PQE (politika fiskala) eta QE (politika monetarioa)

Britainia Handiko Alderdi Laborista dela eta, Jeremy Corbyn-en manifestuan (The Economy in 2020) PQE (People’s Quantitative Easing) azaltzen da.

Bill Mitchell-en PQE is sound economics but is not in the QE family1 izeneko artikulua erabiliko dugu hurrengo azterketan.

(Testuingururako, ikus ondoko linkean azaltzen dena2.)

Zehaztapen batzuk:

a) PQE eta Banku Zentrala3

b) Mitchell eta Overt Monetary Financing delakoa4

c) PQEren aurkako erasoa5

d) PQE politika (fiskal)ona da6

e) Izena eta izana: PQE ez da QE7

f) Lan bermea, job guaranttee delakoa eta gobernuaren politika fiskaleko parametroen malgutasuna8

g) Corbyn-en kontrako eraso adierazgarri bat9

Hona hemen ukitzen ez diren puntu garrantzitsu batzuk:

(1) QE: jarduera monetarioa10

(2) QE eta ez-gobernuko finantzazko aktibo netoaren egoera11

(3) PQE ez da inolako QE12

(4) Transakzio bertikalak eta PQE13

(5) QE eta PQE: desberdintasunik handiena14

Aipatutako guztia beste era batera analiza daiteke:



  1. Gobernuen gastuak16

  1. Altxor Publikoa17

  1. Transakzioak18

  2. Zergapetzea19

  1. Erreserbak20

  1. Banku Zentrala21

  1. Bono salmentak22

  1. Altxor Publikoa eta zorra jaulkitzea23

Joera nagusiko ekonomialariek esango luketena24.

Errealitatea, alta, honelakoxea da:

(A) Building bank reserves will not expand credit

(B) The money multiplier process so loved by the mainstream does not describe the way in which banks make loans – Money multiplier and other myths

(C) Bilding bank reserves is not inflationary. Inflation is caused by aggregate demand growing faster than real output capacity. The reserve position of the banks is not functionally related with that process.


a) Bankuak gai dira kreditua sortzeko, kreditua merezi duten bezeroak aurkitzen dituzten heinean25

b) Horrek ez du esan nahi defizitek ez dutela ekarri inflazio arriskurik26

c) ‘Diru stocka’ heda daiteke % hainbestetan hilero27


Mitchell-ek dioenez,

  1. I am clearly in favour of governments no longer issuing any debt and ending the practices that are legacies of the fixed-exchange rate, convertible currency world we (mostly) abandoned in 1972.

  1. In that sense, PQE is not “bad economics”. It is the obvious extension of the government’s currency-issuing capacity in a floating exchange rate environment.

  1. It might be inflationary but that risk is inherent in the spending side not the particular monetary operation that might accompany that spending. In fact, all spending – non-government or government – carries an inflation risk.

  2. the aim of government fiscal policy is to ensure that nominal spending growth keeps pace with the real capacity of the economy to produce goods and services and if that aim is managed well then there is little risk of inflation arising from PQE.

Hortaz, Corbyn-en manifestua aintzakotzat hartzekoa da, PQE politika fiskal egoki bat den aldetik.

3 Ingelesez: “PQE as enunciated is thus quite simple in conception. The idea that the central bank, which is one part of the consolidated government sector, the other being the Treasury, would use the currency-issuing capacity of the government to facilitate the purchase of real goods and services to build productive infrastructure is sound.”

4 Ikus Eurozone Dystopia: Groupthink and Denial on a Grand Scale, OMF – paranoia for many but a solution for all eta ECB should start funding government infrastructure and cash handouts. Mitchell: “The concept of Overt Monetary Financing is a taboo in mainstream economics.” Are gehiago, “A truly progressive policy platform would wipe out corporate welfare and stop issuing public debt. In that sense, Overt Monetary Financing is the preferred Modern Monetary Theory (MMT) policy option.

5 Ingelesez: “… the proposal has been attacked by all and sundry as being “bad economics”, as compromising the so-called “independence of the central bank”, as putting elected officials in charge of monetary policy, as being the path to hyperinflation or for others deflation, and more. (…) But if we cut through all the sophistry disguised as ‘economic theory’, which seeks to demonstrate that such a policy would be inflationary at least, the real reason the policy option is taboo is because: 1. It cuts out the private sector bond traders from their dose of corporate welfare which unlike other forms of welfare like sickness and unemployment benefits etc has made the recipients rich in the extreme. (…) 2. It takes away the ‘debt monkey’ that is used to clobber governments that seek to run larger fiscal deficits.”

6 Ingelesez: “These conservatives know that if the government just spent (as it can any time it likes given it issues the currency) and didn’t match that spending with any debt issuance or tax revenue increase, then it would be harder to mount a case against the fiscal intervention. People would soon see the benefits in the form of better schools, hospitals, public transport, green energy innovations, more jobs, more diverse cultural events etc and there would be no ‘negative’ association. So the conservatives prevent that sort of realisation from occurring by mounting these spurious claims about inflation, and compromising central bank independence etc to try to stop governments from using real resources to improve the well-being of the people. Conclusion: PQE is an excellent strategy for the British government to introduce. It exploits the currency-issuing capacity of the government directly and uses it to increase the potential of the economy to improve well-being.

7 Izan ere, “... the policy proposal should never have been called PQE because it is not similar at all to Quantitative Easing and the false analogy only opens the proposal to further, unwarranted criticism.” Mitchell-en hitzez: “… there is a huge “difference between the two” proposals, such that if we want QE to have meaning, then PQE should be abandoned as terminology to describe the idea that governments should deficit spend without issuing debt whether it be on infrastructure or something else.

8 Mitchell-ek: “The introduction of a Job Guarantee would increase this flexibility. (…) see… Job Guarantee.”

9 Mitchell-en hitzez, “… the article by the British New Keynesian academic economist Simon Wren-Lewis (August 16, 2015) – People’s QE and Corbyn’s QE – … is being used by many commentators on the progressive side of the debate to attack Corbyn’s position. The claim is that Wren-Lewis is a “respectable economist” and so his view carries weight. The essence of the article rests on this paragraph:

With an independent central bank, that means that they, not the government, get to decide when helicopter money happens. In contrast, if your goal is to increase either public or private investment (or both) for a prolonged period, then its timing and amount should be something the government decides. While QE is hopefully going to be something that is unusual and rare, the goal of an investment bank is generally thought to be more long term, and not something that only happens in severe recessions.

Note the use of the term “helicopter money”, (…). But this also avoids the main question – who should be in charge of economic policy – the democratically-elected members of the government who are fully accountable every electoral cycle or a group of unelected and unaccountable technocrats in the central bank? Of course, even that dichotomy is strained because the treasury and central bank arms of governments have to work closely together on a daily basis to ensure the monetary system functions effectively. For example, the treasury makes it clear to the central bank what the daily implications of their spending and taxation patterns are for the state of liquidity in the banking system, which allows the central bank to design liquidity management strategies each day which are necessary if it is to achieve its target cash rate (the statement of monetary policy). In this way, the idea that the central bank is ‘independent’ is a ruse that allows politicians to divert responsibility for unpopular interest rate decisions onto the faceless central bank board. (…) read The sham of central bank independence …”

10 Ingelesez: “Quantitative Easing is a monetary operation that can be distilled down to being asset swap – bank reserves for a government bond (Quantitative easing 101). By bidding up the price of government bonds in the secondary markets, the central bank forces yields (interest rates) down, given the inverse relationship between the effective yield and the price of the bond in fixed coupon assets. Therefore, the only way it can impact positively on aggregate spending is if the lower interest rates it brings in the maturity range of the bond being bought stimulates borrowing and spending. The problem is that borrowing is a function of aggregate spending itself (and expectations of where demand is heading) and if unemployment is persisting at high levels and governments are imposing harsh net spending cuts, the sentiment that might lead to increased borrowing is absent – lower interest rates notwithstanding. But QE was based on a false premise – that the banks need reserves before they can lend and that quantitative easing provides those reserves. Mainstream macroeconomics create the illusion that a bank is an institution that accepts deposits to build up reserves and then on-lends them at a margin to make money. The conceptualisation suggests that if it doesn’t have adequate reserves then it cannot lend. So the presupposition is that by adding to bank reserves, quantitative easing will help lending. This is clearly an incorrect depiction of how banks operate in the real world. Bank lending is not ‘reserve constrained’. Banks lend to any credit worthy customer they can find and then worry about their reserve positions afterwards. If they are short of reserves (their reserve accounts have to be in positive balance each day and in some countries central banks require certain ratios to be maintained) then they borrow from each other in the interbank market or, ultimately, they will borrow from the central bank through the so-called discount window. They are reluctant to use the latter facility because it carries a penalty (higher interest cost). The point is that building bank reserves will not increase the bank’s capacity to lend. Loans create deposits which generate reserves. (…) … read Building bank reserves will not expand credit …The major formal constraints on bank lending (other than a stream of credit worthy customers) are expressed in the capital adequacy requirements set by the Bank of International Settlements (BIS) which is the central bank to the central bankers. They relate to asset quality and required capital that the banks must hold. These requirements manifest in the lending rates that the banks charge customers. Bank lending is never constrained by lack of reserves.”

11 Ingelesez: “… QE does not change the net financial asset position of the non-government sector at all. It is an asset swap. The non-government sector just rearranges is wealth portfolio – more cash, less bonds. No net change. That is the essence of a – monetary policy operation – which alters the liquidity in the economy. It does it by portfolio swaps and in doing so influences the interest rates and the term structure.”

12 Ingelesez: “… PQE is not QE because it is a fiscal operation – as is any so-called ‘helicopter drop’. Keep the helicopters on their pads and just spend

What does that mean?

PQE (like a helicopter drop) would increase the net financial assets in the non-government sector because it would increase national income (via spending on infrastructure). That is the hallmark of a fiscal operation.

(…) read – Deficit spending 101 – Part 1Deficit spending 101 – Part 2Deficit spending 101 – Part 3 – for basic Modern Monetary Theory (MMT) concepts.

13 Ingelesez: “Vertical transactions – such as government spending, taxation – create national income changes which change the net financial position. PQE as envisaged is a fiscal operation, not a monetary operation, whereas QE as practiced by the Bank of England, the Federal Reserve Bank of America, the Bank of Japan etc are not fiscal operations. That is why I would not have called PQE, PQE. PQE would involve the government instructing the central bank to credit some account so that the National Investment Bank could put in purchase orders for contractors etc. The accounting to support this operation is largely irrelevant – it could be a simple instruction to expand the treasury overdraft, for example. At any rate it is just one government hand putting liquidity into the other and then pushing that liquidity out into the non-government sector. The spending would boost the contractor’s bank deposits (which increases their net financial assets or net worth) and the bank now has more reserves and matching liabilities (the contractor deposits). That is the hallmark of a fiscal operation.

14 Ingelesez: “In QE, the central bank would buy a bond and exchange it for a bank deposit. The Assets of the bond holder would be unchanged but altered in composition (more cash less bonds). For the bank of the bond holder, deposits rise (liabilities) as do assets (reserve balances). The essential difference is in terms of the impact on the net wealth of the non-government sector. QE leaves that position unchanged, whereas PQE increase net wealth via the net spending effects.”

15 Ingelesez: “Another way of thinking about this is to ask the question: What would happen if a sovereign, currency-issuing government (with a flexible exchange rate) ran a fiscal deficit without issuing debt? That is engaged in Overt Monetary Financing?

16 Ingelesez. “… governments spend in the same way irrespective of the monetary operations that might follow. There is no sense in the claim that the government gathers money from taxes or bond sales in order to spend it.”

17 Ingelesez: “If they didn’t issue debt to match their deficit, then like all government spending, the Treasury would instruct the central bank to credit the reserve accounts held by the commercial bank at the central bank. The commercial bank in question would be where the target of the spending had an account. So the commercial bank’s assets rise and its liabilities also increase because a deposit would be made.”

18 Ingelesez: “The transactions are clear: The commercial bank’s assets rise and its liabilities also increase because a new deposit has been made. Further, the target of the fiscal initiative enjoys increased assets (bank deposit) and net worth (a liability/equity entry on their balance sheet).”

19 Ingelesez: “Taxation does the opposite and so a deficit (spending greater than taxation) means that reserves increase and private net worth increases.”

20 Ingelesez: “This means that there are likely to be excess reserves in the ‘cash system’ which then raises issues for the central bank about its liquidity management. The aim of the central bank is to ‘hit’ a target interest rate and so it has to ensure that competitive forces in the interbank market do not compromise that target.

When there are excess reserves there is downward pressure on the overnight interest rate (as banks scurry to seek interest-earning opportunities), the central bank then has to sell government bonds to the banks to soak the excess up and maintain liquidity at a level consistent with the target.”

21 Ingelesez: “Alternatively, the central bank can offer a return on overnight reserves which reduces the need to sell debt as a liquidity management operation.

There is no sense that these debt sales have anything to do with ‘financing’ government net spending. The sales are a monetary operation aimed at interest-rate maintenance. So M1 (deposits in the non-government sector) rise as a result of the deficit without a corresponding increase in liabilities. It is this result that leads to the conclusion that that deficits increase net financial assets in the non-government sector.”

22 Ingelesez: “What would happen if there were bond sales? All that happens is that the banks reserves are reduced by the bond sales but this does not reduce the deposits created by the net spending. So net worth is not altered. What is changed is the composition of the asset portfolio held in the non-government sector.”

23 Ingelesez: “The only difference between the Treasury ‘borrowing from the central bank’ and issuing debt to the private sector is that the central bank has to use different operations to pursue its policy interest rate target. If private debt is not issued to match the deficit then it has to either pay interest on excess reserves (which most central banks are doing now anyway) or let the target rate fall to zero (the long-time Bank of Japan solution).

There is no difference to the impact of the deficits on net worth in the non-government sector.

24 Ingelesez: “Mainstream economists would say that by draining the reserves, the central bank has reduced the ability of banks to lend and restrains the growth in the money supply. This is claimed to reduce the inflation risk.”

25 Ingelesez: “So the banks are able to create as much credit as they can find credit-worthy customers to hold irrespective of the operations that accompany government net spending.”

26 Ingelesez: “This doesn’t lead to the conclusion that deficits do not carry an inflation risk. All components of aggregate demand – government and non-government – carry an inflation risk if they become excessive, which can only be defined in terms of the relation between spending and available productive capacity.

27 Ingelesez: “The ‘stock of money’ can expand by some percent per month without there being any additional inflation risk if real productive capacity is also expanding at a rate sufficient to absorb the extra nominal aggregate demand.

The idea that debt-issuance to the private sector in some way is less inflationary (for a given injection of government spending) is totally fallacious.

(…) see Governments do not need the savings of the rich, nor their taxes!

Iruzkinak (4)

  • joseba

    Comments to PQE is sound economics but is not in the QE family


    “… the (“mainstream”) economics profession at large is disastrously ignorant on the basics of financial accounting, and how those basics are applied to an understanding of how monetary systems work and therefore of how economies work. This is bedrock analytical stuff that is simply not recognized or understood as bedrock analytical stuff by most.
    It is not possible to have a broadly constructive debate on the policy issues unless these basics are absorbed seamlessly into the language and the analysis of economics. It is at this stage still a black hole omission in the standard education of the economics profession, which itself needs a great big spanking in order to get moving on what should be understood obviously as common sense in how to start to think about and analyze these things.”

  • joseba

    Date for your Diary (Event on Modern Monetary Economics)


    Upcoming Event – Reframing the Debate: Economics for a Progressive Politics, London, August 27, 2015

    An evening has been arranged  with Professor Bill Mitchell, Professor of Economics and renowned proponent of Modern Monetary Theory, during his visit to the UK at the end of this month.

    Come and join Professor William Mitchell in conversation
    with Richard Murphy (Tax Research UK)
    and Ann Pettifor (Prime Economics),
    both currently economic advisors to Jeremy Corbyn’s campaign.

    How can the debate on the economy be reframed around the things that really matter – people and the environment? Does MMT hold the key?

    This is sure to be a fascinating debate.

  • joseba

    QE delakoaz
    Bill Mitchell-en British House of Lords having conniptions about QE – a sedative and a lie down is indicated

    When I studied British politics (as one unit in a politics minor) at university, I was bemused by the role of the House of Lords. I know it is a curiously British institution that would be hardly tolerated anywhere else. But the fact that it serves as a part of the British democratic system continues to amaze me. Recently, the Economic Affairs Committee has been investigating (if that is what they get up to) Quantitative Easing because, apparently, some of the peers were worried about the “operational independence” of the Bank of England and the “economic effects” (read: inflation fears) among other concerns. They published their first report last week (July 16, 2021) – 1st Report – Quantitative easing: a dangerous addiction? – and it is littered with errors. The government has until September 16, 2021. The reply does not have to be long – they could just submit this blog post and get on doing things that matter, although the Tories are currently finding it hard to get their head around that essential task at the moment.
    Introduction – to set the scene

    The Economic Affairs Committee is populated by various characters with fancy titles Rt Hon Lords, Baronesses, etc.

    Really, is the C21 or what?

    Of the 13 members:

    Tories 4
    Labour 4
    Liberal Democrats 2
    Crossbench 3

    Former Bank of England governor Mervyn King is a member.

    The chair of the Committee is “The Rt Hon. the Lord Forsyth of Drumlean” who just happens to be the chairman of a private bank and works in the financial sector – who are running the inflation scaremongering because they want interest rates to rise so that can gouge out higher profits –

    In 1980, Mr Forsyth published an Adam Smith Institute paper entitled “Reservicing Britain” where he advocated that all public services should be privatised and allow competition to determine the supplier.

    When he was a member of the Westminster City Council (dates), he wrote that it was “a devastatingly tedious, frustrating and boring experience trying to make cuts” to essential local government services.

    Oh, the poor boy, better off doing other things, eh what?

    He said that with all that travail, he then had to (Source):

    … meet demonstrators outside council chambers who attack you for being savage, unthinking and unfeeling …

    He accused his fellow councilors of being unable to make the necessary cuts because they were scared to take a “difficult decision” and always had “the ratepayer to turn to, whose purse can be raided for rates and taxes”.

    He wanted harder cuts then.

    In his statement to the press upon the releast of the QE Report last week, he said:

    The Bank of England has become addicted to quantitative easing. It appears to be its answer to all the country’s economic problems and by the end of 2021, the Bank will own an eye-watering £875bn of Government bonds and £20bn in corporate bonds …

    The Bank needs to explain how it will curb inflation …

    QE is a serious danger to the long-term health of the public finances.

    Wake me up when its over!
    Some data

    The Bank of England’s – Quantative Easing – page tells us that QE is all about keeping prices “low and stable”.

    They maintain the orthodoxy that adjusting the interest “affects the amount of spending in the economy and so helps inflation to either fall or rise”.

    But history tells us that total spending is very sticky when it comes to interest rate changes and the relationship with the inflation rate is undiscernable.

    The following graph shows the monthly change in the Bank of England Bank Rate (its policy interest rate) and the change in the annual inflation rate from March 1989 to June 2021.

    The change in the CPI inflation rate is calculated as the monthly variation in the annualised percentage change in the Consumer Price Index (ONS series D7BT).

    The dotted line is the simple linear regression (equation result shown) and the simple correlation coefficient between the two series is -0.03.

    The short conclusion is that there is no relationship, although a pedant might conclude there is a very weak negative relationship.

    The Bank would need very large interest rate changes to shift the inflation rate according to this data.

    Of course, using simple cross plots to discern complex time series relationships is not recommended, although for an experienced econometrician (such as yours truly), they do tell us whether there is hope in some conjecture or another.

    But I would have to really work hard in a complex time series econometric model (with lots of spurious lags, etc) to get any sort of statistically significant relationship here.

    They also tell us “how much quantitative easing” they have done.

    The QE program began in November 2009 at the height of the GFC and by November 2020, they had bought £895 billion worth of bonds.

    The split is UK government bonds – £875 billion and UK corporate bonds (£20 billion).

    Here is the history of the Bank’s QE program since November 2009.

    Between March 2020 and November 2020 (the last intervention), the Bank of England has purchased £250 billion worth of bonds.

    Between fiscal years (ending in May) 2019-20 and 2020-21, the net debt of the British government rose by £344 billion (from 84.4 per cent of GDP to 97.7 per cent).

    So the Bank of England has purchased a fair proportion of the change in outstanding government debt.

    The Bank poses the question: Does quantitative easing help to pay for government spending?

    Their answer is effectively yes, but they have to say:

    But that’s not why we do QE. We do it to keep inflation low and stable and support the economy.

    Okay, but the House of Lords thinks otherwise as I do.
    The House of Lords Report

    The House of Lords Inquiry began on January 27, 2021, when the Economic Affairs Committee issued their – Call for Evidence.

    They have recently issued:

    1. 1st Report – Quantitative easing: a dangerous addiction? (July 16, 2021).

    2. Bank of England must spell out the risks of quantitative easing, says Lords report – a press release accompanying the Report (July 16, 2021).

    You get the same message reading both.

    But you might also be interested in reading some of the submissions to the examination which you can find – HERE.

    The Key Findings of the Committee were interesting.

    First, unlike the smokescreen that the Bank of England presented on its QE page (noted above), the Committee found that it:

    … is widely perceived to be using QE to finance the Government’s deficit during the COVID-19 pandemic. The Bank’s bond purchases were aligned closely with the speed of issuance by HM Treasury.

    The perceptions are accurate.

    For an orthodox economist, this spells trouble as the Bank “could lose credibility, and this would harm its ability to control inflation and maintain financial stability”.

    This is straight mainstream stuff.

    And, not consistent with the historical evidence.

    Why has the Bank of Japan, which has been engaging in this same practice for 20 odd years – and taken the interventions to levels far in excess of what the Bank of England has been doing, still retain credibility?

    Why is inflation not out of control in Japan?

    The point is that the course of inflation is not particularly sensitive to what the central bank does anyway – in the realm of normal practice, which includes the QE programs.

    If the Bank was to hire the aircraft industry to drop billions of pounds onto the cities continuously and indefinitely then there might be some spending impacts that could drive demand beyond productive capacity.

    But that is not remotely what the Bank is doing.

    It (left pocket) is providing the pounds to the Treasury (right pocket) that the latter is injecting into the economy to save it from collapse during a once-in-a-century disaster.

    Everyone knows that and inflationary expectations are not shifting much at all as a consequence.

    Second, the Committee was fussed about the apparent lack of information about “the taxpayer liability to cover any financial losses suffered by the Bank as a result of QE”.

    One of the submissions – from the Director of the National Institute of Economic and Social Research – raised the alarm about the possible insolvency of the Bank of England, which might mean “the MPC may be reluctant to raise rates”.

    The causality conjectured was that the Asset Purchase Facility – the bond buying program – “is funded by reserves that are renumerated at Bank Rate”.

    He admits that the Bank of England has “passed some £110bn of profits to HMT so far” as part of the APF but if the Bank of England was to increase rates then it could start to make losses.

    He then admits that “the Bank of England as it holds an indemnity from the HM Treasury as to any losses from APF operations”.

    You know, the government effectively buying its own debt, paying the left pocket interest, then getting it back to the right pocket, and if the sums deviate, they indemnify themselves.

    Apparently, all that is not clear enough to the Director and “We do now need a clearer statement from H M Treasury on this indemnity and how it would operate.”

    Planet Mars calling.

    He also said that if rates rose it would “limit fiscal space”, which is false unless you apply fiscal rules that have no bearing on the purpose of fiscal policy, which, fortunately, the British government is currently ignoring, much to the chagrin of the Director.

    But the Lords Committee took this seriously and demanded the publication of the “Deed of Indemnity”.

    As if it would matter if the Bank of England made losses on its asset holdings.

    The Treasury would just instruct it to add some numbers to its accounts and someone would type them in.

    Nothing functional would change.

    Third, and most significant, the Committee concluded that QE:

    … has had only limited impact on growth and aggregate demand over the last decade. Furthermore, there is little evidence to show that QE increased bank lending, investment, or that it had increased consumer spending by asset holders.

    Two points emerge.

    1. If they believe that inflation is about to accelerate because all those bank reserves will be spent or loaned out, which is the sort of causality they beleive in, then they should be relaxed that QE hasn’t impacted much at all.

    2. They were looking in the wrong place – what has had an impact (negative then positive) on growth and aggregate demand over the last decade has been the fiscal policy initiatives – first, the ridiculous austerity imposed by George Osborne and then the recent support.

    The inflation risk is contained in the fiscal policy not the monetary operation accompanying it.

    That is where the mainstream miss out entirely.

    And that risk is transitory at best as I have explained in recent weeks.

    Is it over yet?

    Wake me when we get to the end.

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