apart from Barings shareholders of course).
Moreover, under the two account system, there is NO NEED to separate casino from high street banking operations, as is pointed out in the submission made by Positive Money, Prof Richard Werner and nef to Vickers (p.17).
The basic philosophy behind the two account system is that all loans and investments made by banks are 100% covered by loss absorbing bank creditors (shareholders, bondholders and depositors). In consequence, there are virtually no risks for taxpayers to cover, thus no bank subsidies.
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