Ritchie really has found the magic money tree

And as for sovereign debt; of course it is an issue, but the reality is that the reason why it is such an issue is that the EU insists that governments can only borrow from markets. This is absurd, as the UK has shown. The reason why the UK is avoiding some of the problems of the Euro area is because of our QE programme. £325 billion now, and rising, this has in effect done two things. Firstly it has paid for almost all the deficit for the last two years. Second, the debt is immediately written off in the case of the UK. Almost all the debt we’ve issued in the last couple of years is, in effect, now owned by the Bank of England, which is owned by the UK government and debt owed to yourself is debt you don’t have to worry about!

Facepalm.

He\’s still not getting that QE is deliberately designed to be reversible, is he?

21 thoughts on “Ritchie really has found the magic money tree”

  1. “Almost all the debt is … now owned by the Bank of England, which is owned by the UK government and debt owed to yourself is debt you don’t have to worry about!”

    Obviously he’s not been present when Merv’ decides to send the boys round. Best avoided. Especially since the bank regained its independence in 1997.

  2. “QE is deliberately designed to be reversible”

    Yeah, it could be reversed. But it won’t be.

  3. “the EU insists that governments can only borrow from markets”.

    Simply untrue. In fact the EFSF and ESM can only lend to governments – which is why Spain is facing a government bailout rather than direct bank recapitalisation, which is what is actually needed. The EU are desperately trying to find a way of softening the rules so that Spain doesn’t have to have the invasive bailout terms imposed on Greece, Ireland and Portugal, because it really doesn’t deserve them – the national government has been a model of fiscal rectitude and its public sector is smaller than Germany’s.

    More importantly, RM doesn’t seem to understand how Eurozone financing works. “EU insists governments must borrow from the markets”? Rubbish. It’s nothing to do with the EU. It’s the inevitable consequence of adopting a foreign currency as their national currency and relinquishing control of monetary policy. They have no power to create currency themselves (except within the limits imposed by the ECB) and therefore must borrow from the markets. If they weren’t members of the Euro they could print and be damned.

  4. @FC
    But they are members of the EU,so they have to borrow from the markets.
    The problem with British QE is that the State created money is given to the banks (who sit on it) and not to the punters, who might spend it.
    Alternatively (to QE) the Guv could just order up a whole lot of capital projects and pay for them with unsupported QE cheques the way the banks create money (which they lend out at interest).

    There you are :I am not just an LVT nuisance,I am also a monetary reform nuisance.

  5. Well a nuisance,anyway.
    Capital projects?
    Brilliant.
    And the sort of capital projects governments get involved with; new roads, rail, airports, take 2-3 years in the planning & design stage – that’s a few highly paid lawyers & architects/engineers who’ll likely be foreign. Then you’ve a handful of bods with enormous machines, no doubt imported from Germany, pushing mountains of shit around. That’s another couple years. When you actually get to the bit employs lots of blokes doing the fiddly bits like electrics, brickwork, painting whatever, the economy’s at the other end of the cycle & you have to get Eastern Europeans over to meet the labour shortage.
    What’s wrong with just keeping taxes down & staying out of our f****g way for a change?

  6. RM’S ECONOMICS

    It is a slow day in a small town in central Spain, and streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.

    A German tourist visiting the area drives through town, stops at the hotel, and lays a €100 note on the desk saying he wants to inspect the rooms upstairs to pick one for the night.

    As soon as he walks upstairs, the motel owner grabs the note and runs next door to pay his debt to the butcher.

    The butcher takes the €100 and runs down the street to retire his debt to the pig farmer.

    The pig farmer takes the €100 and heads off to pay his bill to his feed supplier, the Farmer’s Co-op.

    The guy at the Farmer’s Co-op takes the €100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her “services” on credit.

    The hooker rushes to the hotel and pays off her room bill with the hotel owner.

    The hotel proprietor then places the €100 back on the counter so the rich traveller will not suspect anything.

    At that moment the traveller comes down the stairs, states that the rooms are not satisfactory, picks up his €100 and leaves town.

    No one produced anything. No one earned anything… However, the whole town is now out of debt and now looks to the future with a lot more optimism.

    And that is how R.M views the world.

  7. Just a dumb question – who the hell is employing / paying this stupid muppet called Ritchie? Is not that Ritchie is beyond stupidity but I am wondering who is forking the cash to pay for all his lunacies!

  8. dbc reed

    Britain is also a member of the EU – or have you forgotten that? It’s nothing to do with the EU. It is a consequence of Euro membership.

    QE money is not “given” to banks. Investors (who by and large are not banks) have to pay for it by giving up an equivalent amount of assets. And it reaches banks in the form of deposits, which are of course loans to banks. Do tell me in what way “unsupported QE cheques” are in any way similar to this?

  9. Daniel

    His funding sources are on his website. They include trades unions and a variety of charitable foundations.

  10. @Bloke
    You could lay off fewer policemen and public servants, hire a few more in fact, and get State- created credit into circulation more quickly that way.Mixed economies are useful that way.
    @FC.
    The money that goes to pay for banks’ bonds is in the form of unsupported QE cheques, otherwise they would n’t expand the money supply (if it was a matter of shuffling around pre-existing money).
    Are you saying the UK ,not being in the Euro zone (your point is taken on that),” should print and be damned”?

  11. DBC Reed

    “The money that goes to pay for banks’ bonds”??? If you mean bonds that banks issue, that comes from pension funds, mostly. Doesn’t expand the money supply. If you mean bonds that banks buy, that comes from retained earnings, mainly. Also doesn’t expand the money supply. If you still mean QE, then you have ignored my comment that QE doesn’t go to banks directly. The BoE deliberately chose not to buy bank bond holdings.

    QE expands the monetary base, not the money supply as a whole. One of the interesting things about the last round of QE was that as M0 rose due to QE, M4 – broad money – fell. There has been quite a lot of debate about the reasons for this, but the most useful (and scary) that I have found is this article from Vox:

    http://www.voxeu.org/index.php?q=node/7955

    If they are right then QE may be not only useless, it may be actually counterproductive.

    Euro members are UNABLE to “print and be damned”. The UK can if it chooses. That doesn’t mean it should.

  12. dbc reed // Jun 8, 2012 at 7:32 pm

    “@Bloke
    You could lay off fewer policemen and public servants, hire a few more in fact,……”

    And that now defines capital projects?

    Jeez.

  13. @FC
    I am referring to government bonds held by the banks not bonds issued by banks (From Treasury website:”The Bank creates money and uses it to buy assets such as government bonds.”)

    I take heart from the fact that you acknowledge that we can in the UK “print and be damned.” I think we should .
    @bloke
    @Bloke
    I only mentioned current expenditure as on public sector wages because you were scoffing that government capital projects would be too slow in raising spending power. Though God knows they would be popular with the private sector which feeds off State contracts while striking independent attitudes.

  14. dbc reed

    I suggest you read what the Bank of England actually says about QE. It specifically says that it chooses to buy the bonds directly from investors in the hope that investors will then use the money to buy other investments such as corporate bonds. In other words, it bypasses banks.

    http://www.bankofengland.co.uk/monetarypolicy/Pages/qe/default.aspx

    http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb110301.pdf

    As new liquidity requirements have forced banks to INCREASE their holdings of government bonds, they would be unlikely to participate in a QE programme anyway.

    You seem to believe that the aim of QE is to provide banks with reserves for lending. Lots of people make this mistake. Availability of reserves makes no difference to bank lending – the decision whether or not to lend is always and everywhere a commercial decision based upon expected risk versus return. If a bank doesn’t want to lend, it won’t, no matter how much money you throw at it.

    Nor does QE money increase bank capital, since it arrives on bank balance sheets in the form of deposits, which are bank debt. Yes, bank reserves have increased as a consequence of QE – but that is because of the risk aversion of investors, who have simply put the money in the bank instead of reinvesting it in something riskier. In that respect QE is a failure. But most of the things that are generally said about QE and banks are simply wrong.

  15. @fc
    The HM Treasury site says “The bank buys assets from private sector institutions that could be insurance companies….banks..”
    The BoE site ,does ,as you say, specifically exclude banks .Very odd.
    Not that it affects my case which is that QE is too indirect ,(even more indirect if the money is going to insurance companies!) and that State- created credit should go, long-term, into capital projects or short term, into public sector wages.
    Sir Simon Jenkins has suggested in The Guardian giving out time-limited bank cards to all and sundry for immediate an purchasing-power boost. But the usual steps will have to be taken to stop this merely boosting house prices.

  16. Warning, Tim Robinson, mono-maniac alert …

    But the usual steps will have to be taken to stop this merely boosting house prices.

    Really? Is everything reducible to “the only possible solution is LVT”?

  17. dbc reed

    As the BoE is the institution actually making the purchases, and the BoE is operationally independent of the Treasury, I’d be more inclined to believe what the BoE says than the Treasury, personally.

    QE is an asset swap, not a free lunch. What assets would be provided to the BoE by public sector workers in return for the short-term expansion of their wages through QE, under your proposal?

  18. @FC
    As regards believing the BoE or the Treasury websites, you are almost certainly right to trust the BoE.
    I think I have made it sufficiently plain that I cannot see the point of QE when it is “a matter of shuffling round pre-existing money” See above 12.I have also argued for the State creation of credit (“State created money” @no 6 above) and the chucking-money-at- it solution to problems or” print and be damned “in your useful phrase, with precautionary LVT.So definitional put downs of suggestions like spending more on public sector wages because its not proper QE, is merely pedantic from my POV .
    @SE
    I did n’t mention LVT in the bit you quoted. You must have internalised the argument so well that you can work it out for yourself. You are in fact thinking like a Land Taxer. I am very proud.

  19. You must have internalised the argument so well that you can work it out for yourself.

    Working out that “But the usual steps will have to be taken to stop this merely boosting house prices” is DBC code for “all the problems of the world will be sorted if only we introduce LVT” isn’t evidence of genius. We’ve just successfully diagnosed your mono-mania.

    It’s like knowing that Ritchie’s answer to everything is either ‘tax companies more’ or ‘tax rich people more’. You don’t have to even understand the argument to know he’s going to make it. It’s more like a football chant in a language you don’t understand – you recognise what they are saying, you know why they are saying it, you may even be able to predict when they are going to say it again. But it’s still gibberish.

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