Snippa’s going to get a hell of a surprise in the next few years

But both estimates are in fact blatant mis-statements of the truth. On 28 June the Bank of England owned £434,961 million worth of government. Let’s call that £435 billion for ease.

And let’s also note that the Bank of England is owned by the government.

And so the government doe, therefore, own this £435 billion of its own debt.

Now, just spend a moment thinking about this. Suppose you owe your mortgage to yourself. Would you worry about repaying it? Or come to that worry about the interest on it? And would you worry about when you repaid it? Of course you wouldn’t. And you’d be right not to do so. That’s because the idea of owing yourself money is meaningless, and makes the debt irrelevant. Which is precisely what this £435 billion of debt is: it is irrelevant. Indeed, as I have shown, it is actually shown as cancelled debt in the UK national accounts, which is precisely what it is. It literally no longer exists.

So, in that case the national debt should not have been stated to be £1,731 billion but something like £1,296 billion. And that is 66.8% of UK GDP, which is the same level as we had in 2010

He insists that this will never have to be paid back. And yet it will indeed go out into the private sector, the BoE will get rid of it at some point, as the Federal Reserve is already talking about shipping off the equivalent QE over there.

And he should be able to understand this, if he wanted to of course. For the reason is exactly the same as his own argument for taxation in the MMT world of the magic money tree.

He says that we can spend as much as we like of newly created money directly into the economy. The purpose of taxation at this point is to get that money back in order to stop inflation.

OK.

QE has pumped newly created money into the economy. At some point, as matters return to normal, we’re going to have to get that new money back out of the economy. Our base money supply is vast as compared to pre-QE tiomes, as the velocity of circulation returns to something like normal we can either have a burst of inflation or we must such the cash back out and cancel it.

Which can be done in one of two ways. One is to use the Spudda solution, tax more to reduce inflation and thus actually pay off the debt held by the BoE, they then cancel the money. The other is to sell (actually, the BoE does not buy more to replace those maturing, the government therefore having to sell more into the market, the cash from which pays off BoE and they cancel the money) the BoE bonds, they collect the cash and cancel it.

The solution is apparent from Snippa’s own analysis. In order to prevent inflation that cash must be sucked out of the economy. Thus the bonds are going to be paid off one way or the other.

QE is, in a manner, exactly his MMT world. We’ve already issued the money, as inflation rises we’ve got to get it back. And he’s in for a hell of a shock when people actually do that, either by selling the gilts or by running a budget surplus. Only to curb the inflation.

16 comments on “Snippa’s going to get a hell of a surprise in the next few years

  1. Yes but the spending is now and the taxing/reverse QE is in the future, only squares worry about that, think about all the lovely lolly we can print and all the goodies we can have. This time next year we’ll all be millionaires!!!!

  2. But why does Murphy need QE? He’s told us that whenever the government spends, it gets it all back as the money recirculates back into tax receipts.

    So the more government spends, the more money it has.

    Surely Murphy cannot be wrong?

  3. The monkeys having one of his whineathon days where he bemoans the injustice of being criticised by Corbyn supporters – he’s just a good ole boy he gives his opinions about things in an open and honest way and that corbynistas are trying to stifle his free speech. He forgets to mention that his blog is a free speech no go zone – unless you agree with him 100% prepare to be insulted. Remember of course he was all for banning people from twitter who he disagreed with. Of course the drones are lavishing praise on their hero – pretty vomit inducing. Don’t read if you have got a queasy stomache.

  4. Moqifen

    His total lack of self-awareness is just unbelievable.

    This is legitimate from his latest blog entry – I mean can anyone be this deranged???

    ‘But in the process don’t tell me I’m not allowed my own thoughts.

    And don’t tell me I am demanding others agree with me when I am most definitely not.

    All I’m actually doing on this blog is working out what I think. Nothing more, or less. And please be aware that if you don’t think I have the right to do that what you’re then doing is something much more sinister, because what you’re actually asking for in that case is a curtailment of my right to free speech, and I am really hoping that’s not on your agenda because if it is I am really worried.’

  5. Now, just spend a moment thinking about this. Suppose you owe your mortgage to yourself. Would you worry about repaying it? Or come to that worry about the interest on it? And would you worry about when you repaid it? Of course you wouldn’t. And you’d be right not to do so.

    Of course the essential fact of the matter is that one never does owe one’s mortgage to oneself.

  6. because what you’re actually asking for in that case is a curtailment of my right to free speech, and I am really hoping that’s not on your agenda because if it is I am really worried.

    Yes, he’s REALLY WORRIED.

  7. If I read him right he’s arguing for a future Government to run a surplus to soak up the cash from a previous Government’s spending splurge so it can burn the money.

    isnt that what a Osborne was trying to do after Brown’s splurge?

  8. If you pump printed funny money into the economy then the state spends it at nearest to face value and as it goes around everybody else then its value continually declines as it travels –like that French play about a circuit of venereal disease.

    Subsequently trying to deflate–having first inflated–while trying to keep the benefits ( mainly to the state of course) and then get rid of the negatives is not only impossible but the attempt itself would make matters worse all round.

    Akin to taking poison and antidote in the hope that –if you can get the balance right–you will be catapulted into a state of were you can enjoy the benefits of life and death* at the same time.

    *Presumably no more worries or bills, people say nice things about you–one time at least–etc.

  9. “If I read him right he’s arguing for a future Government to run a surplus to soak up the cash from a previous Government’s spending splurge so it can burn the money.”

    I don’t recall him ever advocating a budget surplus, just ‘more taxes’. You can bet your bottom dollar that when the taxes rise and the revenue rolls in (if it does) Spud will be arguing that its ‘immoral’ not to spend said tax revenue on the poor etc etc, as of course they’ll be suffering from loss of purchasing power due to inflation………………

  10. “If I read him right he’s arguing for a future Government to run a surplus to soak up the cash from a previous Government’s spending splurge so it can burn the money. ”

    The key is that at any given time it’s a *future* government that’s going to run a surplus.

    Always jam tomorrow…

  11. @van patten. Let’s face it the mans a cunt. It’s his vile comments to anyone who disagrees with him which i find most obnoxious even more than his simpering self regard and ego.

  12. I’m with Murphy on this one. They can just effectively cancel it, and probably will.

    Where is this inflation? When is it coming? How many years have we been waiting for it?

    The monetarists need to revise their theory in light of no inflation. This thinking of ‘when the economy gets back to normal’ is weak stuff indeed. MV=PQ was demolished by Murray Rothbard years ago.

    But Murphy is wrong with his view that there’s a free lunch to be had up to the point when baked beans start going up by more than 3%.

    The cost of QE is the profound distortions it must be causing throughout the price and capital structure of the economy.

    I don’t know exactly where that is. But if you are looking for inflation, then house prices are extremely high, no? And if I want to earn interest it’ll cost be 10x as much in savings than a few years ago. There’s your inflation already.

  13. jamesg

    “I’m with Murphy on this one. They can just effectively cancel it, and probably will.”

    How so, James?

    Given that the mechanism, as I understand it and correct me if I’ve isunderstood, currently requires continual fresh purchases (each time a bond rolls over) simply to maintain QE at its current level. When they stop purchasing, it will unwind automatically. Are you suggesting this QE purchasing will continue “forever”.

  14. “MV=PQ was demolished by Murray Rothbard years ago.”

    Hmmm…. you’ll have to explain that one to me….

    Staying with the more othodox perspective for a moment, surely, for just about all the debt to be repaid in tax, it would have to wizz around the economy around 50 times a year. Is that anywhere near actuality?

    ISTM that all the return of tax would need to be within a year, otherwise the problem just gets worse and worse (which is what we see, is it not…?)

  15. “they collect the cash and cancel it.” –
    i’ve not seen a governor’s or chancellor’s statements that this will be done. Certainly the people who started the program aren’t around anymore to finish it. I’m not saying it definitely won’t but where’s the rock solid guarantee that someone’s going to hit that delete key.

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