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Fiscal policy with bank loans instead of government bonds?

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This idea was first proposed by Prof. Richard Werner some years ago. The idea is to for the government to cease all issuing of bonds tradable in the secondary markets, and instead enter into standard loan contracts with specially set up banks to finance their public sector funding. Attached is a slideshow diagram showing how this process would be carried out.

It sounds too good to be true. But could it really work? What would be the drawbacks / consequences with this method of financing?

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Posted by (Questions: 40, Responses: 53)
Posted on 07/06/2017 3:43 AM
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The diagram didn’t get attached in the previous post….Here it is and the original presentation see page 80.
https://www.postkeynesian.net/downloads/Werner/RW301012PPT.pdf

Attachments:
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Posted by (Questions: 40, Responses: 53)
Answered on 07/06/2017 3:50 AM
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Actually QE has the same net effect , the general public has more deposits due to government spending of deposits from bond holders and bond holders are reinstated to their previous deposit holding position, so overall the same extra deposit creation.

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Posted by (Questions: 22, Responses: 333)
Answered on 07/06/2017 10:04 AM
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In the early years of WW2 this was a way of providing the funds so that thousands of private sector businesses and industries could ramp up and create all the necessary materiel of war in a timely manner. The Fed guaranteed all the loans, and as I recall that was the only thing ‘special’ about it.

https://www.amazon.com/Keep-All-Thoughtful-Men-Economists/dp/1591144914?tag=nakorn-20

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Posted by (Questions: 0, Responses: 5)
Answered on 07/06/2017 11:27 AM
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In the early years of WW2 this was a way of providing the funds so that thousands of private sector businesses and industries could ramp up and create all the necessary materiel of war in a timely manner. The Fed guaranteed all the loans, and as I recall that was the only thing ‘special’ about it.

https://www.amazon.com/Keep-All-Thoughtful-Men-Economists/dp/1591144914?tag=nakorn-20

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Posted by (Questions: 0, Responses: 5)
Answered on 07/06/2017 11:27 AM
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I don’t see how this would solve anything. Instead of issuing bonds as net financial assets the banking system would expand its balance sheet to provide deposits. As Dinero said, this is functionally what QE is doing. Instead of issuing Bonds the Fed is taking the bonds out of the private sector and replacing them with deposits. It doesn’t do anything different than just selling the bonds….

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Cullen Roche Posted by (Questions: 10, Responses: 1772)
Answered on 07/06/2017 12:23 PM
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Answered on 07/06/2017 1:25 PM
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Well, it would get the Primary Dealers out of the equation. They are middlemen and they definitely take a cut.

We could just as easily allow the Fed to buy Treasuries directly too.

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Posted by (Questions: 35, Responses: 592)
Answered on 07/14/2017 7:57 PM