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.
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.