Yanis Varoufakis & Olivier Blanchard: In Favour of People’s Quantitative Easing

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People's QE Varoufakis Blanchard

Two of Europe’s most renowned economists have recently come out in favour of exploring some form of People’s Quantitative Easing. Former Greek Minister of Finance, Professor Yanis Varoufakis, and former IMF chief economist Olivier Blanchard have both agreed that an alternative form of quantitative easing could be a viable option.

On BBC question time, Professor Varoufakis suggested that world’s leading central banks had ‘badly mishandled’ their post-crisis plans for re-stimulating the economy. On the subject of conventional quantitative easing conducted by the Bank of England, the former Syriza member said:

“The notion that the Bank of England prints mountains of money, purchases paper assets in the City of London, bolsters banks – which they had to do – but that then that will trickle down into productive investment, that is a fantasy.”

To be clear, Varoufakis is not suggesting that QE was a direct bailout of any private bank (i.e. the tax payer bailout of Lloyds and RBS). Instead, he is most likely suggesting that the reserves of the entire private banking sector needed to be ‘bolstered’ because in the wake of the financial crisis there was a prevalent lack of confidence throughout the entire banking system. Banks simply were not lending to each other. Bolstering the reserves of private banks was something that had to be done because the current monetary system is dependent on the confidence of the private banking system.

While there were other ways of bolstering banks reserves, (i.e. via PQE), this was most likely unfeasible at the time as mainstream politicians, technocrats, academia and the general public probably would have never consented to such a programme. Indeed, it is important to remember that what we have slowly come to acknowledge as conventional QE was extremely unorthodox back in 2009-2010. As Ambrose Evans Pritchard suggests:

“The public would not have accepted avant-garde QE or helicopter money at the time. The Fed’s Ben Bernanke faced impeachment calls by hard-liners in Congress even as it was. He did what was humanly possible.”

Varoufakis then went onto show his support for upcoming ideas surround People’s Quantitative Easing, and noted significantly, that PQE is apolitical:

“Alternative QE is something which should be discussed. Milton Friedman and Ben Bernanke, who are on the same side of politics as the Tory party, would want to have this discussion.”

The former Greek Minister of Finance however, is not the only renowned economist demonstrating support for PQE. Reuters reports that the very well-known mainstream economist, Olivier Blanchard also supports People’s QE:

“People’s QE” could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the International Monetary Fund, said on Wednesday.”

The article goes on to state:

“The verdict is still out on whether central banks should be buying assets, as they do now, or instead tie up with governments to spend it on ‘real’ goods, known as “people’s QE”, as a way of stimulating the economy, Blanchard said during a lecture at the Cass Business School.”

The former IMF chief economist went onto say:

“There is clearly something else you can do if you get to zero (inflation) and still want to increase spending. You can buy goods. Which one should you choose? We haven’t asked the question in the crisis but we should.”

According to Reuters, Blanchard went on to say:

“…this does not mean central banks would buy goods directly. Rather, governments can increase their fiscal deficits by spending on infrastructure projects. Central banks can then buy this debt with newly created money.”



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Frank Van Lerven

Frank is our Research and Policy Analyst, and is responsible for our research on current events. Frank also leads our research in Public Money Creation and Quantitative Easing. Prior to working on the availability of credit under a Sovereign Money system, Frank also researched issues related to the 1844 Bank Charter Act and its implications for contemporary monetary policy. With a Research Master’s in Advanced Political Economy (cum laude) and a BA in African Development Studies, Frank is especially interested in how Western financial systems (and models) influence developing economies.
  • RJ

    Thank you

    Finally an article that clearly explains what QE is. And also how PQE will work (and clarify the imprecise rubbish by Professor Varoufakis. This must stop – being imprecise – if we want to win this battle).

    I fully support PQE. It’s complete and utter madness this belief that Govt debt is bad no matter what.

    It’s somehow OK for companies or households or us to take on debt to buy a valuable asset(s). But not for the Govt to do likewise. In fact it’s even better for the Govt to hock of Govt assets on the cheap than hold them. So as to reduce this evil debt burden of course. Just nonsense so that Govt’s can help their mates out.

    The article also makes it clear that PQE will increase the fiscal deficit.

    Keep it up. This battle is a worthy one and can be won.

    • Frank van Lerven

      Thanks RJ. Im working on stuff explaining the different forms of PQE/Helicopter Money/OMF via balance sheets. Am looking forward to your comments ;) Have a nice weekend!

      • George Orwell

        What consideration do banks show when they supposedly lend money Frank? PLUS while your at it, how is it possible to maintain a vital circulation when interest is imposed?

        • jamesmurraylaw

          “What consideration do banks show when they supposedly lend money”

          It is a basic premise of PM that they do not as they’re beholden to their shareholders who want short term gain fresher than long term health of the economy.

          You really have to search on this site for Banking 101 to explain.

          “How is it possible to maintain a vital circulation when interest is imposed.”

          Same advice, but the sbkrt answer is that you can’t.

          • RJ

            “Same advice, but the sbkrt (short?) answer is that you can’t.”

            Sorry James but this is not correct. But this shows the difficulty of selling money reform. Even money reformers don’t agree.

            “What consideration do banks show when they supposedly lend money”

            I’m unsure what is being asked by this question. Banks CREATE new money ‘out of thin air’ when they credit an entities bank account and debit the bank loan account. This is what is called lending money. It results in an increase in money (bank credit) and debt (bank loan asset = our debt).

            It’s very clear but hopelessly misunderstood by even most economists. Who think some magical thing called real money exists somehow and somewhere that banks get hold of somehow and then loan on to people or companies. This is real lending. But a lot of doggy false lending of false money also occurs that we should somehow stop maybe.

          • jamesmurraylaw

            Thanks RJ

            You probably guessed that predictive text etc gets in the way of using a mobile phone for these postings.

            George above asked
            “What consideration do banks show when they supposedly lend money”

            I don’t know why your answer focused on the basic PM assertion that the private banks ‘create’ money in your answer to the query.

            What you say is of course quite correct, but does not answer that query.

            The real answer is that the banks do not show any consideration, at least not to anyone else than their shareholders and those that hand out their individual bonuses.

            “How is it possible to maintain a vital circulation when interest is imposed.”

            You say in answer that it is not correct to say it is impossible but you do not say why.
            You could be right…

          • RJ

            Re interest. Because banks charge interest (draining money) but flow it straight back into the economy to meet their expenses, asset purchases and dividend payments etc.

          • RJ

            Not 100% correct re consideration. But why should banks do more than legally required to re I assume you mean directing spending to what someone or a group considers to be a worthy causes. Like lending to a company converting say a coal station to gas to reduce CO2 emissions.

            This is the role of Govt. Govt has this power. To tax and to spend including deficit spending as they wish. Or to even control and direct banks more when required. Banks should focus on their job and let Govt do theirs. And if Govt fail as they are worldwide don’t blame the banks. Blame the people that elect them.

      • RJ

        I look forward to it

        We have in the UK an opportunity to make a huge change. People’s QE is a
        way out of this harmful austerity. PM should continue to focus on this point. This idea resonates with the public. They get it. OK it’s often based on a
        misunderstand regarding QE but as long as PM (and Labour) are clear about what PQE really is its sellable.

        And it’s achievable with only very minor change. The Govt would issue bonds but the BoE would buy them DIRECT rather than selling to the market and then
        buying them back (QE). It could be sold as buying (or investing in) assets that benefit all rather than just a few.

        I would also clearly split PQE debt (held by the BoE) from market debt. What’s needed most in the short term is a mind set change. The Govt deficit funding with this minor change is fine. The bigger PM reform could come later. Compromise to achieve an achievable goal.

  • Chris Corbett

    Surely this can be done without increasing the deficit?

    • RJ

      No it can’t. Deficits are calculated without deducting asset purchases or increases in value.

      But I assume somewhere the Govt shows debt less Assets at current value. If they don’t they should. And also split debt by owing to the markets and debt held by the BoE due to QE.

      But Govt deficits (and debt) are good not bad. It’s the ONLY way the non Govt sector can NET save. And this UK Govt debt should never be paid off in total (just rolled over). As if it was the ONLY way to do so is wipe out all our net savings

  • Chris Corbett

    ““…this does not mean central banks would buy goods directly. Rather,
    governments can increase their fiscal deficits by spending on
    infrastructure projects. Central banks can then buy this debt with newly
    created money.””
    Am I missing something here? Why should the Govt allow banlks to create money to lend to the treaury for public spending programmes when it can print money without incurring debt?

  • Poops

    The public would have fully supported that bank shareholders and bank bondholders make up the reserve deficits of the banks. And where were the regulatory authorities that allowed the banks to get out of control in the first place. Yes, that’s another entire subject! But to imagine that QE will increase consumer spending completely lacks any qualitiative evidence. The banks weren’t constrained in any way from making consumer loans. Nor were the banks constrained in any way in making commercial loans. Just look what the banks did with the money – the deposited it as excess reserves at the central bank, and – made a margin on it! What a wonderful way of taking taxpayer money and supporting private bank shareholders and bondholders. You could created a better way of doing it. Pass Go, collect your $200, keep Broadway, get a Keep Out of Jail card and go around again. No wonder the public is confused.

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