Lord Turner: My plan for printing money
Interview
BRITAIN should be prepared to boost its economy by simply printing money and tough restrictions should be placed on how much homebuyers can borrow. These are the kind of ideas that will leave home-owning Middle Britain aghast. They come not from the fringes of the Labour Party, but from Lord Turner of Ecchinswell, better known as Adair Turner – a former head of the CBI, and one-time head of the Financial Services Authority.
He was also a candidate to head the Bank of England in 2012, before the job went to Mark Carney. Carney warned, in an interview with The Mail on Sunday last week, that printing money for public spending would be dangerously inflationary and break the basic rules of good banking.
Lord Turner says that is wrong: ‘Anyone who says there are technical issues with money printing hasn’t done their homework.’
Turner, who works for a think tank founded by billionaire financier George Soros, will take his money-printing ideas to the International Monetary Fund on Thursday. He is giving a talk at the Sixteenth Annual Jacques Polak Research Conference, at which the IMF discusses the latest academic research. ‘I will be speaking on “The case for monetary finance – an essentially political issue”,’ he says.
Turner’s plan is far more radical than quantitative easing, in which money created by the Bank of England is used to buy Government bonds. Turner proposes simply creating money and giving it to the Government to spend.
He insists this need not lead to Zimbabwe-style inflation. ‘The question is how do we do this and have a robust system that doesn’t lead us to excess? If you allow a fixed amount such as 1 per cent a year, a politician might say, well, we are coming up to an Election I’d rather like to stimulate the economy. It’s a big problem. So how do you have a set of credible commitments where we only use it in certain circumstances?
He suggests a rigid set of political controls, with power of money creation, or monetary finance as it is known, being in the hands of the independent bank of England.
‘We should do it within the same controls we now do the bank’s interest rate. So the Monetary Policy Committee would have the authority, if we are facing deflation, to say we now approve £20billion or £30billion, spread over the next two years. The Government then works out how exactly to spend it.’
And what about those mortgage controls? Turner calls for a return to the restrictions that were implemented in the 1950s and 1960s.
In his new book, Between Debt And The Devil: Money, Credit And Fixing Global Finance, he argues that a vast chunk of bank lending is bad for the economy. It merely allows individuals to compete with each other to spend money on property and land. The argument echoes the view he espoused in the wake of the banking crisis that much of what banks did before 2007 was ‘socially useless’.
‘Of course a mortgage is socially useful,’ he says. ‘There are things which are undoubtedly socially useful in moderate quantities but in too large quantities are not.’
He proposes savage mortgage restrictions. The Bank of England should impose maximum loans-to-value, as well as loan-to-income ratios. These should be tightened when the market is booming.
He is aware his view may be politically unpopular. ‘Whenever anybody proposes constraints, people say we would be constraining the 30-year-old homebuyer who didn’t come from a wealthy background. But while it seems like it would be bad for new entrants to the housing market, actually it would be good for them because easy mortgage credit drives up the price of homes.’
After failing to get the Bank of England job Turner, who had been a prominent figure in British business and finance for more than a decade, dropped below the radar, becoming chairman of the Soros-founded Institute for New Economic Thinking.
Now he is back, having taken a non-executive director role at OakNorth Bank which offers savings accounts and loans to business.
To do this Turner had to be granted approval by the Financial Conduct Authority, which vets senior bankers. Since Turner once chaired the FSA, which the FCA replaced, it did not feel the need to hold a vetting interview. ‘They have met me before,’ Turner says with a smile.
HIS left-leaning views meant he was once dubbed ‘Red Adair’, but a political role, perhaps advising Jeremy Corbyn who has notoriously raised the idea of printing money as a boost to a flagging economy, does not interest him. ‘I am very wary of getting involved,’ he says.
Turner was an SDP member in his youth, but he says he quickly learnt he couldn’t sign up to everything a particular political party wanted to do. ‘I am a very happy crossbencher,’ he says. ‘I was useless at saying my party is right in all respects.’
He is also wary of being too critical of what individual regulators did in the crisis. He joined the FSA on September 2008, five days after Lehman Brothers collapsed.
But he is scathing of the group think that dominated the watchdogs at Whitehall. ‘The hubris was extraordinary,’ he says.
‘Even by the time I had been appointed chairman of the FSA, the predominant belief in the central banks, the IMF, the Treasury and the FSA was, “OK, we have had a risky time but the worst problems have gone away”. Almost nobody realised that the crisis was about to go from problematic to catastrophic.’
He suffered from it too, he says. He recalls commenting to his wife before joining the FSA: ‘I wonder if I have already missed the really interesting stuff’.
As it turned out there was plenty of interesting stuff to come.
And should Britain decide to adopt Turner’s money-printing plans, there would be even more.
You get into a spiral – and that’s a dangerous game to play Bank of England Governor Mark Carney’s warning in The Mail on Sunday
Anyone who says there are technical issues with money printing hasn’t done their homework Former CBI boss Adair Turner’s blistering reply