So who should we believe here then? Ritchie or the Bank of England?

MurphMonster insists that the national debt is piffling, Because all those gilts bought by the Bank of England can just be cancelled and no one would be the wiser. The Bank of England seems to disagree:

The Bank stressed that QE was more likely deliver a £17bn profit by the time it is entirely unwound, and that the “narrow” measure of the programme\’s profitability ignored the wider benefits to the public finances of lower government borrowing costs and larger tax revenues as a result of stronger economic growth.

However, the risk of taxpayer losses will fuel scepticism about QE, which senior Bank policymakers – including the Governor – have warned may no longer be so effective at stimulating growth.

The Bank’s study also showed that the Treasury’s decision last year to seize the excess cash in the scheme would save it “between £65bn and £70bn” by 2016. But the cash transfer would then be reversed between 2017 and 2020, when the Treasury would have to raise extra debt in the market to hand the money back to the Bank.

In an essay in its Quarterly Bulletin, the Bank mapped out a number of scenarios on how the gilts would be sold back to the market.

It\’s very difficult to see who should be believed here, isn\’t it? The retired accountant from Wandsworth who says it\’s all just peachy and the senior and practised officials of the central bank who say that actually, it might be a bit tricky you know.

Just who to believe, eh?

BTW, I was terribly amused to see that MurphMoshie has just realised that he\’s an MMT\’er. Err, yes, this has been obvious for some years now. But the joy of his views is that he comes up with ideas yet his knowledge of economics is so patchy, so sketchy, that he doesn\’t realise that other people have been discussing those very same ideas for decades. And in the process, often enough, finding out what\’s wrong with those ideas. With MMT it being that if you give the politicians the keys to the printing presses then you will get inflation. High inflation too. That\’s just the way the incentives work. In a true MMT system taxation is only there to curb inflation. And we all know that no politician actually likes imposing or collecting taxes. And if the reason you have to do so is only to curb inflation, rather than to have to pay for your spending desires, then it doesn\’t take a genius to see that spending will rise from hte printing press while the curbing of the inflation through taxation will be insufficient.

You know, like cancelling QE gilts rather than selling them back to the market.

12 thoughts on “So who should we believe here then? Ritchie or the Bank of England?”

  1. Tim
    I intended to ask you to blog on MMT. I followed Ritchie’s link and found somethin truly wondrous. At first I thought it was a spoof, then I decided it’s what happens when a bi-polar economist is in his manic phase, then the awful truth dawned. Even its basic definition of money comes wrapped in a bow straight from Fairyland.
    The story of Ritchie’s evolution to disciple this week is equally wondrous. He starts by claiming, as you have pointed out that gov’t debt bought by the BoE just disappears (when Ritchie rules us it will). He moves on to claim that only credit can get us out of recession (short term this might be right) but can’t say where it comes fromn maybe because he can’t bring himself to say the word ‘Bank’m then he tells us that money comes “out of thin air” but won’t discuss the mechanism for conjuring it up. Then he starts to tak your posts down as soon as he puts them up. Then sudddenly, two days later, oh praise the Lord, he discovers MMT. Well, in the Kingdom of the Blind Man the frothing, delusional one-eyed maniac is king.

  2. I have to say I have been trying to get my head around MMT for some time. Ther might just be a kernal of something there and I do think economists probably need to think more about fiat currencies.

    But the bit that made me scratch my head and think that just nuts is a paper I read that said government spending is the only way of giving people the necessary cash to pay for consumption and taxes. So I can see why Murph likes it because it fits with his theory that all property is simply owned by the State and we should be grateful for the privilege of having the illusion of private ownership.

    I just get this feeling that MMT is just the lunatic fringe dressing up thier political ambitions in the terms “economic theory” to give credibility to a mad idea.

    Oh wait….. no wonder he likes it!

  3. I agree with Paras 2, 3 and 4. Para 1: you would need to go a long way to convince me there was anything in it.
    It is amazing that this “theory” fits perfectly with their pre-existing prejudices isn’t it. How the state and ONLY THE STATE drives economic growth. So deficit isn’t really deficit and anyway it isn’t only OK to have a deficit, IT IS REQUIRED.

  4. MMT sort of makes sense on paper but would be a complete clusterf*ck in practice. The idea that ‘taxes’ should be used to reduce the inflationary pressures in the economy for example – what taxes exactly? On on who, and at what levels? There are myriads of different taxes falling on very different people at very different rates, and raising them would have very differing effects. The idea that there is some sort of all seeing eye that can assess the entire economy and then extract the exact right amount of tax from the right place to slow it down is pure command economy. MMT is the modern version of communism.

  5. Thinking about it MMT is communism, its just they have given up thinking they can physically organise all the economic transactions within an economy, now they just want to have total control over the money supply instead. Its the next stage on. They have spent about a century proving categorically that there is no human organisation capable of coordinating the physical economy better than the market place, now they want to do the same with money.

    Great.

  6. Exactly Jim. Hence all bank debt and bank lending: Really BAD; Gov’t debt: Really Good, absolutely necessary in fact and not really debt actually.

  7. Also the fact that government needs to repay its bonds is a good discipline because it requires that its activity not harm the economy and the tax base from where the repayments are sourced. It disciplines government spending to be beneficial.

  8. I like the way MMT is predicated on a theory of money that’s obviously untrue. The idea that money has value because it can be used to pay taxes appeals to big-statists because it implies that government is needed to have an economy at all, but it’s clearly disproven empirically by the various regions which have, at various times, had functioning economies without a functioning government, or any defined system of taxation. It’s further disproven by the existence of far more money than the total taxes ever liable to have to be paid.

    In reality, of course, if there was no more taxation, people would still need money to live in any society remotely resembling ours. The value added to the human race by living in such societies is what actually backs paper money.

  9. agreed
    Central banks issue money against government bonds, commercial bank bonds and cooperate bonds alike, backed by the goods and services that back those bonds.

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