September 2017

No you didn’t actually, no you didn’t

Steve Groves says:
September 29 2017 at 10:08 am
If the private company owns the gilts and is lending them to a bank then they are receiving cash. Which doesn’t make this process a ‘home for cash’ as you previously claimed. It means they would ctually have more cash for which they need to find a home!

Richard Murphy says:
September 29 2017 at 10:10 am
The private company buys them from the bank

And sells them back at a higher price next morning

That’s what I said

That’s how repo works

No, that’s not actually what you did say. You got it the wrong way around the first time:

He should know how the repo market works and that this involves the technical sale to banks of gilts overnight and their repurchase with what appears to be interest credited in the morning, in this way providing the large customers making use of this facility for their cash piles with the deposit guarantee that they crave and which the government will not itself supply.


Ahahaha, aha, aha

Steve Groves says:
September 29 2017 at 9:50 am
You appear to totally misunderstand how ‘repo’ works and which parties are borrowing / lending gilts!

Richard Murphy says:
September 29 2017 at 9:52 am
So you’re saying gilts have no part in it?

And you;’re saying they’re not sold and repurchased under contract


Steve Groves says:
September 29 2017 at 9:56 am
No, I’m claiming that your comments about which party is lending and which party is borrowing doesn’t stick up to your previous claims about the gilt market!

Richard Murphy says:
September 29 2017 at 10:02 am
Then respectfully it seems to be you who does not understand

Your time here is over

It is the Sage of Ely who does indeed have it the wrong way around of course:

As for Worstall, I am a little surprised by his comment. He should know how the repo market works and that this involves the technical sale to banks of gilts overnight and their repurchase with what appears to be interest credited in the morning, in this way providing the large customers making use of this facility for their cash piles with the deposit guarantee that they crave and which the government will not itself supply.

Erm, what?

As for Worstall, I am a little surprised by his comment. He should know how the repo market works and that this involves the technical sale to banks of gilts overnight and their repurchase with what appears to be interest credited in the morning, in this way providing the large customers making use of this facility for their cash piles with the deposit guarantee that they crave and which the government will not itself supply. The gilts remain legally in the possession of the banks and many of them will be in nominee names and some will be borrowed (this being a feature of euro repos now, I believe) but the fact that nominal ownership does not reflect beneficial ownership of use of an asset was something I thought he would be familiar with. Apparently not.

Umm, repo is selling gilts to banks? Rilly? Why would that help someone park money overnight?

Walk through it. I’m a corporate treasurer with a pile of cash. I want a safe home for it in the short term. I could, of course, just stick in the bank. But, hhmm, no. Not safe perhaps, interest too low maybe.

So, instead, I go sell a gilt to a bank and get a bigger pile of cash that I’ve got to put somewhere.

That doesn’t work, does it?


I might go and buy a gilt of course. But if I did that I’d probably not be buying it from a bank but from a hedge fund, securities dealer, pension or insurance fund.

Do note that it’s not me teaching economics at a British university.

Sport obviously not being one of Snippa’s interests

We seem to need gods. As the old ones lose their credibility it seems we must substitute new ones to replace them – and if you are an economist the name of that god is often “free market”.

I am a fan of markets. I think they are a great invention, of the order of alphabets or wheels.

But markets are not gods. And when you make them into gods disaster is pretty well sure to follow. As we have seen.

As for “free” markets, there is no freedom except within limitations. If we want to play a game the first thing we must do is invent some rules we agree to follow. Otherwise we can’t play a game we will all enjoy. If I play chess I am free to chose whatever move I like, so long as I make a move that is allowed by the rules of chess. If I make a rule that isn’t allowed in those rules we’re not playing chess anymore. It is the rules of chess that make me free to play it.

So “free” markets aren’t actually markets any more. Without an agreed set of rules for the game “market” there is no market. And the set of rules we use for markets is called “regulations”.

So, if someone is for lifting the “burden” of regulations on markets I ask, “well, would you support the deregulation of football”? Let the players do what they want, let the “free marked” rule the game of football. After all, if “free” markets are self regulating, then so should games such as football be self regulating, surely. So, let’s deregulate football. Let the players do whatever they want. And what could possibly go wrong with that?

You’d end up with football, rugby union, rugby league, Australian Rules, NFL, Canadian football, 5 a side……wouldn’t that be a terrible problem.

Again the Senior Lecturer with something that cannot be true

Bank deposits are up. Therefore:

Think about that for a moment: the world’s wealthiest people are so lacking in faith in the world’s financial markets that they’d rather hold €33 trillion in cash and lose money as a result.

Ignore the angle on the banks that Allianz makes.

What this really says is that the world’s wealthiest do not believe the puff of neoliberalism.

Nor do they believe that there is anything very entrepreneurial going on out there.

And they most certainly don’t believe current market valuations and so they’re actually withdrawing from markets.

For once they may have got something right.

But last week we were being told that the wealthiest have done best out of QE because asset prices have been pushed up. It’s the weal;thy who own the assets, you see? Now we’re being told that the wealthy shun assets and prefer bank accounts.

Either of these could be true but not both.

The correct answer being that the wealthy are more heavily vested in assets and the poorer among us boosting their savings accounts. Hmm, perhaps not the poorer, but the middle.

It’s not George Soros sticking his cash in a savings account now, is it?

No, they’ve got this wrong about hedging losses

The slide in the pound since the Brexit referendum vote almost wiped out annual profits at the family firm of George Osborne.

Osborne & Little, the upmarket wallpaper and furnishings company controlled by Sir Peter Osborne, his father, incurred currency hedging losses of £855,000 last year after sterling collapsed in response to Britain’s vote to leave the European Union.

Mr Osborne, the chancellor under David Cameron’s Conservative government, on whose watch the referendum was held, is among the company’s shareholders.

Osborne & Little made pre-tax profits of £73,000 on sales of £33.8 million in the year to the end of March. Without the hedging losses profits would have hit £928,000.

The company has a big US subsidiary and North America accounts for just over half of overall sales. Its revenues and expenses are denominated mainly in dollars. To minimise currency risk the company uses “forward contracts covering 40 per cent and 70 per cent of the forecast exchange exposures for up to two years ahead,” its accounts show.


This is a timing issue, nothing more.

Despite the costly hedging losses Osborne & Little reiterated that “if exchange rates stay as they are, in particular the exchange rate between sterling and the US dollar, then there will be a material benefit in the current year ended March 31, 2018”.

Quite so, they’ve hedged for 12 to 24 months ahead. You take the losses on your hedge as soon as the rates change. You collect the profit from having hedged over the 12 to 24 months as the cash rolls in. Net they should be flat minus the premium they paid for the hedge.

Sigh, The Times used to be better than this.

The Senior Lecturer admonishes us

Two comments on my letter concerning the use of People’s Quantitative Easing to buy out PFI (27 September) in your paper on 28 September require a response.

Martin Wheatcroft says that the Bank of England reserve deposits of our clearing banks, which is where most QE funds are now located, have interest paid on them, meaning that People’s QE is not costless, and that cost could rise, considerably. He makes three mistakes. First, interest is only paid by Bank of England discretion. It could withdraw or limit it. Second, he quotes nominal and not inflation-adjusted interest rates, and it is adjusted rates that matter overall for People’s QE because they indicate the real cost. Third, he assumes UK interest rates will rise without QE being unwound, and that is exceptionally unlikely.


The BoE isn’t going to raise interest rates? Without unwinding QE?

They’re not going to do what the Fed did, which is raise interest rates first?

Tim Worstall also makes a mistake. He says big business does not use gilts for cash management. That’s true if nominal ownership of long-term funds is taken into account. But that’s because big business only makes use of these gilts overnight, when the massive “repo” market, which places the cash of these companies on deposit while the world sleeps, makes extensive use of, and is entirely dependent upon, the availability of government-backed gilts to make that market work.

My critics are making use of highly selective and unrealistic evidence. I stand by my arguments.
Professor Richard Murphy
Professor of practice in international political economy, City, University of London; Director, Tax Research UK

Repo uses a lot of gilts, yes, but it’s not entirely dependent upon. Further, corporate treasuries are rather small players in this market – although it has indeed been growing since 2008. However, the claim that the repo market is about placing those corporate cash surpluses on deposit is simply wrong. That’s a small and very new part of the market. The major players are the central banks and then other financial sector companies.

If anyone can track down the actual figures would be most grateful…..

Absolutely super

At a time of staggering inequality, I can’t believe that Congress and the Trump administration want to give me another tax break.

On Wednesday, the Republican party unveiled their tax reform plan, which included the elimination of the federal estate tax. But as one of a small segment of people in the top 1% with enough wealth to someday pay the estate tax, I believe a tax on inherited wealth is completely reasonable and fair.

Well, great, off you go then love. “Gifts to the United States” is the account, just send your check there.

After the second world war, between 1945 and 1975, we taxed wealthy people and invested in infrastructure, education, and middle-class opportunity. Veterans Administration mortgages, the GI bill, and other debt-free college opportunities put millions of families, albeit mostly white, on the road to economic prosperity. Median income rose commensurately for all working people, secretaries and sanitation workers as well as CEOs.

In recent decades, we have cut taxes on wealthy folks and failed to make adequate public investments to ensure broadly shared prosperity.

You do know that the Feds swallow more of the economy than they did back then, yes? Meaning that it’s what they’re spending on which is the problem, not the amount?

Quite right too

Wood burning could be banned in some urban areas in a bid to improve air quality.

We banned coal burning in urban areas for a reason:

It is estimated that a quarter and a third of all fine particle pollution in the capital comes from people burning wood to heat homes.

You know, all that stuff they’re blaming on the cars?

Just such fun!

Tom Leonard says:
September 28 2017 at 11:41 am
I’d probably put myself down as someone who likes free markets, and hang around a people with similar views to my own.

I haven’t met a single person who truly believes in ‘zero regulation’ or zero state involvement (eg to prevent monopolies). Not one. The issue usually comes down to unique personal preferences on where to draw the line. You say tomayto, I say tomarto, that kind of argument.

Can you nominate any serious commentator one who actually believes in zero regulation or zero state involvement? I’m not asking you to name nutters – but people generally taken seriously.

Richard Murphy says:
September 28 2017 at 12:41 pm
Try reading US think tank output and James Buchanan

Do not forget that our Spudda is a prof of political economy:

Buchanan was largely responsible for the rebirth of political economy as a scholarly pursuit

My word this is a surprise, isn’t it?

The Endocrine Society, an international organization of medical experts and biological researchers, has released a new set of guidelines for caring for transgender patients. Along with the guidelines, the organization has issued a position statement calling on federal and private insurers to cover the costs of all medical interventions a physician might prescribe for a transgender patient, including hormone replacement therapies and surgeries.

People who want to get paid insist that the people with money should pay them.

Straw man alert

Neoliberalism is a simple cult. All it really says is that competition is the only way to efficiently allocate resources in society and that to achieve this the state must keep its nose out of almost everything so that market meshcanisms have the best chance of being effective by ensuring that the tax take is kept to a minimum, maximising the impact of personal spending preferences as a result. There is nothing more to the philosophy than that, although of course there are many unspoken themes behind that statement. That’s why it is so easy for its proponents to be so effective: the message is easy to deliver, however wrong it may be in theory, evidential support and consequence.

Corbyn’s challenge is to now build on the following he has created and the intellectual opposition that underpins it to build an alternative to neoliberalism that is as deliverable. I have a suggestion. Corbyn has to offer a vision of a world in partnership, where the state and private sectors and individuals and organisations, all work together to best effect to ensure that the most appropriate person or organisation delivers what people need with regulation making sure that all honour the obligations to which they commit, whilst in those areas where there is either a natural monopoly or where need and not income dictate demand then the collective power of society at large, operating through the the medium of government, will ensure that the best possible services that can be supplied with the resources that are available are on offer to all who need them.

The problem is that that second paragraph is as good a definition of neoliberalism as you’re ever going to get. We neoliberals (and given that I am regularly decried as such I take it that I can speak out here) are not anarchists, we agree there’s a role for the state. We agree that monopolies should be regulated where they must be, abolished where they can be. That people do indeed honour their contracts, that we should indeed be striving to provide the best services that resources will permit.

So, err, what’s different?

Well, actually, the only difference is in which areas of life we think that those personal preferences should take precedence. You know, us neoliberals really do go around saying that Teh Gayers can get up to whatever they like among consenting adults, it’s another group entirely that says buggery is damaging to society. Just as we think it’s just fine that there’re 40 deodorants, something Bernie Sanders doesn’t agree with. Or even that consenting adults can agree between themselves the rental price of housing something Jezza doesn’t agree with.

Quite remarkable monetary policy here

The key question Julia Hartley-Brewer (no friend of Labour) put to me was what could actually be done by John McDonnell to manage this situation? My response was simple. One of the major mechanisms I suggested that might be used to engineer an attack on sterling would be a large scale sale of government bonds (gilts). This would indicate a withdrawal from sterling, a lack of confidence in the government, a signal that the market would not lend what Labour wanted, and would (because interest rates are the inverse of price in the case of gilts) force interest rates up (which is the surest indicator of there being a run on the pound) by forcing prices down.

But, I said, any Labour government could now manage this. What it could say, even before it was elected, was that it would actively intervene in the bond markets by requiring that the Bank of England intervene to buy any amount of gilts that the market wished to dispose of in the event of its election using newly created money that would be put into use by the Bank of England for this specific purpose. As a result any seller would find a willing buyer, and the price would not go down after all. None of the signals the attack would be meant to deliver would arise in the market as a result. In that way any market storm could be ridden out, interest rates could be kept stable, the debt market would be kept in good ordering, there would be no pressure on base rates and within days the hysteria would have dissipated and the identity of the party really in control of the markets (the Labour government) would have been firmly etablished.

Spuds going to raise the price of something by increasing the supply of it.

He’s going to make pounds more expensive by making more pounds.

What fun

Letter to The Guardian:

Professor Richard Murphy says the government would be doing large companies a favour by issuing more debt that they can place their enormous cash piles into. Such a hunger for secure savings opportunities would be evident, if it were there, in current purchases of gilts by said large companies. The government’s Debt Management Office regularly publishes the data on who owns gilts. Once we strip out local authorities, pension and insurance companies, banks, the Bank of England, foreigners and households we’re left with those “private non-financial companies” owning some £1.5bn or so of government bonds – under 0.1% of total issuance. This is not evidence of a craving for a secure savings opportunity.

Tim Worstall
Senior fellow, Adam Smith Institute

Martin Wheatcroft’s letter is also fun even if I’m not sure I understand it.

Isn’t this just amazing?

The Lavinia Woodward case exposes equality before the law as a myth
Afua Hirsch

The leniency shown by the courts to a “promising” Oxford graduate reveals the social and racial inequality at the core of our justice system

White bird doesn’t get jugged for stabbing boyfriend because she’s a white, privileged, bird.

Hmm. Actually, this isn’t unusual:

The type of sentence outcome given at court differs between male and female
offenders and has also changed over time, due largely to the greater use of SSOs
since 2005 when they became more readily available under the Criminal Justice Act
2003. As with the wider trend for all indictable offences (highlighted in the
defendants’ chapter) there was also a decline in the proportion of community
sentences over the time period.
The most common disposal given to male offenders across each of the four specified
violence offences is now an immediate custodial sentence, with the proportion
increasing over the last ten years for ABH and remaining stable for the other
offences. By contrast the type of sentence outcome given to female offenders has
differed for each of these four offences. In 2013, the most common disposal given for
the offences of ABH and cruelty to or neglect of children was a community sentence,
whilst for GBH without intent it was a SSO and for breach of a restraining order it
came under the otherwise dealt with category.
Across each of these four offences, male offenders were around twice as likely to be
given an immediate custodial sentence than female offenders. By contrast, a greater
proportion of female offenders received less severe sentence outcomes.

Quite possibly privilege then but perhaps not the one being complained about?