We’ll never sell those gilts back. The IFS says we have £280bn of new gilts to sell over the next three years to fund the deficit. There is not a hope we’ll add £350 billion of resale of gilts on top of that. The only likelihood is in fact of more QE: over that period there is no way the market can absorb £280 billion of new debt.
That means that the reality is that QE will lead to cancelled debt. Every single penny of the gilts repurchased will, I am sure, be cancelled. Nothing else is possible. It’s just a matter of time before the lightbulb gets universally switched on to that fact that the debt repurchased under QE is no longer debt at all. There’s just new cash, and given that the economy needs that cash we’re not going to cancel it now, or in five years time. So let’s get real about it.
And let’s also remember there’s nothing odd about cancelling gilts: it happens all the time. They’re time limited loans. All we’d be doing by cancelling them is declaring time early. Let’s not overstate the fact that this is completely possible, and more than that, it’s desirable, and bar being early, totally normal. Then we can have a real economic debate.
The first point is that he\’s still not grasping that we know all about this idea of cancelling the gilts. It\’s called monetizing the debt. This isn\’t new and it\’s not clever. It\’s so not new and so not clever that, just as one example, it\’s actually written into the basic operating statutes of the ECB that the ECB is not allowed to do this.
It may be a good or a bad idea that the ECB isn\’t allowed to do this (I think it a bad one that it cannot do it in the short-term) but the very existence of the rule shows that mainstream economics is well aware of the argument, has been for decades and thinks that there might be just a tad more to it than Ritchie is saying.
The second is this:
And let’s also remember there’s nothing odd about cancelling gilts: it happens all the time. They’re time limited loans. All we’d be doing by cancelling them is declaring time early.
Eh? We cancel gilts all the time do we?
I know we roll them over (for actual periods of debt repayment, reducing the national debt, are rare as rocking horse shit), I know we retire particular issues. But cancel them?