Post by richardk on May 23, 2016 19:17:46 GMT
‘Good morning Chancellor, thank you for taking the time to come on the Twoday Programme.’
‘Always a pleasure to be here John’
‘I’m not sure that’s not the case but you are welcome anyway. Now, what’s all this about ‘helicopter money’ that the head of the European Central Bank is talking about? Could you explain it in simple terms so that ordinary folk like us can understand what it is all about?’
‘Yes, it is really very simple, John. You may remember that we used ‘Quantitative easing’ back along when the banks were in trouble to ensure they had enough liquidity to ensure they did not succumb to any runs on them and to allow them to carry on their business.’
‘In other words, they didn’t use normal prudence when they were carrying out their business so they were in danger of collapsing when ordinary people demanded their own money so the government had to use hard working peoples’s tax money to bail them out of the mess they had got themselves into?’
‘That isn’t how I would characterise it John but what you say is essentially true.’
‘What did they do with all the money that you gave them? Did they spend it in the open economy to create more jobs so more people had money in their pockets and spent it on goods and so created a virtuous circle that staved off the recession? Sounds like a good idea to me Chancellor.’
‘Well, err, no, they couldn’t do that, they had to buy government bonds.’
‘And give themselves big pay rises and lash out on bonuses for everyone.’
‘Yes, but that was just a side effect of our very successful policy to bolster the economy.’
‘Why didn’t you do what many people suggested, use that money you ‘printed’ to give everyone over 16 in the country a voucher for £1,000 that had to be spent within 6 months on British made goods, this stimulating demand in the economy directly? It would have cost about £50 billion. How much did you spend on quantitative easing?’
‘Well, it was a little more than that…err’
‘Wasn’t it in fact £375 billion?’
‘Well, err yes.’
‘That is equivalent to £6,000 for every Man, woman and child in the UK?’
‘So you put this money straight into the financial markets, share prices jumped by 20%, people put more money into shares to capitalise on the prices rising instead of spending to stimulate the economy as planned. As 40% of shares are owned by the wealthiest 5% of the population, they were in effect given £128,000 each. In fact QE was a complete failure - for each £1 the Bank of England created, just 8p “trickled down” to the real economy. The other 92p went into financial services and made the rich richer.Do you agree with this analysis, Chancellor?’
‘Well, of course that isn’t the complete truth.’
‘Ok Chancellor, what is the complete truth?
‘We had to do something to rescue the economy…’
‘…Do you mean rescue the banks from their own incompetence?’
‘Well you might think that but I…’
‘It’s not what I think but that’s what most people in the country think.’
‘Yes it wasn’t ideal but it was just something we had to do.”
‘So why didn’t you do what I suggested, that would have put each pound you created directly into the real economy, it would have made people feel better off so they would have spent more than that £1,000 and the economy would have had a boost of increased demand at much less cost than QE.
‘But, er, but we couldn’t do that. You can’t just create money and give it away to people - it isn’t orthodox management of the economy, they would just go and spend it on ordinary things.’
‘Isn’t that the definition of a successful economy, Chancellor? How about using just 1 billion pounds to create lots of construction jobs by building those 715 new schools you cancelled because ‘you couldn’t afford it’. You would also have saved money by getting those construction workers off the dole, into jobs and paying taxes.’
‘No, it is no good, that just wouldn’t work.’
‘Why not?’
‘Err because inflation would rise, the pound would fall against other currencies err and err… well, people would ask why we didn’t do it before.’
‘OK, so inflation rises. Isn’t that a good thing because it is near zero now. If inflation goes up to the BoE target of 2% the governments debt will drop by 2% a year without doing anything. It would also prick the asset bubble that's stopping young people being able to afford houses. If the pound drops then our exports will rise because they are cheaper for other countries to buy and our imports will drop because they will become more expensive. Wouldn’t that improve the balance of payments?’
‘Well yes but…err’
‘The head of the European Central Bank, Mario Draghie, has suggested just that, to get Europe moving again. He calls it helicopter money. But do you know what the biggest benefit of this policy is’?
‘Well, no.”
‘We would all be in it together, Chancellor.’
‘Well, yes, err…’
‘Thanks for coming Chancellor, always a pleasure. Now over to Rob Bonnet for the sport.’