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BetweenDebtandtheDevilbyAdairTurnerreviewshouldthegovernmentstartprintingmoney?|Books|TheGuardian

Between Debt and the Devil by Adair Turner

review should the government start printing
money?
The former head of the FSA oats a provocative solution to the economic crisis

Analysis of real force Adair Turner. Photograph: Ben Smith/Rex

Tom Clark
Wednesday 25 November 2015 07.30GMT

fter the crisis of 2008, every concerned citizen wanted to understand what had been going
on in the City to take us all to the brink of bankruptcy. It suddenly seemed important to
unravel mysterious acronyms CDOs, SIVs, CDSs that you might previously have skimmed
breezily over on the business pages. Terms like derivative, Libor and shadow bank became
the parlance of the hour. Adair Turner refreshes the memory on all of this arcana, but the
invigorating thrust of his brilliant new book is that much of it is beside the point. Head-spinning
new practices may have intensied the frenzy, but their chief role was always to disguise an older
enemy: debt.

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For Turner, the credit crunch was in essence a debt crisis of the sort that has been a periodic
occurrence ever since banking and modern money came into being. Once medieval goldsmiths
realised that their clients were not all going to demand their bullion back at the same instant, they
began writing out promissory notes for more treasure than they had in their vaults. Every
economics undergraduate learns that modern banks still magic up money this way lending out
more than is paid in. But, perhaps because the implications of creating currency out of the ether
are disturbing, economists rarely dwell on this point.
Turner puts this right, explaining how the banks licence to magic up money creates a temptation
to do so too freely. People dont need banks to pu up bubbles: a 17th century Dutchman could
fuel tulipmania simply by trading his farm for a single Viceroy tulip bulb. But where speculation is
supported by debt nance, capitalism is even less secure. Debt promises xed repayments to
lenders, which discourages them from focusing on what might go wrong; when it does, the rigid
debt contract does not provide for pragmatic pain sharing, but instead sets o a chain reaction
where credit dries up and asset prices fall. And the dangers are redoubled when the debt is issued
by banks, which can issue however much feels right for the mood.
When capitalism works, debt channels money into factories, machinery and know how. There
will be bumps along the road, but the economy will grow. In the run up to 2007, however, the
made-up money was not going into anything productive, but rather inating the price of preexisting homes. Indeed, Turner locates the roots of the crisis in the mismatch between a limited
supply of urban land, and the limitless potential to nance rising demand for it. For individual
banks, it can make sense to lend for unrealistically costly houses, since mortgaged families will
sacrice everything else to keep up payments and avoid ending up on the streets. For the
economy as a whole, however, concentrating debt in property is a disaster, draining resources
from worthwhile investment and wagering collective prosperity on a one-way bet. Worse, while
debt-fuelled bursts of real activity will push up ination, when all the money is in property that
warning light never ashes. Were all left exposed: unsafe as houses.
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This has implications for both prognosis and prescription. Interpreting 2008 as a debt crisis
blackens the forecast, as total debt has not been reduced, only shued around. Itmoved rst
from the private to the public sector, and now if austerity is to succeed it must move back.
George Osborne is relying on Britains household debt burden becoming heavier than ever by
2021. There are prescient passages, written before Chinas recent wobbles, about the dangers of
Beijing answering slackening western demand with a debt splurge of its own. While the
underlying drivers remain such asinequality that leaves workers reliant on credit to buy goods
the obvious danger is that, while debt may be squeezed around like air in a balloon, it will only
grow.
To kick our addiction to debt, Turner argues, we can and should restrain the banks, for example
by forcing them to hold more reserves. We can and should also devise new ways to privilege
productive investment over property speculation. Turner, who became chair of the Financial
Services Authority days after Lehman Bros toppled, puts great emphasis on explaining how
regulators could do all this practically, a dimension that gives the book extra importance, albeit at
the occasional expense of readability. Every so often you yearn for him to say posh houses,
rather than locationally desirable real estate.
Even so, the dry prose crisply conveys analysis of real force. Its conclusion is that not only do we
need to stop sinking into the red, we also need to reduce existing debts. This iswhere Turner
becomes a devilish dissenter from the orthodoxy. So much has gone wrong with banks making up
money, he says, that the government needs to consider creating purchasing power instead,
whether by handing currency to citizens, or paying o its own debt. If it sounds like an invitation
for the west to follow the ruinous Zimbabwean road, remember that the Bank of England has
already poured 375bn of made up money into the banks through quantitative easing. Japan has
now pushed QE to the point that it is almost indistinguishable from simply printing notes.
Turner, then, ends up entertaining ideas that are regarded as utterly unthinkable monetary
policy. They are, however, already well on the way to becoming monetary practice.
Tom Clark is the author of Hard Times: Inequality, Recession, Aftermath. To order Between Debt
and the Devil for 15.96 (RRP 19.95) go to bookshop.theguardian.com or call 0330 333 6846.
Free UK p&p over 10, online orders only. Phone orders min p&p of 1.99.

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