Friday , October 18 2019
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Dan McCurry – Why Labour shouldn’t rule out Modern Monetary Theory

Summary:
This one is brief but gets quite technical. Simon Wren-Lewis proposed that the state create money but if inflation builds then taxation should be used to reduced the amount of money in circulation. I think this is faulty because it is using a tool at the circulation stage rather than the creation stage, which seems difficult to control and will have a very long lag. The existing tool of interest rates is proven effective at influencing whether people borrow or save, which is the moment that money is created. If government decided to print £4bn of money to build roads, then the Bank of England would calculate how much this would add to inflation and would adjust interest rates accordingly. In effect, this is an indirect form of taxation: those with large debts would pay a little more in

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This one is brief but gets quite technical.

Simon Wren-Lewis proposed that the state create money but if inflation builds then taxation should be used to reduced the amount of money in circulation. I think this is faulty because it is using a tool at the circulation stage rather than the creation stage, which seems difficult to control and will have a very long lag. The existing tool of interest rates is proven effective at influencing whether people borrow or save, which is the moment that money is created.
If government decided to print £4bn of money to build roads, then the Bank of England would calculate how much this would add to inflation and would adjust interest rates accordingly. In effect, this is an indirect form of taxation: those with large debts would pay a little more in interest rates, while government gets £4bn that it doesn’t have to pay back.
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Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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