Questions for Ben Dyson's visit Spring 2013

[steveb]

What about compiling some 'challenging' questions for Ben here, and we can choose which ones to put to him on his visit in March?

Would I be right in thinking that after the Banking Reform Act of 1844 (that is sometimes mentioned as an example of government attempts to regulate money creation) commercial banks were still able to create money as loans by using accounting book entries?
If so, could it be misleading to describe our current problems as stemming from the fact that 'legislation has not kept up with technological advances' (i.e. digital money), when there was no real attempt in the Peel Act to address the fundamental issue of a privately created debt component to the money supply ?

[dermotsmyth]

Yes, after viewing Wikipedia on the Bank Charter Act of 1844 (presumably the act concerned) I think I agree with steveb. It seems that banks did continue to create new money after 1844, but only in the form of deposit accounts - maybe not quite as liquid as bank notes.
The main question I would like put to Ben when he comes to Sheffield concerns his repeated use of the word 'simple.' Surely, the ramifications of banning fractional reserve banking are anything but simple. I think this should be acknowledged more often - without getting bogged down in the political ins and outs of such a reform.

[peterv]

I would like to know more about how the economy will operate 'post-reform'

a) let's say 50% of money is in 'transaction' accounts, and 50% in 'investment' accounts. Presumably that means that the amount available for borrowing is only half of what it is now. True there will be less indebtedness, but some parts of the economy must still rely on borrowing eg. new start-up businesses. How will they be affected?

b) At present, the banks don't lend to small businesses because they are inherently risky - the failure rate is high and there is no collateral. Post-reform, it will be lenders who decide which investments to put their savings into. Why will that be any different? - won't people avoid risky investments?

[steveb]

I've read very little in the way of a sustained critique of the fundamental idea behind Positive Money. Is there one (other than the notion that public debt free money would be inflationary), and if so, what is it and where is it?

[peterv]

Do ALL banks 'create and destroy' money?

The Coop bank claims it 'only lends money that has been deposited with them'. Can this be true? What about Building Societies and Credit Unions?

If some of these organisations DON'T create money, then what is different about their asset/liability structure?

How can we know which do and don't? Could Positive Money do some research on this and publish a list of 'good' and 'bad' organisations?

[peterv]

The PM proposal is that the Monetary Creation Committee (MCC) will target inflation, ie. will only create 'new' money if inflation is at or below target.

Well, currently, inflation is above 2% target yet the M4 money supply is falling. We desperately need an injection of new money, but the PM proposal would not allow it.

Inflation is not just about money supply, it can also be caused by costs going up in real terms due to the economy becoming less efficient, resources dwindling etc.

In the formula MV=PT, if the real economy shrinks (T falls), then inflation must occur (P increases) even though there is no change in money supply (M) or velocity (V). This is stagflation.

If you widen the MCC remit to give it an over-riding responsibility for the 'health' of the economy then it will no longer be seen as independent, it will be seen to have real political power.

So my question is - what should the MCC do under the current economic conditions?

[peterv]

The questions have now been sent to Ben!

No more posts on this thread please. If you have other questions, why not post them on the public board and start a discussion.