Snippa Spuds

The First World War was partly paid for with quantitative easing

To put it another way, because the country did not rush forward to fund the Great War as the government expected, the Bank of England (then, admittedly, a privately owned institution), stepped in and saved the government’s day by buying over £2oo million of the debt that had to be raised to fund the initial war effort. In effect, it created money out of thin air to do so, and as a consequence effectively used what we would now call quantitative easing for the purpose of funding the war effort.

Hmm. From the source:

And this episode was to be the first of several instances during the war where the Bank used its own reserves to provide needed capital.

Is the use of the reserves of a privately owned Bank of England actually the same as inventing money out of thin air and QE?

30 comments on “Snippa Spuds

  1. From Spud:
    “The Bank of England published an astonishing blog post yesterday. This began by saying: Financing World War I required the UK government to borrow the…”

    From the Blog:
    “Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England or its policy committees.”

    Who on earth does he think he’s fucking kidding. The lazy, bogus, fat cunt.

  2. I think Richie would favour how Germany and Austria raised money to pay for their wartime expenditure, and the very slight inflationary effect these had.

  3. That’s right Rob, the Austrian government sold bonds at 5%, they had 8 issues. The final issue in June 1918 raised 6 billion crowns but such was inflation that it was the equivalent of only 750 million pre-war crowns.

    If we take 1914 as 100 then the inflation index ran

    1914 100
    1915 153
    1916 317
    1917 650
    1918 1,083

    At the end of the war, the bonds were worthless.

    Britain financed the war through loans based on gold reserves and interest ( 3% I believe ) on loans to France and Russia and of course taxes. Britons were the most taxed of the major belligerents.

  4. Accountant, political theorist, political commentator, economist and now economic historian…is there any beginning to this turd’s talents?

  5. Were the bonds repaid and the money cancelled? If so, isn’t that the QE being unwound… something the Professor said wouldn’t happen…

  6. “Who on earth does he think he’s fucking kidding. The lazy, bogus, fat cunt.”

    If you were dying of cancer you might believe a charlatan selling snake-oil that cured cancer because it would be easier to believe the lie than grasp the truth.

    If you are a pathetic, demented failure in life thrashing around for someone else to blame or a lofty intellectual cocooned in academia and oblivious to the endless hypocrisies of your life then you are content to believe what you desperately wish to be the truth because the real truth is probably that you’re just as big a cunt as the cunt whose brain vomits you are lapping up off the floor.

  7. Wasn’t it fairly recently (i.e. within the last few years) that the last of the WWI bonds were redeemed? I know nuffin’ about bonds, just seem to remember reading something along those lines. I know a good chunk of the debt was still extant when I were a nipper.

  8. Theophrastus and moqifen: You can add concentration camp survivor to that list, after his visit to Dachau.

  9. Bicr your memory is right. 3% war loan was still a benchmark in the1980s, when interest rates were around 15,%

  10. @matthew L – i must have missed that – though found on his website . Disgraceful comparison – he surely has no shame. I presume he thought he’d be a victim of the nazis – not because he’s Jewish, a communist or gay, but that the nazis hated people with mental handicap – such as congenital idiots.

  11. My sons realised that some of the people who went there were a bit like their father – both sons are complete idiots – like their father.

  12. Bloke in Costa Rica said:
    “Wasn’t it fairly recently (i.e. within the last few years) that the last of the WWI bonds were redeemed?”

    I thought that was the Napoleonic War bonds? Still used as proxy for risk-free returns when I was doing my acocuntancy exams in the 1990s.

  13. J A Rank says:
    August 9 2017 at 7:02 pm
    Just to add – the blog is bankunderground.co.uk which is not an ‘official’ BoE blog and is written by staff members. Of course, what they have highlighted is undoubtedly correct.

    Richard Murphy says:
    August 9 2017 at 9:05 pm
    It is pubslihed by the BoE

    Whilst it is true they say they do not endorse content you can be sure they would not publish it if they were unhappy about it

    – Of course he’d say that, in his world censorship reigns supreme.

  14. It’s not the BoE publishing the blog, it’s BoE staff members. Presumably, Islington Polytechnic publishes and vets his blog.

  15. I would like to think it was QE Tim. Because I like this

    “the Bank of England (then, admittedly, a privately owned institution), stepped in and saved the government’s day by buying over £2oo million of the debt that had to be raised to fund the initial war effort”

    So to be precise: money creation was in the hands of a private business and the government debt was obtained via loans from this private business. So “taxes are simply giving the government back money it created” just isn’t true at all is it Richard. And indeed your whole edifice of the economy not surviving without government creating money as well as your theory on what taxation is for… it’s all horseshit isn’t it Richard.

  16. I’m confused. A privately-owned bank had £200m available. It lent it to the Government.

    As a result the Government owed private business £200m, and had that amount to spend on the war effort.

    I’m really struggling to see how this is anything other than a perfectly vanilla bit of borrowing.

  17. Pellinor,

    So am I. Apart from the political considerations during wartime, and so the cover up, I’m struggling to see anything new here.

  18. Pellinor

    It is plain vanilla borrowing by the government. His piece is based upon the understanding (incorrect according to Tim) that the BoE ‘printed’, for want of a better term, the money. This in essence is what we have from 2009; government issues the debt, BoE buys it with new money.

  19. And this is where GB saved itself from (worse) disaster 1914-18.
    The BoE believed in “sound money” or Keynes’ hated “orthodox” economics and so did not turn to the printing presses without reserves to back the money up.

    And this is excatly what the Germans and Austrians forgot – they simply printed money to pay for the war, thinking that it didn’t really matter as after 1916 they didn’t have much in the way of international trade and the Yanks wouldn’t let them get hold of their gold that was in the USA. Before then Austria in particular had a very well-run monetary system, designed by geniuses such as Eugen von Bohm Bawerk, who was Mr Sound Money.

    Ho Hum… if socialists do’t understand lessons from history ( or indeed the present ) what do they understand ?

  20. Ironman – So he is indeed essentially saying that the bank of England buying Government debt (where the Bank is private, and uses existing reserves to do so) is exactly the same as the Bank of England buying Government debt (where the Bank is owned by the Government, and creates new reserves in order to do so)?

    Excellent. I’m off to buy some oranges to make cider with 🙂

  21. Yes, I know 🙁

    Driving the decent stuff off the shelves, only a few years after it started filling them up…

  22. Sometime in the next few days I’ll drop the recent doubling of UK Forex reserves into the TRUK blog, just to see if he bites and says the government is doing it all wrong.

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