Sounds ’bout right

You say that debt can be cancelled on consolidation. As others have already mentioned, if you consolidate between the bank of england and government accounts, you also have to consolidate the cash which also gets cancelled. Which means to work PQE either needs to be printing money or the bank of england balance sheet ends up with a massive hole where it’s assets are supposed to be.

Example

Government 1bn bonds for 1bn cash. Now has assets of 1bn in cash, liabilities of 1bn bonds.

Bank of england buys those bonds using QE. Now has assets of 1bn bonds and liabilities of 1bn cash.

This is where regular QE stops. The action of buying those bonds by the bank of england lowers interest rates.

PQE you say now consolidates the balance sheet of the bank of england with the government. Lets assume you can do this with no legal problems.

You add the assets and liabilities of both sides up. You can’t pick and choose what to consolidate. It has to be everything or nothing – you can’t trick people by only doing one side.

So lets consolidate. Assets now look like +1 cash at government and +1 bonds at bank of england. Liabilties look like -1 cash at bank, -1 bonds at government.

Consolidate and it adds to zero.

So no new money is available for the government to spend.

Unless of course, you are phyiscally printing money outside this process.

Regular QE doesn’t print money in the way you are suggesting. Bonds are purchased by “new” money, but it really just swaps assets and liabilities around. QE works by lowering interest rates.

Regardless, PQE will not be happening in Europe as it is strictly verboten, by law and through treaty. it is silly to suggest that is what they are talking about as it would require treaty change.

60 thoughts on “Sounds ’bout right”

  1. There is no way somebody as spectacularly stupid as Ritchie is going to know or understand this. It’s going to be highly entertaining if Corbyn wins the leadership and Ritchie is force to defend his bullshit in a venue other than his own blog, with the whole national press watching.

  2. Murphy simply won’t acknowledge there is a huge problem with his basic accounting when it comes to PQE. If you consolidate debt to cancel it, you also cancel the cash created through the QE mechanism.

    Which reduces PQE down to printing money or an error on his part.

    His latest thing is to claim something (PQE is legal or debt has been cancelled on the NOE or government balance sheets seem favourites) which are simply and evidentially not true. Then claim anyone who points it out to him is wrong, black is white etc.

    I’m not sure if he is experiencing some sort of mental break or has just been reading 1984.

  3. It was an incredibly entertaining exchange. Of course it ended with a genuine expert, having set out the reality in a superbly clear way, being told he would be deleted from now on.

    To sum up the exchange:
    “I explain fully using clear unambiguous examples”
    “I respond by shouting all the louder I am right; it IS legal and anyway, you’re barred”.

  4. I think it was Aristotle who first used this argument:
    Respectfully, you are wasting my time on issues where you are wrong.

  5. Or as he said to Frances Coppola:

    “I hope you note all I have put up on the lack of BoE independence and trust that debate is over now”

    Translation: I’ve had my arse served to me on a plate and I don’t know how to respond; please let’s not talk about this again.

  6. Someone has asked him to do a FAQ section on his blog. I have decided to help him out:
    T Rolling says:
    Your comment is awaiting moderation.
    August 27 2015 at 9:12 am
    Here are the answers to those FAQs that David asked for

    1) Respectfully, you are wasting my time on issues where you are wrong. I will be deleting further comments
    2) Respectfully, you are wasting my time on issues where you are wrong. I will be deleting further comments
    3) Respectfully, you are wasting my time on issues where you are wrong. I will be deleting further comments
    4) Respectfully, you are wasting my time on issues where you are wrong. I will be deleting further comments
    5) Respectfully, you are wasting my time on issues where you are wrong. I will be deleting further comments

  7. You missed out:

    “I have already answered this elsewhere on the blog *airy waft of hand in general direction of everywhere*”

  8. You can tell he’s rattled because he has started fist-typing again:
    All if which pints I have already dealt with at length so unless you have eating new to add I will be deleting further comments

  9. Oh god, his hissy fit while furiously back pedalling from ‘the debt is cancelled’ to ‘effectively cancelled’ is a classic.

  10. “I have never said they are cancelled!!!

    “How often do I have to say that?

    “I have said they are effectively cancelled: you can’t owe yourself money”

    Interesting rabbit hole he’s disappearing down here. If you can’t owe yourself money, what was consolidated in the first place?

  11. And also his technique of:

    [writing some time ago]

    “Black is white”

    [writing today]

    “I have previously proved ‘here’ that black is white.”

  12. “I have never said they are cancelled!!!”

    Look higher up in the thread with SPC. he says the debt is cancelled twice. Think poor Ritchie is getting seriously rattled.

  13. Actually, there’s a serious point here.
    Every actual genuine expert I have ever know either enjoys sharing their knowledge, or feels obliged to explain their thoughts and arguments to those who ask about a specific point.

    There’s probably a psychological reason for this, but it’s definitely part of civilised discourse (as alluded to by AndrewK).

    Courteous responses to your audience are surely even more important if you are trying to influence or persuade them of something that received wisdom holds to be wrong.

    Did Gallileo get us to the heliocentric model of the solar system by refusing to answer questions about the detail of his case that the planets revolve around the sun?

    Did Compernicus kick off the whole “earth isn’t flat” discussion with “Oi! Wankers! You’re wrong! And only a knob wouldn’t agree with me, ‘cos I’m a fucking genius and you’re all neo-liberal arseholes”?

  14. Sadly, he won’t be able to delete broadsheet newspapers or national media. Sooner or later he is going to get crucified, and he won’t have the ability of experience to do anything about it bar squealing.

    Whereas if he listened to expert opinion and moulded his arguments in response, at the very least he could be a cunning weasel and obfuscate successfully. But as he cannot accept even the tiniest reverse, even somewhere as utterly insignificant as one of his blog posts, he will be completely unprepared for when he has to bat against the professionals.

  15. if he stopped talking about consolidation, and simply said that permanent monetary expansion and associated rolling over of govt debt on CB balance sheet = *effective* debt cancellation, things would go much easier for him

  16. Given a clear and concise explanation of QE and how it differs to his “PQE”, not to mention the legality of the whole concept, and the man drowns faster than a quadriplegic in a swimming pool.

    His ham fisted desk banging shows his inability to cope with anyone with an ounce of knowledge on the subject. I imagine he was standing by his computer shouting like that scene in Downfall…

  17. The exchange is a classic example of his inability to argue even the simplest point of principle – although I note what the perceptive Theophrastus says – it’s probably too early for national newspapers to send junior hacks trawling through the archives of TRUK to start harvesting the many gems from the articles themselves (let alone the comments) – Corbyn isn’t leader yet and Murphy is being indulged as some kind of slightly mild eccentric rather than one of the most dangerous men in Britain.

    However, I echo Tim Newman’s comments – his current first post on TRUK ‘The trouble for the right is they have not realised there is a new and ethical economics of the left’ is a classic of the genre – once the national media get their teeth into his prolific output I don’t think Corbyn will be associating with him for very long…..

  18. “Sadly, he won’t be able to delete broadsheet newspapers or national media. Sooner or later he is going to get crucified, and he won’t have the ability of experience to do anything about it bar squealing.”

    Brillo will utterly crucify him at his first Daily Politics outing. “But on such and such a date you said the opposite, which is it? If you can’t even organise your thoughts on your blog coherently how do you expect to run a country’s economy?”

  19. I agree that Ritchie is a waste of space. However Tim’s last para above isn’t brilliant. That is, the fact that X is currently illegal is not a strong argument against X. The important question is whether X is on balance beneficial. If it is, the that proves the law needs changing.

  20. Ralph
    That last paragraph isn’t Tims: the whole piece is a comment from Murphy’s blog by someone called SPC.

  21. Paddy Carter says:
    August 27 2015 at 10:06 am
    If the left thinks economics is about people not property rights, that implies the left worries less about preserving individual property rights, if they stand in the way of the interests of people (greater equality). Which is what Giles says.

    Richard Murphy says:
    August 27 2015 at 10:10 am
    Did you read what I wrote which made quite clear I respect property rights and Giles does not?

  22. Luis

    It might go easier for him. Then again, his greatest concern seems to be not to acknowledge that he is in reality only advocating printing money again. If that is his part concern perhaps that’s a sign that it wouldn’t go easier for him

  23. Let’s see how far this goes.
    T Rollings says:
    Your comment is awaiting moderation.
    August 27 2015 at 10:20 am
    It’s good to see that you are backing up your arguments with links to the very highest authority on the matter. Yourself.

  24. And, Ralph, there is an additional point. If you think the law should be changed, is it practical to do so?

    Note the troubles with the “oops it’s a bit hard to abolish the role of Lord Chancellor.”

    So, anything that requires an EU treaty change is going to need both expenditure of UK political capital and be acceptable to a majority of the other EU states. Given that the Bundesbank are unlikely to support fiscal expansionism, reality is likely to run right over your “that proves the law needs changing.”

    Oh, and then, “second order effects”.

  25. Surreptitious Evil

    Why don’t you go onto the TRUC blog and suggest it would need an EU treaty change or even leaving the EU; should make for an interesting exchange.

  26. Ralph,

    > That is, the fact that X is currently illegal is not a strong argument against X.

    Agreed, but it is a strong argument against Murphy’s insistence that X is legal.

  27. I was getting a bit bored with the whole Big Dick saga, but watching his current complete mental disintegration is quite entertaining.

    I particularly admired his last comment to SPC:

    “The difference is substance and form

    Legally they exist

    Practically they do not

    This is everyday accountancy”

    Which should go down like a bucket of cold sick with the ICAEW. Everyday accountancy deals with things that do not exist. Not exactly a useful profession then. Sort of modern alchemy.

  28. abacab

    “Brillo will utterly crucify him at his first Daily Politics outing. “But on such and such a date you said the opposite, which is it? If you can’t even organise your thoughts on your blog coherently how do you expect to run a country’s economy?””

    I can’t wait for the moment, live on air, when Murphy denounces Brillo as a neo-liberal in a shrill and petulant voice.

  29. He’s claiming that the cost of PQE is 0.5%.

    Has he shown how he derived this anywhere?

    He wouldn’t be so foolish as to just take the base rate…..would he?

  30. His argument seems to be (it is a moveable feast) that consolidation means EFFECTIVE cancellation of debt (then why not just print money?)

    One little problem seems to be that his mechanism for pissing it up gaisnt the wall; sorry, investing, means he isn’t consolidating Treasury and BoE assets and liabilites.
    He intends to create a National Investment Bank, which will issue debt that WILL BE high quality, investment grade (he told us so yesterday when he showed us those letters). So, is he talking about consolidating the BoE assets with the liabilities of an investment bank issuing investment grade debt?

  31. Dan,

    Yes, somebody needs to do a Downfall parody of Murphy.

    Krebs: “Mein Herr, your critics have spotted flaws in your arguments [points fingers on map] here, here, and here.”
    Hitler: [waves hands away] “That’s not a problem, I’ll just block them from commenting on my blog.”
    [silence descends]
    Jodl: “Mein Herr, Tim Worstall has comprehensively undermined all your arguments. Even the Guardian won’t publish you.”
    [Hitler flies into a rage]

    It’s not terribly realistic though. Ritchie could never gather that many friends in a room together without pissing them off.

  32. bloke (not) in spain

    “Brillo will utterly crucify him at his first Daily Politics outing. ”

    I wonder. TV’s not about spreading enlightenment. It’s about audience figures. A total on-air rubbishing of Richie & destruction of his credibility’s a loss of a useful asset. Why would he do that?

  33. “Why would he do that?”

    Cos I get the feeling he’d take immense pleasure in doing so.

    “Mr. Murphy. You use the term “neoliberal hegemony” a lot. Can you define it concicely for me please?”

  34. In the meantime – The Classic comments keep coming on the ‘Left vs Right thread’ – all great ripostes on Live TV:

    ‘And a final response to you: what I describe is the essence of UK law. We do only have a right to net incomes. People have voted for governments that have indeed created that law. You just don’t like it that I am wholly mainstream and you are the extremist’

    2/ ‘I have no time for totalitarian views

    I explianed taxation in a democracy

    It is you who is creating a fantasy. I described our reality. That is the bedrock if what I do’

    3/ ‘I unambupuguously support personal property rights and require that the state uphold them

    We all have a clear right to our after tax income

    Nothing else need be said on this’

    4/ ‘There is no threat of force

    Unless you also say we would all burgle but for the threat if state force

    The force is actually to punish deviation from the norm: not to impose

    Tax is the norm people want

    You are simply wrong’

    5/ ‘The constraint is democracy

    I know you libertarians don’t believe in it

    We on the left do, because that is how rights are balanced

    We do balance rights: it is the right who fail to do so

    So, debate over

    Pro tip 3: don’t debate with time wasters’

    And my personal favourite…….

    6/ ‘I think you need to go to Specsavers’

    It’s absolutely hilarious – he can’t refute a single point made! And Lawrence has fallen down on the job I see – unless Franklin Scrote is real…..

  35. Franklin Scrote says:
    August 27 2015 at 1:35 pm
    I am struggling to come up with an antonym for “libertarian” to make it easier to be concise on here. “Justiceafarian” appeals, but can anyone else do better?

  36. So he’s answered how he got to his 0.5% cost of PQE. He is just using the base rate.

    Mike says:
    August 27 2015 at 1:26 pm
    I’m saying that the Govt can borrow at a rate the market sets and this is below 2% at present – but its certainly not the base rate of 0.5%

    The last PFI deal I looked at had a rate of 6%

    Using those – over 25 years – a debt of £1m would cost £1.96m to repay at 6% and £1.28m to repay at 2% and £1.07m at the 0.5% for comparison. So no, not 10 times

    Richard Murphy says:
    August 27 2015 at 2:11 pm
    6% is more than ten times 0.5%

    Which was my point

    The cost is the interest, not the capital

  37. “The cost is the interest, not the capital”

    ERR, waitaminute – is the interest not in fact the cost of the capital?????

  38. Did Gallileo get us to the heliocentric model of the solar system by refusing to answer questions about the detail of his case that the planets revolve around the sun?

    Actually, Galileo was a total cock, choosing to publicly and very deliberately slag off the Pope in a quite unnecessary manner, and that’s why he was persecuted by the Catholic Church. Not because the Church was a backwards, King Canute-like organisation desperately trying to hold back progress.

    At least, that’s how I remember it from my History of Science classes.

  39. ” PQE will not be happening in Europe as it is strictly verboten, by law and through treaty.”

    Quite a lot of things have already happened in Europe that were strictly verboten, by law and treaty, until the Germans (or someone) just went ahead and did them.

    For instance, most of what was done to and about Greece; and, come to think of it, Greece’s original acceptance into the Eurozone in completed defiance of said zone’s rules; and more recently Germany’s unilateral abrogation of the Dublin rules about asylum seekers.

    The law, and the treaties, mean exactly whatever suits the requirements of “the colleagues” at any given time.

  40. Hang on, yesterday’s discussion said that the people’s bank would pay 5%. It would make a hell of a lot of difference if it only paid 0.5%

  41. mmmm…the guru states that the additional pension plan return will come from the user. So in effect the user is paying what they would under the current PFI arrangements but it will be 10 times cheaper than PFI.

    Am I missing something?

  42. Still confused…. So the pension plan bond holder gets 5% and the fund managers get 0.5% and it is cheaper than PFI. And everyone is happy.

    The man

    Is

    Candidly

    Insane

  43. I have absolutely no idea what he is talking about.

    His answer to my follow-up question didn’t help much either.

  44. … And he’s ignoring my follow up point (basically saying this is an incoherent mess, although I did try the “maybe it’s me being thick” fawning approach that sometimes works)

  45. He admits that he is throwing out ideas. I guess he doesn’t care that the ideas do not fit together and that in fact he is not thinking up anything that doesn’t already exist. Now he says that PPF is equivalent to NS&I.

  46. I’ve asked him some daft laddie follow up questions. From his answers it’s clear he’s making this up as he goes along.

    Utterly clueless.

  47. Well that was quick, he’s jumped straight into the ad hominems and is ignoring my questions. I expect to be banned next.

    I feel I’ve joined a not-so-exclusive club.

  48. He was rather obnoxious, wasn’t he! That denunciation of actuaries just goes to show how little knowledge and understanding of the world he possesses

  49. Oh well, I’m sure actuaries will get over it.

    I’ll be honest, I was asking deliberately stupid questions. Sometimes that is the best tactic for showing up a stupid idea.

    At least we’ve established that:

    -PQE is very cheap and should be used for building infrastructure
    -PPF should be used for building infrastructure
    -PPF won’t be used for building infrastructure, that’s what PQE is for
    -But PPF will be used for building infrastructure once PQE has been used to build the infrastructure
    -PPF will be used for ongoing costs, apart from “once the ball is rolling”
    -The cost of PPF will be higher than PQE, but that’s ok cos Ritchie says so
    -there will be a small secondary market for 50% of the UK pension contributions,but one of the benefits of PPF is it will operate wholly outwith the stock market

    All clear?

    He must have been spinning wildly in his stump trying to look out all the holes at once.

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