Ritchie is Wrong!

I know, huge surprise.

Britain is not broke, nor can it go broke. If you can print your own money you can’t ever go broke.

We actually have a recent example to prove this. Zimbabwe printed so much money that they actually ran out of the ability to purchase the ink to print the money.

Yes, an extreme case. But the categorical statement that you cannot go bust if you can print your own money is untrue.

25 thoughts on “Ritchie is Wrong!”

  1. Good point. Money is not purchasing power, and if you run out of purchasing power then governments can indeed run out of money.

  2. He’s also wrong because Britain doesn’t print its own money. It asks the banks to print it, then borrows it. Presuming the “your” in his statement means a collective national “we”, that is, which I presume it does.

    So, the more “they” rather than “we” print, the more “we” have to pay in interest, which “we” have to borrow from “them”, after asking them to print it. As a result, as anyone who has gone mad with the old credit cards knows, “we” very much can go broke. It’s the banks who can’t go broke, but “they” sure as heck aren’t “us”.

  3. As the proud owner of a rather beautiful Zimbabwean $100 trillion note I was always surprised that its central bank went to such trouble to print such high quality notes when their useful life could be measured in days.

  4. And how is Ritchie going to pay all those foreign creditors? In the isolated case that a country has no international trade, yes, they can not go bankrupt; printing money then is just truly a matter of transferring wealth to those who receive the inflation money first.

  5. “If you can print your own money you can’t ever go broke.”

    Well, that’s one man’s opinion. Reminds me of this exchange:

    GLENDOWER: I can call spirits from the vasty deep.

    HOTSPUR: Why, so can I, or so can any man; But will they come when you do call for them?

    “If you can print your own money you can’t ever go broke.”

    Yes, but will people accept your “money” when you do offer to pay for things with it?

  6. JustAnotherTaxpayer

    “He’s also wrong because Britain doesn’t print its own money”

    Pendantically, our cash is printed in De La Rue plc’s Loughton, Essex facility, and cash does still act as money despite the claims of crazy internet Austrians who think we are suffering from hyperinflation.

  7. As well as this, he also manages to destroy his assertation that the Crown Dependencies will go broke if the finance industry collapses. Hey, they can just print even more money! Billion pound Jersey banknotes for all! A nice little souvenir for the tourists.

  8. I suppose it is theoretically possible for the printing of money to destroy the productive capacity of the economy, but doesn’t every real world example of hyperinflation happen the other way around?

  9. Ian B

    Last time I looked all legal tender banknotes were issued by the Bank of England and all coins by the Royal Mint. Both of them wholly owned by HMG. So it is entirely correct to say that Britain prints its own money. Commercial banks do not issue legal tender banknotes or coins.

    Both Tim and Ritchie were referring to the central bank’s ability, under a fiat currency system, to issue theoretically unlimited amounts of new money either as notes & coins or electronically. It is unfortunate that both of them use the term “print money” incorrectly. Seigniorage these days is mostly done by the Bank of England electronically crediting bank reserve accounts, which of course isn’t “printing” money at all.

    The Bank of England doesn’t have to issue money by crediting bank reserves. It could buy assets directly from the wider economy – as it has done under the QE programme – or it could spend the money directly into the economy. But all money, even that issued directly into the wider economy via asset purchase or spending, eventually finds its way into a bank deposit account. That process is what gives the (false) impression that only commercial banks create the money used in the wider economy and that the central bank only provides reserves to commercial banks.

  10. But on the bright side, hyperinflation ruins all of those filthy bourgeois running-dogs who have savings, while boosting thug trade unions who can muscle above inflation pay rises.

    So not all bad, from the Left’s point of view

  11. Frances-

    Note and coin are a very small part of the money supply these days. Yes, “we” “print” them, but the majority of money creation is by the banking system, which isn’t “us”. The current money creation system which is overwhelmingly used is that latter one, which creates interest at the same time as money. It isn’t a system in which the State just creates a trillion pounds or whatever.

    The point I was trying to make, perhaps badly as usual, is this vague use of the collective “we” that people like Ritchie are prone to. There is a sort of slogan, that “we” owe the national debt to “ourselves” so it isn’t really a debt at all. This is fundamentally wrong. The debt is owed to specific economic institutions, not to “us”. The word “we” is contextually wrong here. Fred Smith, taxi driver in Penge, is indebted via the national debt. He wouldn’t get given any money if it it were paid off, because he isn’t holding any government debt. All he has is a liability as a taxpayer and an obligation to service the interest via his taxes.

    Without going on at length, we also need to remember that whatever the specifics of the BoE’s particular operations, the current system is always, deliberately, inflationary, which is why the money supply is vastly larger than it was in, say, 1912, and the GDP figure can continually rise. Regardless of whether there is overt QE, or more subtil money creation occurring. It acts as a positive feedback system in which M3 (or Mwhatever) is used to purchase new M0 into existence, which creates new Mwhatever… and round it goes, inflating all the time.

  12. as always, Ritchie raises interesting questions for all the wrong reasonse. Perhaps someone can explain to me why a country defaulting on its debt is different from a country going bust? I believe tht they are the same but obviously Ritchie thinks there is a difference.

    Perhaps he thinks that no countries have ever defaulted on their debt. He is ignorant of most things so lack of historical knowledge comes as no surprise.

  13. Murphy is sort-of right: for all practical purposes a country cannot be forced to default on debt denominated in a currency it controls.

    That is not to say that such default cannot happen. A country may choose to default because it may judge it not to be sufficiently important to pay. It’s conceivable that the USA may at some time choose this option, hence S&P’s downgrade of it.

  14. PaulB – in the case of the USA, there must at some time be a determination of just how much of their debt can ever be repaid. That will be a major trigger-point this century. the balance betweeen domestic inflation, external dissatisfaction plus the acceptance of not being in charge of the world economy will make a scary set of factors to watch.

  15. O0000h Kasaaaay
    How do you define “broke”?
    When I was young it meant not being able to buy anything because you had no money
    Murphy either demonstrates his idiocy or his dishonesty (not ignorance – it has been so widely known throughout my lifetime that Britain needs to pay for food imported from overseas that we cannot believe he is ignorant). Who has seen oranges and bananas growing in Norfolk, let alone Wandsworth?

  16. World War II taught us many things. Pacifists learned that there is such a thing as a just war (which is not to say that almost all wars are not unjust). And fructivores learned that, yes, we have no bananas.

  17. Ian: Fred Smith’s pension fund owns the debt. Banks aren’t owned by fabulously wealthy individuals, they’re owned by everyone. So, erm, yer wrong.

  18. Ian B

    Yes, I know that. I was simply pointing out that Tim and Ritchie were not referring to the process by which bank lending inflates broad money and, by extension, the monetary base. They were specifically talking about central bank seigniorage. And in this case both are correct in different ways. Ritchie is absolutely correct that a currency-issuing sovereign cannot run out of money. But Tim is also correct that the money issued by that sovereign can be worthless.

  19. John b

    Fair point. My company pensions are bank ones, of course, because I worked for banks. But what proportion of my pensions is held in the form of bank shares I don’t know, though as I get older I expect I will own less bank and more government. And my state pension is unfunded, of course.

  20. John b

    Anyone who is entirely reliant on the state pension and has no other long-term savings doesn’t own banks or any other corporation, because the state pension is unfunded. That is really rather a lot of people – in fact it is possibly the majority. So it’s not true that banks belong to “everyone”. Except RBS and half of Lloyds, of course.

  21. Absent the total nationalisation of the banks and the use of interest payments as a tax, the present private creation of credit system could be much improved by instituting the JS Mill tax on land value increases from here onwards (to prevent housing bubbles that have wrecked capitalism).

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