Monday, 8 March 2010

Cobden's PMS solution not inflationary 'in any way'

A quick further mention of the Cobden Centre's scheme to reimburse Presybterian Mutual investors. The discussion has continued apace over at the organisation's blog. Toby Baxendale, who outlined the plan initially, explains in detail the reasons why the measure would not create inflation.

the loans will recover £200m to £250m according to the Administrators.
At the moment the demand deposits of £300m still exist in the UK money supply M4 definition which is not only money, but money and other near money substitutes. With our definition of Actual Money Supply, this is still the same.
Once the PMS has been wound down and all loans collected, there will be a shrink of the money supply to the exact tune of this loss. So anywhere between £50m and £100m. This is deflationary and will happen in some years time. We could let this happen and the creditors will take a hair cut in the normal way we have become accustomed to.
Or we could print £300m of cash now and give to the demand deposit owners, the savers of the PMS and at the same time delete the demand deposits. M4 and our measure Actual Money Supply does stay the same.
For doing this, the State could get the one off windfall gain of all the loans being paid back to it to pay off part of the national debt as it has allowed all the depositors to remain exclusively whole.
I would think this is a unique and brilliant solution to a very real problem to totally innocent people who have deposited under the misguided belief that “their” money would be safe!

No comments: