Great Leap Forward

Lord Turner Lets the Cat Out of the Bag: Print money to fund spending

Given some comments on my blogs, maybe it is time for a bit of a brush-up on how sovereign government really spends. As Chairmen Greenspan and Bernanke insisted, it is via “keystrokes”.

This article caught my eye:

February 6, 2013 12:03 am Print money to fund spending – Turner (

By Chris Giles, Economics Editor

Lord Turner, the departing chairman of the Financial Services Authority has defended financing government spending by printing money arguing that, within limits, it “absolutely, definitively [does] not” lead to inflation. Speaking before a farewell speech in London on Wednesday, Lord Turner, who applied unsuccessfully to be the next Bank of England governor, called for “intellectual clarity” in economic policy, including breaking a taboo that permanently printing money to pay for government services is always bad.

He went on: ““I accept entirely that this is a very dangerous thing to let out of the bag, that this is a medicine in small quantities but a poison in large quantities but that there exist some circumstances, in which it is appropriate to take that risk.”

The “cat out of the bag” metaphor reminds me of Paul Samuelson’s warning that the “old time religion” belief that government needs to balance its budget is a useful myth. We wouldn’t want the public to know the truth because they might actually demand that government spend in the public interest!

How could President Obama continue to claim that Uncle Sam ran out of money if the voters knew that is complete baloney?

Finally, in response to the Zimbabwe-Weimar hysterians, Lord Turner (rightly) put the hyperinflationary ventilating in its place this way:  it was the absence of monetary financing in the early 1930s, which led to depression, falling prices and the rise of the Third Reich! “Is [monetary financing] desperately dangerous because every pound of money financed turns into inflation? Absolutely definitively not. There is no coherent rigorous bit of economics that takes you in that direction,” he said.

Look it is really quite simple. Sovereign currency is the government’s IOU. It can only get into the economy through spending or lending by the government—through the Greenspan-Bernanke “keystrokes”. Government can keystroke too little and it can keystroke too much. Too little can be just as bad as too much.

The budgeting process is the proper way to decide how much to spend. Forget the old time religion, the superstition, the myth. Get that darn cat out of the bag.

9 Responses to “Lord Turner Lets the Cat Out of the Bag: Print money to fund spending”

princess1960February 6th, 2013 at 4:05 pm

inflation is the most unproblem right now
M Carney is expert for the banking system (ruls) if they leave free to do the job UK will fix the problem very soon,.
he is RIGHT ..
thank you

roger ericksonFebruary 6th, 2013 at 8:20 pm

If past outcomes are any evidence, this won't make a scratch, let alone a dent. Powerless commentary is simply swallowed by the institutional momentum of a Titannic bureaucracy.

After all, far more influential people have been saying a wider range of equally or more coherent things since long before even Ben Franklin.

It'll take an iceberg to really get the attention of the people steering the Titannic, plus those on the construction and maintenance payroll, not to mention the "owners".

And even then …

Trickle down? The biggest response to the "correction" after the fraud was exposed … was the indirect boost to cartoonists.

redgeFebruary 6th, 2013 at 8:26 pm

it puzzles me why we should even toll our roads! they toll roads that are financed (robbed) by private sector when govts can just print money and build roads and related infrastructure!!

Ben JohannsonFebruary 6th, 2013 at 9:45 pm

How many economists know "printing" isn't always bad and conceal their knowledge? This has always been a big question for me.

olly100February 6th, 2013 at 9:49 pm

"We wouldn’t want the public to know the truth because they might actually demand that government spend in the public interest!"

Bankers don't want the public to know, otherwise they might lose the interest subsidy they get from the government.

olly100February 6th, 2013 at 10:16 pm


if the government issues bonds when it deficit spends, the money injected into the economy via spending is then withdrawn through the bond sale.

If the government deficit spends without issuing bonds, the money stays in people's accounts. Either they'll let it sit there (earning nothing), or – more likely – they'll buy corporate bonds, equities, real estate or other financial investments. This will push up asset prices, correct? If this is combined with a zero interest rate and a large enough deficit to maintain full employment, won't you end up with crazy asset price inflation, especially house prices?

PZFebruary 6th, 2013 at 10:52 pm

And what they are afraid of? That excess reserves will cause explosion of lending?

Woulnd't setting statutory lending limits to the banks neat technical solution to this "problem"? Something much more sensible than crippling, job destoying austerity?

guestFebruary 7th, 2013 at 3:56 am

Yes, best to let the cat out, otherwise we can't know if it's too much or too little, much like that cat Schrodinger,,,

benleetFebruary 7th, 2013 at 3:28 pm

"The US government can always “fill that hole” if it has the political will. As a sovereign issuer of its own currency, the government has all the capacity it needs. But this US government does not have that political will despite its rhetoric. The evidence for that is the persistent deficit phobia expressed by the president and his advisors, along with an undue reliance on monetary policy." From Marshall Auerback, August 2010,
Auerback also wrote a piece, The Real Lesson from the Great Depression, Fiscal Policy Works, citing that 1933-1937 unemployment rate dropped from 25% to 9.6%. During WWII government funded public service job creation increased the national output, GDP, by 75% in 6 years, a 10% growth rate compounded over 6 years, increased the working population by 40%. And in essence transferred wealth massively from the wealthy hoarders to the non-wealthy spenders.