Michael Hudson: Why Frances Coppola’s “The Case for the People’s Quantitative Easing” Is for Banks, Not the People

Yves here. I must confess to not having read Frances Coppola’s new book, but based on Martin Wolf’s and Michael Hudson’s recap of its thesis, I am at a loss to understand how Coppola could see her “people’s quantitative easing” as anything other than another subsidy to banks and bank lending. More and more economists have concluded that the level of financialization in advanced economies serves as a drag on growth. The IMF determined that the optimal level of financial development was that of….drumroll….Poland.

I am even more puzzled by her reluctance to let creditors bear the costs of poor lending decisions. Keeping them from eating their bad cooking would incentivize bad practices and help support poorly run institutions. None other than the Japanese warned the US early in the crisis not to repeat their mistake, which was failing to write down bad loans early on. But as Mark Blyth pointed out in a presentation that we featured yesterday, the 2008 crisis diverged from past major economic breakdowns in that the authorities have been able to prevent a reset and avoid a shift towards policy and institutional changes that strengthen the position of labor relative to capital. Despite its populist branding, Coppola’s scheme is yet another effort to shore up a status quo that is past its sell-by date.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year

This short book makes the obvious point that Quantitative Easing aimed at raising asset prices that helped keep banks solvent and enriched financial investors, but did not help the overall economy – the People. The aim – and effect – was to inflate asset prices for real estate, stocks and bonds, thereby saving banks from having to foreclose and suffer losses as property prices fell back in line with the ability to pay and with realistic rental values. So basically it was financial institutions and investors who were saved, not the economy and its debtors.

Who then are “the people” that Coppola advocates saving? I was disappointed to find that the main “people” that her “helicopter money drop” alternative seeks to help are banks. “The people” are only an intermediary, serving to pass most of the helicopter money on to their creditors. Her solution is “debt monetization,” a money drop that “would be used in the first instance to pay down debts” (p. 128).

The new money would flow right through the hands of “the people” to their bankers, although Coppola gives a hand-wave to the hope that: “Any money left over after debts were discharged would be given directly to the individual: they could either spend the money or add it to their savings.”

In Coppola’s reform, the first task would be to enable the economy’s debt overhead to be carried. But why not just write down the debts – especially the bad debts, the junk mortgages and junk bonds of zombie companies? Is it really desirable for the economy to keep providing the financial sector with more and more money to lend out? Isn’t that simply a means of keeping Ponzi finance alive and thriving? Coppola doesn’t pay much attention to the fact that without writing down this vast burden, economies will remain subject to financial overlordship.

For me, writing down the enormous post-1980 gains of the One Percent would be a real gain for “the people.” It also would promote economic stability instead of top-heavy financial liquidity claims on the economy. But Coppola worries that this would be unfair on an inter-personal level: A debt “jubilee could be every unfair to people who are too poor to have debts or too responsible to over-borrow.” Also, “for every debtor there is a creditor,” and the creditor class (a.k.a. the One Percent) would lose. “Somehow, a debt jubilee would have to avoid hurting savers,” she insists (p. 67). This means avoiding “hurting” banks and investors that have made reckless or outright fraudulent loans.

Coppola’s helicopter money to pay down debts thus would leave in place the top-heavy overgrowth of financial claims in today’s indebted economies – letting the ultimate debt deflation accumulate even further, to end in an even more necessary and deeper debt writedown as an alternative to the kind of mass foreclosures that the Obama era sponsored on behalf of the bankers (and to the great benefit of Blackstone’s real estate grab from the homes and properties liberated by the financial “free market”).

I cannot blame any author for not writing a different book. But monetary policy only can do so much. Purely monetary writers tend not to recognize that the debt overhead and FIRE sector constitute a rentier overhead that is distinct from the “real” economy, wrapped around it. Discussion of a fairer tax and regulatory structure, especially a tax on the FIRE sector’s economic rent, is outside the range of Coppola’s book.

Coppola attributes opposition to spending QE into the real economy instead of into the financial sector and its elites to “fear of government, and indeed of democracy” (p. 116). Indeed, she points out that “QE for the Banks had little democratic legitimacy, particularly in the EU.” Yet she claims that it is not true that central banks conducted this policy to benefit bankers. It is as if this were an unintended consequence.

Wiping out banking and other financial claims against debtors is to me a virtue of a debt jubilee, not a shortcoming. The economy cannot be stabilized without bringing the financial claims of banks and bondholders back in line with the ability to pay. Coppola’s helicopter money would subsidize the overgrowth of debt with a bailout that would need to be followed by an exponential sequel in the next crisis, and so on in ad infinitumuntil a moratorium finally was declared and debts written off.

The aim should not be to give people money just to pay the banks. The aim should be to help them get on with their real life in the real economy by writing down their debts so that such bailouts are not needed. Wouldn’t it be better to wind down this overgrowth? Why would we want to go along the road of exponentially rising bailouts in a charade of giving people money to pay banks that will have used the overgrowth of debt to search out ever more risky outlets, derivatives gambles, debt-financed private equity takeovers and LBOs?

Not to realize that this has become our economy’s financial dynamic is to be part of the problem, not part of the solution. Bailing out the financial sector feeds the growing debt overhead. Why would one want to do that – unless you belong to the One Percent?


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  1. notabanktoadie

    But Coppola worries that this would be unfair on an inter-personal level: A debt “jubilee could be every unfair to people who are too poor to have debts or too responsible to over-borrow.” Michael Hudson

    Indeed it would be unfair* which is why something like Steve Keen’s “A Modern Jubilee” is morally (and thus politically) superior to a debt write-down.

    Moreover, metered fiat distributions to all citizens are an ideal way (along with the provision of FREE** debit/checking accounts to all citizens at the Central Bank) to progressively abolish government-provided deposit insurance – a major privilege for the usury cartel – WITHOUT deflation.

    The proper way to reign in the banks is to DE-PRIVILEGE them. And how can that in anyway be pro-rich since the rich are the most so-called “credit worthy” of what is currently, due to government privilege, the public’s credit but for private gain?

    As for interest rates, inexpensive fiat distributions (i.e. a Citizen’s Dividend) to all citizens should lower them as desired.

    *Unfair since the ability of banks to “safely” create deposits (Bank loans create bank deposits) is greatly enhanced by government privilege and thus the lessor and non- so-called “credit worthy” are cheated by the dilution of THEIR deposits or cash savings.

    **Up to reasonable limits on account size and transactions per month.

  2. Watt4Bob

    I’ve been thinking lately that recent discussion of reparations is deliberately meant to forestall serious consideration of debt write-down, as it seems to induce a reflexive negative reaction in an important portion of the publics mind.

    All debate over reparations for historic damage to a portion of the American people, will take up the space that could be occupied by considering reparations for the massive and very recent economic damage done to all of us.

    Especially in our current political climate, there is a large portion of the populace that would revolt at the idea of providing reparations for historic wrongs, while the pain of our current situation goes unaddressed, and so it looks to me as if this topic is being put forward as a wedge issue.

    OTOH, serious consideration of a debt jubilee, when combined with M4A, and free education might be an avenue for building solidarity across the working class, and so the PTB, fearing working-class solidarity more than almost anything else are making very effort to squelch and pollute those topics.

    1. Watt4Bob

      In short, the reparations issue provides fuel to Trumpism, while the debt jubilee starves it.

  3. Sound of the Suburbs

    Here is Richard Koo explaining what happened in Japan:


    What is the big problem?
    Debt deflation

    The money supply ≈ public debt + private debt

    What happened to the US money supply during the Great Depression is key, as he shows in the video.

    Richard Koo shows the US money supply / banking system (8.30 – 13 mins):

    1) 1929 before the crash – June 1929
    2) The Great depression before the New Deal – June 1933
    3) During the New Deal – June 1936

    Once the New Deal was working, they reduced Government borrowing and plunged the nation back into recession again. The enormous public spending and borrowing of WW2, eventually sorted things out.

    Japan learnt from the US experience of the Great Depression.

    Bank repayments destroy money and so the “private debt” component of the money supply shrank (debt deflation), as the private sector started deleveraging from their 1980s boom.


    As the “private debt” component was going down, the Japanese maintained the money supply with Government borrowing to keep debt deflation at bay. As the “private debt” component of the money supply was going down they increase the “public debt” component.

    This is the lesson they learned from the Great Depression.

    This is why austerity is the worst thing you can do in this situation (balance sheet recession). Cutting government spending and borrowing makes it much more likely debt deflation will take hold as it did in Greece

    QE can’t get into the real economy due to a lack of borrowers, though it can still inflate the markets through the financial sector. This is why QE has been so ineffective for real economies throughout the West, while the markets remain so buoyant.

    This bit isn’t in this video, but you can find it in his other videos on YouTube.

    Western “experts” got the Japanese to cut Government spending and the economy immediately took a turn for the worse until Government spending was restored again.

    The mechanism is explained in above.

    1. Sound of the Suburbs

      The money supply ≈ public debt + private debt

      If you write down debt, do you effectively destroy money?
      The bank balance sheets around the Great Depression suggest this might be the case.

      What does happen on bank balance sheets?

      1. Mel

        (We’re talking M2 money supply here.) I would think that writing down a private debt is akin to repaying it, which means the M2 amount is reduced. The difference is that the bank doing the writing-down doesn’t get the reserves transferred that they would have got if the loan had been repaid. That amount stays with some other bank — the undisclosed bank that the debtor would have paid the loan from, if they had paid it.

    2. Summer

      Any narrative that points to Japan as a success or at least “hanging in there” scares the establishment. They are doing it without massive immigration and an aging population.
      Not a dig, just pointing it out…

  4. Hodorian

    I don’t understand about Hudson’s solution of “write down [people’s] debts”. Of course I am all for it, but what about all the regular people who has been saving for years just to be able to buy a home or those who are unable to save for one? Would they be helped too, even if indirectly? For example, would houses prices come down for everyone after the write downs? Personally, I can’t imagine myself thinking: “Lucky them. They risked it all with a $600,000 mortgage while I instead decided being sucked dry renting a hole all these years. If only I had known. Oh well, hoop dee doo”.

  5. Susan the other`

    The system perpetuates itself. It is a growth mindset. So QE has saved capital as we knew it. It has saved an obsolete system. Preventing a reset toward critical structural changes which are not only “pro labor” but pro survival. Clearly monetary policy needs good governance. For the last 50 years it has had no governance at all. It has and still tries to perpetuate ponzi finance. Ponzi because preserving excess capital without the hope of growth for profit creates an almost desperate need to find a place to put the damn stuff where it can continue to make a “return”. Crazy. So therein lies the wobble. It throws off the stability of an otherwise in-balance economy. Witness the behavior of today’s PE wizards. But if the old capitalist mindset is that calcified, giving free money to the FIRE sector could be made less pointless if the creditor/savers were required by law to mitigate the environment and the economy with most of that money via not-for-profit-or-fudging projects. By law. Enforced. Because wiping out environmental claims against humanity is the best of all structural changes these days. Opening the way for other good changes to follow.

  6. Bud-in-PA

    I agree with Steve Keen’s “Modern Jubilee” approach, as well, to reduce the astronomical household debt levels in this country i.e.,make direct government payments into all private bank accounts but require that they first be used to pay down debt. I also agree that something would need to be done for anyone who does not have a bank account but I think this could be handled fairly too. The issue in my mind is that there are vast numbers of people in this country who have saved and lived within their means all their life and have little if any debt as a goal going into retirement. Debtors should not be rewarded relative to these “savers” and the creditor class is not just the 1% as Hudson seems to suggest..

    1. TedWa

      The ones that are savers and have little debt compared to the larger picture are the new 1% at the bottom of the totem pole. Would you rather have savers with little debt or have a whole economy? I choose a whole economy wholeheartedly and I’m one of the 1% at the bottom being a saver with little debt !
      Things would get better for EVERYBODY in that scenario as the economy as a whole would improve greatly and the morale it would produce would benefit all.
      Truthfully, I’m all for it.

  7. Jonathan Holland Becnel

    The People are broke. A Debt Jubilee combined with breaking up all Monopolies will lead to a Modern Day Renaissance. Solve our Dirty Energy problem too. Clean up the Planet.

    We def need to Occupy Wall Street and Silicon Valley!


  8. MyLessThanPrimeBeef

    Her solution is “debt monetization,” a money drop that “would be used in the first instance to pay down debts” (p. 128).

    This here is the key objection.

    Can people receiving money to compelled to use it to pay down debts first?

    Is that constitutional?

    What about those with no debt (a sixth grader, or a homeless person)? Do they receive nothing?

    1. notabanktoadie

      Can people receiving money to compelled to use it to pay down debts first?

      Is that constitutional? MyLessThanPrimeBeef

      Good point. And paying down debt might easily not be in the best interests of the recipients.

      What about those with no debt (a sixth grader, or a homeless person)? ibid

      All adult citizens would receive equal amounts and as for non-adult citizens, they could receive equal amounts too but held in trust by the monetary sovereign until they reach adulthood.

  9. paul

    We have already had a forgiveness bomb.
    The 2008 helicopters could only serve the nearest and most dearest.

  10. rob

    I remember a foreign affairs article in which they used a number of @ $55,000 PER PERSON in the united states. This is what COULD have been sent to every person in the united states for the same dollar amount used in the 85 billion dollar/month QE program for the investor class.
    This $55,000 multiplied for all the people in your household…… How would YOUR bottom line be now? Ours would be better. The country would be better off.

    But that was just an example of a wasted opportunity. And foreign affairs is no liberal rag. This is the bankers and investor classes mouth piece. This is an organization that was created by the bankers and their lawyers to align the wealthy against the best ideas of the citizens; a hundred years ago…. and has been doing a bang up job that brought us the neoliberals, neoconservatives, and all the rest of the mess we currently face today.

    To really hit them where it hurts….
    We need to adopt a new monetary system. We have a system where the banks are granted the ability to create money when they make loans….. take that gift away from them. that is what we need to do.

    the NEED act 112th congress
    HR 2990

  11. olde reb

    How is the Fed used to embezzle money from government for the benefit of Wall Street bankers ?
    Answer: https://thedailycoin.org/2018/08/16/a-look-at-the-federal-reserve-through-a-different-lens/.

    How is the embezzled money used to bring chaos and oppression throughout the world ?
    Answer: https://thedailycoin.org/2019/07/10/looking-at-the-imf-and-world-bank-through-the-eyes-of-a-wall-street-economist/.

    Is this the same future for the United States ??
    Answer: Douglas Valentine’s CIA AS ORGANIZED CRIME

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