Mitchell observes that OMF has actually been put on the table by the European Parliament. According to a Draft Report by the Committee on Economic and Monetary Affairs on the European Central Bank Annual report for 2012, the European Parliament:
9. Considers that the monetary policy tools that the ECB has used since the beginning of the crisis . . . have revealed their limits as regards stimulating growth and improving the situation on the labour market; considers, therefore, that the ECB could investigate the possibilities of implementing new unconventional measures . . . including the use of the Emergency Liquidity Assistance facility to undertake an 'overt money financing' of government debt . . . .
These provisions were amended out of the report, says Prof. Mitchell, largely due to German hyperinflation paranoia. But he maintains that Overt Money Financing is the most effective way to solve the Eurozone crisis without tearing down the monetary union:
1. It amounts to the ECB telling member states that they will provide the Euros to permit sufficient deficit spending aimed at increasing employment and production.
2. No public debt is issued.
3. No taxes are raised.
4. Interest rates would not rise.
5. A Job Guarantee could be introduced immediately.
6. The Troika can retire -- no more bailouts.
7. As growth returns, structural changes -- better public services, better schools, better health care etc. can be implemented. Growth allows structural changes to occur more quickly because people are happy to move between jobs if there are jobs to move between.
The Bogus Inflation Objection
Tim Worstall, writing in the UK Register, objects to Corbyn's PQE (or OMF) on the ground that it cannot be "sterilized" the way QE can. When inflation hits, the process cannot be reversed. If the money is spent on infrastructure, it will be out there circulating in the economy and will not be retrievable. Worstall writes:
QE is designed to be temporary, . . . because once people's spending rates recover we need a way of taking all that extra money out of the economy. So we do it by using printed money to buy bonds, which injects the money into the economy, and then sell those bonds back once we need to withdraw the money from the economy, and simply destroy the money we've raised. . . .
If we don't have any bonds to sell, it's not clear how we can reduce [the money supply] if large-scale inflation hits.
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