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And that is where we are now: despite repeated rounds of QE, there is still too little money chasing too many goods. The current form of QE is merely an asset swap: dollars for existing financial assets (federal securities or mortgage-backed securities). The rich are getting richer from bank bailouts and very low interest rates, but the money is not going into the real economy, which remains starved of the funds necessary to create the demand that would create jobs. To be effective for that purpose, a helicopter drop of money would need to fall directly into the wallets of consumers. Far from being “undisciplined fiscal policy,” getting some new money into the real economy is imperative for getting it moving again.

According to Social Credit theory, even creating more jobs won’t solve the problem of too little money in workers’ pockets to clear the shelves of the products they produce. Sellers set their prices to cover their costs, which include more than just workers’ salaries. Chief among these non-wage costs is the interest on money borrowed to pay for labor and materials before there is a product to sell. The vast majority of the money supply comes into circulation in the form of bank loans, as the Bank of England recently acknowledged. Banks create the principal but not the interest necessary to repay their loans, leaving a “debt overhang” that requires the creation of ever more debt in an attempt to close the gap. The gap can only be closed in a sustainable way with some sort of debt-free, interest-free money dropped directly into consumers’ wallets, ideally in the form of a national dividend paid by the Treasury.

As Keynes pointed out, price inflation will occur only when the economy reaches full productive capacity. Before that, increased demand prompts an increase in supply. More workers are hired to produce more goods and services, so that demand and supply rise together. And in today’s global markets, inflationary pressures have an outlet in the excess capacity of China and the increased use of robots, computers and machines. Global economies have a long way to go before reaching full productive capacity.

Running Afoul of the EU

A more challenging roadblock to Corbyn’s proposal may simply be that there are rules against it. Peter Spence writes:

“Key parts of the Labour leader’s plans would fall foul of EU laws intended to avoid runaway inflation, and consign the UK to a three-year legal battle with the European Court of Justice (ECJ)...

Mr Corbyn’s proposals would clash with Article 123 of the Lisbon Treaty, which forbids central banks from printing money to finance government spending.”

Perhaps; but the ECB has already embarked on a QE program involving the purchase of government securities. What are government securities but government debt used to finance government spending? The rule has already been bent. Why not bend it in a way that actually benefits the economy, the people, and the nation’s infrastructure? Corbyn’s proposal is needed, it will work, and it is an idea whose time has come.

Ellen Brown
Founder of the Public Banking Institute
Author of Web of Debt
and The Public Bank Solution

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