Monday, April 23, 2012

Posen for Land Value Tax? Just Banking -1

The small bank movement is getting bigger. The word is spreading of alternatives to the current banking system Adam Posen said in Edinburgh that governments should beware of treating banks as a strategic industry as they are a far more expensive industry to support than alternatives. He said in the UK 'the fetish is banking'. Reported on 
In his speech, the U.S. economist said the U.K. financial system has an in-built bias against funding small and midsize businesses. He repeated an earlier call for an overhaul of the system to encourage the establishment of new lenders and an expansion of the funding options available to small firms.
He also suggested one way to quell a housing bubble could be by imposing property taxes that fall in areas were prices are plunging and rise in regions where they are surging.
This last from Adam Posen implies he is advocating Land Value Tax (since it is the underlying land prices that are booming or slumping) and is welcome news. This is a policy advocated in the book The Free Lunch - Fairness with Freedom in 2002 to dampen property cycles and bring greater sustainabilty. It is encouraging that a Bank of England MPC member appears to be backing this.

The Just Banking conference held last week was very well attended with several top-line banking reform speakers besides the above Adam Posen.
Tony Greenham of NEF wanted to envision Edinburgh people so that given a new local bank they would 'flock to it'. In North Dakota US there has been a state bank for many years, now 17 more states are in the process of setting up state banks. These will not displace ordinary commercial banks. Danielle Paffard, part of UK Uncut and Move Your Money UK said that the use of celebrities helps to market reforming ideas and with so many people hating normal banks we should have an easy run to get them interested in local banks. David Fishwick a self-made millionaire is trying to create a new bank primarily for customers with a working title: Bank of Dave. Cut Loose managed the nuts and bolts behind setting up Metro Bank and have had interest shown from many people planning local banks.

Prof Richard Werner said the UK has particular problems due to the size of its banks. He explained that modern economic theory makes false assumptions on unproven axioms and the models used fail to take account of the role that banks have in creating credit. He said for GDP growth you must have growth in the supply of money. Banks have a special monopoly and their behaviour in issuing the money supply through credit creation will result in bad or good outcomes. Either: Financial speculation and asset bubbles. Or: productive economic growth without inflation. It has been proven that the growth in credit precedes the good and bad outcomes: GDP growth and equity/property bubbles. Historical credit controls to promote the better outcomes have included: Japanese 'window guidance', the UK 1970's 'corset'; in Germany, instructions to loan officers at local banks to make genuinely productive loans. 
He suggested that beyond the need for hundreds or even thousands of new local municipality-owned banks ('Why not?'), that local people through local authorities be devolved the  power to issue their own money ('Why not?'). This was done hugely successfully in Worgl  in Austria in the 1930's and turned round 30% unemployment to full employment by issuing new time-limited money. Many new infrastructure investments were made and the local economy grew without inflation. (Guess what? The central banks cut off the right to make local money and Worgl went back to 30% unemployment.)
LINK: See Werner's interviews on Banking             

Ann Pettifor said that the UK is the most indebted nation as far as private debt goes. Whilst the coalition government scares everyone about public debt it is actually quite manageable - but private debt levels are really scary. To pay down this debt needs income growth but the government is taking steps which reduce income. She advocated that the government should 'do what no one else can do' such as promote investment in energy measures that reduce fossil fuel consumption. She said interest rates should be set permanently low (as per Keynes) as, long term, the planet's resources cannot sustain the sort of growth needed to cover high interest rates.  She expects there to be another financial crisis, probably originating in the Eurozone. This will lead to government controls on capital, which eventually  resolved the 1918 and 1929 crises. Government control over capital has no appeal to voters as yet, but she expects post-crisis the US will be the first to do it.

More on Prof Steve Keen, Ben Dyson, Mary Miller and others, to follow.

Livestream video of the Just Banking Conference can be viewed see: LINK.   
Posted by Charles Bazlinton 

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