Kamikaze Kwarteng? Economics Professor Steve Keen on UK's Disastrous Mini-Budget 30Sep22

Economics Professor Steve Keen on Kamikaze Kwarteng's Disastrous Mini-Budget 30Sep22

Economics Professor Steve Keen, on disastrous international markets fallout after last Friday's UK mini-budget, and how countries need long term planning. I owe enormous intellectual debts to Hyman Minsky and Augusto Graziani. But at one point, my "little knowledge" led me to believe, falsely, that they had both made a huge mistake in claiming that repaying debt destroyed money: Graziani: As soon as firms repay their debt to the banks, the money initially created is destroyed. (Graziani 1989) Money is created as banks lend­mainly to business­and money is destroyed as borrowers fulfill their payment commitments to banks. (Minsky 1982) This couldn't be right, I thought: surely once banks had created money, they wouldn't let it be destroyed? I considered cash loans in particular­surely the cash wasn't destroyed on receipt, but put back into the vault for relending? This is why the model of money in my Debunking Economics (Keen 2011) is of a cash-lending bank, and not a modern electronic banking system, where loans are simultaneously matched by direct payments into deposit accounts. Then I developed Minsky, the monetary modelling software that I named in honour of Hyman Minsky. I came to really understand double-entry bookkeeping, and realised that Minsky and Graziani were correct, and I was wrong. These days, money is primarily the sum of private bank deposit accounts. When you show modern bank lending and bank debt repayment in a double-entry table, it's obvious that the former creates money, and the latter destroys it. This points to a general rule about money creation and destruction: leaving aside cash loans, and direct government payments of cash to the non-bank public, to create money, an operation must increase both the Assets and Liabilities (or short-term Equity) sides of the banking system's ledger. Conversely, this means that operations that occur exclusively on either the Assets side or Liabilities & Equity side neither create nor destroy money. Having made this mistake myself, I came to realise that understanding double-entry bookkeeping is the "Holy Grail" to understanding money, and therefore that if someone makes claims about money that contradict double-entry bookkeeping (DEB for short), then they should be ignored, because they don't know what they are talking about.

Liz Truss being interviewed by Bristol BBC radio reporter – sticking to the mini-budget. Liz Truss interviewed by BBC Lancashire BBC Bristol and BBC Stoke radio – fracking.  NHS problems. BBC Radio Nottingham: Liz Truss told budget is like a 'reverse Robin Hood' – audio When it was announced that Liz Truss would break her silence on the collapse of the pound by appearing on local radio stations, there was mockery from some London-based journalists who felt she should have given an interview to a national news outlet. Instead, it was BBC Leeds’s breakfast show that helped shift the price of UK government debt, as traders tuned in and realised the prime minister was sticking to her economic plan. As presenter Rima Ahmed put it to the prime minister: “Where’ve you been?” Radio Kent put it in more stark terms, with one listener asking Truss: “Are you ashamed of what you have done?” The prime minister’s rapid-fire set of eight short interviews with BBC radio stations in an hour produced more news than often emerges from a single slot on Radio 4’s Today programme. One benefit that local radio journalists have over reporters who deal with Downing Street on a daily basis is that they have no incentive to hold back. They are unlikely to have the prime minister on their programme as a regular guest and there is no need to have the complicated ongoing relationships with Downing Street communications staff. Instead they have the chance to ask a handful of questions and try to make their name – and represent the views of their listeners. Thursday’s interviews were coordinated by the BBC’s Central News Service, which provides national news coverage to the BBC’s 40 local outlets across England the Channel Islands – often by booking a guest who can be interviewed across multiple outlets on the same topic. In this case, radio stations covering Leeds, Norfolk, Kent, Lancashire, Nottingham, Teesside, Bristol, and Stoke-on-Trent were each given about five minutes’ airtime with Truss.