But actually, a country’s whole economy can grow more money if it needs to. Since 2009 the Bank of England has created £453bn of new electronic money to buy debt from the private sector using a mechanism called quantitative easing. Yes, you read that right: the Bank of England has created £453,000,000,000 of new money in the last eight years. Turns out the magic money tree is pretty big.
The issue isn’t whether we can grow money or not (we can – that’s just a fact), it’s where the money goes once it’s been grown. And the problem is that it doesn’t go to nurses, teachers or the public services they work for. It goes to institutions such as banks.
Nope, it didn’t go to the banks. They were net short of gilts when QE started. They’re now net long. The one group of people that QE absolutely didn’t go to are the banks.
The nurse in the BBC debate was highlighting a problem that exists across the whole economy: real wages haven’t increased for more than a decade, and this has meant more people have been relying on credit cards, with personal debt now higher than it was before the 2008 crash.
That personal debt number is casuistry verging on a lie. Note the emphasis on “real” wages there. As a real number, adjusted for either inflation or as % ge of GDP household debt is well below those previous peaks.
And back to that magic money tree. The reason we don’t invent money to spend upon nurses is because that’s not QE, that’s monetisation of spending and is highly inflationary. Zimbabwe and Venezuela here we come time…..
The Magic Money Tree is an article of faith for these people, as the comments under the silly article reveal. A theory, however implausible, is a fact, if it underpins your infantile socialist fantasies. Money is unlimited, so no need for priorities or hard decisons. Utopia, here we come! (PS Does Ellie-Mae ever wash her hair?)
If your basic worldview is that the government is like a slightly bigger version of mum and dad, and you view yourself as a toddler with your hand out, why wouldn’t you think that there is an endless supply of pocket money in dad’s trouser pocket, for which there is no need to work? (Or mum’s, sorry for the #everydaysexism.)
“(PS Does Ellie-Mae ever wash her hair?)”
I believe she used to do so in the cement pond Theo.
Am I correct in thinking that with QE, you expect eventually to get the money back?
Give up numpties. Timmy has finally confessed there is a Money Tree and the only problem is inflation.
What are you going to do when they start dishing out Basic Income so people can buy the stuff made in robot factories, an idea first proposed in 1920’s?
OK, call me stupid and I probably haven’t been listening properly, but isn’t the whole idea with QE that:
1. the central bank produces lots of money with which it buys gilts;
2. price of said gilts goes up, so yield goes down;
3. therefore banks (and indeed other investors) go and buy other valuable things;
4. which overall increases investment in the economy & raises the price of those other valuable things = increases the long-term interest rates, which is the desired outcome.
So, if the QE money did not go to the banks, where did it go then? To the pension funds? If so, why do they take such a different investment view from the banks? Because of the investment horizons of each?
I remain doubtful about the chances of reversing QE though. The State is never going to stop borrowing money, so when it is flogging its own debt and the central bank is simultaneously selling back all those gilts in order to reverse QE, won’t gilt prices fall and result in a loss to the central bank, which means that at least some of the QE money has “escaped” into the real economy…
“What are you going to do when they start dishing out Basic Income so people can buy the stuff made in robot factories, an idea first proposed in 1920’s?”
DBC your biggest problem is minding the roads in Toytown so you don’t get run over by Noddy and Big Ears in their car.
Yep, eventually those gilts will be sold/mature, the BoE doesn’t buy any more, the money goes back to the BoE and is then cancelled.
The BoE won’t in fact sell the gilts. They will hold them to maturity, as they do now., But now they buy more when they mature to keep the same stock. At some point they will stop buying to replace those that mature. And of course when a bond matures it is at par…..
Fair enough, Tim, but if the bond is held to maturity and is not replaced, then the State has to replace the debt by issuing yet another gilt into the general market (unless politicians suddenly decide to stop over-spending… nah, not going to happen) so the end result will still be a lot of extra gilts in circulation. Which at least means potential trouble for the issuing State.
And also, who is holding the £453,000,000,000 and how can I get some of it 🙂
Yep, monetary conditions will tighten again, that’s rather the point. Note that current estimations of gilt issuance (other than Ritchie’s) include QE gilts at BoE.
AGN: Tim could explain it better than me, but ISTM that you are confusing maturing bonds, and new bonds issued to cover new borrowing for new spending.
And you have your point 4) the wrong way round. By buying gilts from the banks, they then have to invest that money elsewhere, such as company bonds. This would have the effect of reducing effective long-term interest rates, not raising them.
DNR Reed: What are you going to do when they start dishing out Basic Income so people can buy the stuff made in robot factories, an idea first proposed in 1920’s?
Nobody is going to argue with you about what might have been proposed in the 1920s (no apostrophe needed) because you were probably there and are the living [citation needed] proof that nonsense flourished.
‘Theresa May couldn’t admit the simple truth: the government could give nurses a pay rise. It just doesn’t want to.’
The economy is all about nurses.
N.N – yes, you are right of course; *reduces* the long-term interest rates is what I meant – can only blame under-caffeinisation. But I’m not confusing maturing bonds and new bonds – the State will have to replace the maturing bonds with new bonds, unless it actually decides to pay down its debt. Which is not going to happen because it would require politicians making a decision involving less spending (or indeed higher taxes).
Still not convinced about the reversal of QE though. But I’m sure all you economists know what you are doing…
there is a Money Tree and the only problem is inflation
It maybe the only problem, but rather important, no?
The rise in inflation counters the increase in money, so you’re back where you started (assuming no extra production, just extra production).
I suppose the nurses would have extra, but everyone else would have less.
“Theresa May couldn’t admit the simple truth: the government could give nurses a pay rise. It just doesn’t want to.”
Why should it? Are nurses quitting to do something else? Is there a shortage of good applicants for nursing places?
As far as I can tell, neither of these are happening, so we don’t need to pay more.
Anyone that thinks nurses should have more money is at liberty to walk into their local hospital and start giving out wads of cash.
What those making the statement quoted really mean is “everyone else should be forced by threat of violence to give nurses more money”.
As so often, Kipling identifies the problem rather well:
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”
@Jack C
At the moment the banks are conjouring up sums of money and calling them loans , then pumping up the property market with land price inflation.As Timmy expresses so eloquently , when away from his embarrassing supporters on here, this form of inflation can be controlled by Land Value Tax, releasing people from the servitude of high rents and mortgages as thoughtful people were beginning to realise two hundred years ago.
Come on then: how are you going to create effectual demand for the products of robot factories?
“Come on then: how are you going to create effectual demand for the products of robot factories?”
We’re not going to because you are talking cockrot fantasy again.
When they –or some robot–lays the foundation for the first of the all purpose robot factories you come back and ask us again.
Most of us will be thankfully dead I imagine. However Reedy if you have been going since the 1920s–like some broke-dick “Highlander” –then you must solve the problems of the distant future without the help of mere transient mortals like us.
“how are you going to create effectual demand for the products of robot factories?”
By moving human workers up the value chain.
Don’t encourage him.
So, if there’s no effective demand for the products of the robot factories then they won’t be making anything, will they? Or, alternatively, the production of the robot factories will be cheap enough for there to be effective demand. There is no possibility, none whatsoever, that a bunch of stuff gets produced but not consumed.
Jack C
‘The rise in inflation counters the increase in money’
Inflation is a measure of the rise in money over and above net production.
There is no possibility, none whatsoever, that a bunch of stuff gets produced but not consumed.
Well, there is if Nick Bostrom is correct and an AI in charge of a paperclip factory decides to turn the planet (and then the galaxy) into paperclips. But he argues that we’re almost certainly living inside a computer simulation, so who cares?
Come on then: how are you going to create effectual demand for the products of robot factories?
You’re still stuck on “money” being the thing that matters.
You’ll be aware that general prosperity has increased massively over time. We’re all doing less and less, however we have more and more.
Such a reactionary.
But “credit card” is just another word for “money”. So, the nurse is saying: she’s short of money so is relying on money.