monetary policy

Why Central Banks Should Give Money Directly to the People

 

Notes from the article: Print Less but Transfer More Why Central Banks Should Give Money Directly to the People  By Mark Blyth and Eric Lonergan

Problems:

us-dollar-benjamin-bandage

 

Insufficient spending keeps the economy in stagnation

Starved up Economy: Lower Income Economies Save up as security and so spend far less than they could actually spend in development/ infrastructure – this leads to stagnation and austerity measures.

Retirement Fears: Middle-aged adults save up more and spend less in goods and services.

New printed money: Not the solution because inequality grows because it is not distributed from the bottom up.

Fiscal Policies have lowered taxes and improved government spending – this hasn’t worked as an effective incentive

Monetary Policies: the recipe that created the crisis in 2008 was the lowering of interest and the increase of money supply. This is now known as Greenspan’s recipe for disaster.

Tax rebates and stimulus packages don’t create sustainable solutions.

– There is no real consensus on how to best use taxes or spending efficiently to stimulate the economy.

 

QE Bernanke Quantitative Easing Recipe for disaster

Quantitative Easing (QE) by Bernanke: the formula of printing loads of money by purchasing billions of dollars worth of mortgage backed by securities and government bonds has been an attempt to boost stock and bond prices, only leading to furthering the bubble on to QE 1, QE 2… 3? to no avail

Since the end of the financial crisis in 2008-2009, the US Federal Reserve has been, essentially, printing money to boost the US economy.The programme, known as “quantitative easing” (QE), is about to come to an end in October.

Source: BBC News – Has quantitative easing helped the US economy? http://bbc.in/1r1kXrq

– European Central Bank (ECB) attempted to make interest rates negative to increase consumer spending

Did Consumer Spending increase? No

  • – Housing markets have overheated
  • – People do not borrow money because debt is too high

Expanding balance sheets through Q.E. is similar to inflating a hot air balloon, it will invariably fall back to the ground.

Fear of Spending: People hesitate to spend their money – this fear of spending causes instability and prolonged stagnation leading to

  • – High unemployment
  • – Low wage growth

 

Tax on the wealthy? It’s not a popular measure as this discourages private investment and further stagnates the economy. This shouldn’t be a punishment to anyone

What do we know thus far? All of these methods are not working!

Then… Why hasn’t the government provided Cash Transfers yet?

Governments Must Do Better!

 

 

 

Solutions

Governments Should Boost the Bottom/Low Income Households

– Central Banks – such as the Federal Reserve – Should Hand Consumers Cash Directly into Millions of Individual accounts.

  • – No more asset purchasing
  • -No more interest rate shifts/changes

– Cash Transfers stand a better chance than interest rate shifts or Quantitative Easing Policies.

How?

– Giving Tax paying households a certain amount of money

– The Government could distribute cash to all equally OR

– Give money to the bottom 80% low income households

The point is to: SUPPORT those that have The Least

Lower Income Households are more prone to consume, therefore handing them money means: they would boost the spending immediately

Central Banks wouldn’t need to print more money as they are now doing with Quantitative Easing.

 

Question: Would this offset “Income Inequality”?

No if a policy of implementing higher wages for people active in labor market is implemented along with the provision of Cash Transfers or a Living Income such as what we propose in the Living Income Guaranteed Proposal

Most economists agree that Cash Transfers from a Central Bank would stimulate Demand.

This is the First Significant Innovation on Monetary Policy since the Invention of Central Banking!

Cash Transfers become Monetary Policy as soon as the Banks begin using them.

– Payments should be exempt from taxes

– What about the inflation excuse? No problem, transfers can be a flexible tool and so inflation can be managed.

 

What about the Wealthy? They can provide higher wages to boost the bottom and so benefit themselves by expanding consumer base.

– Bank of England, European Central Bank and the Federal Reserve have 20% excess assets = this means that they could Invest Back on the Citizens

 

How will this money be used?

Each country and its government can decide to place certain conditions on how this money is spent. For instance

  • – To save money: retaining funds as savings for the future
  • – To finance their education
  • – To pay-off debts
  • – To Start a Business
  • -To invest in a home, car, etc.

This will lower income inequality as well as promote a culture of investing and spending in a Smart manner.

 

The ultimate question is: Why this measure hadn’t been implemented before?

This has to do with Central Banks: Central Banks were not designed to Manage spending. Their functions were

  • – To issue currency
  • – To provide liquidity to the Government Bond Market
  • – To Mitigate Banking Policies
  • – Q.E. which is a variant of Bond Buying function which has achieved little effect on economic growth, because the bottom was not supported.

Money printing

Here is to realize that Printing Money is Not the issue – as it is already what is been done with Q.E. However, the Federal Reserve Bank is extremely resistant to legislative changes, because it will affect its current monetary policy as no more bank-bailouts would be able to take place. This we all know was a grave mistake and now the actual bailout must be handed to the majority, which is subsumed in poverty.

How money is created is another discussion of itself that will take further steps to give a real value back on money –  however these are first steps toward a supportive policy that benefits the majority

There is NO Reason for Governments to Not try Cash Transfers out!

 

Rewards:

Cash Transfers as an initial version of the provision of a Living Income would generate the following positive changes in the economy:

– They would increase spending, which is what has been sought all along as solution to revive the economy

– No need to spend more in infrastructure or government spending

– No need to do immediate changes in the taxation code

– No more poor payoffs

– No more poverty, no more homelessness

– Better living standards = less criminality

– No more perverse consequences benefiting a few at the top and leaving the bottom with no solution

– Inequality is addressed without skinning the rich, eventually everyone benefits from this = it is a win-win solution

– It’s time to Innovate: we cannot continue following policies from a century ago.

We require the Courage, the Intelligence and Leadership to try something New. We fully agree, it is about time we stop living in crisis modality and start supporting win-win solutions coming from Central Banks. It IS possible, so why aren’t we doing this already?

Investigate the Living Income Guaranteed Proposal for Further Innovative Solutions to make of Cash Transfers a genuine groundbreaking supportive model for the Economy

 

Watch our Living Income Google Hangout discussing this Council of Foreign Relations article and other developments toward the provision of a Living Income/ Basic Income

 

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