Well, I agree, of course, but consider the source

The Guardian really does need to improve its economic literacy

That’s the Senior Lecturer saying that…..who also says:

Second, this comment ignores the fact that there is enormous demand for government debt from two sources. One is the growing number of relatively (and I stress, relatively) wealthy retirees needing a secure home for their money. The other is big business that is sitting on massive cash piles because it has no idea what to do with all the profit its monopoly based activities now generate for it, and so they lend it to governments as the only secure place to deposit mountains of cash.

Hmm. Who owns gilts is here. (“distribution of gilts holdings as an .xls). That big business stuff is “private non-financial companies” who own £ 1.5 billion or so. As low as it’s been since 2010.

Err, no, that really is £1.5 billion, local government 500 million, public corporations 500 million, monetary financial institutions (not just BoE, but others like them) 640 billion, insurance companies and pensions funds 550 billion, other financial institutions 135 billion, households 85 billion and overseas 520 billion.

Those big businesses looking to stash their profits aren’t even 0,1% of the market. Err, yes, really, zero point one percent not even.

At which point the senior lecturer tells us:

It really is time that the Guardian woke up and smelt the coffee on economics, because right now it is about as economically literate as the Mail, and that’s not a commendation.

Err, yes Ritchie, if you say so.

10 thoughts on “Well, I agree, of course, but consider the source”

  1. The new butchery of the language:
    No-one is wealthy, they must be called the relatively wealthy
    But at the other end of the scale no-one must be described as being in relative poverty.

  2. I thought Murphy had reached peak asininity a while ago but he’s a real Starman zooming away from us on a trajectory that defies all physics and parody.

  3. So the biggest holders after BoE are those whose arms have been twisted by regulators and the PPF (not quite a regulator) to hold gilts, followed by foreigners speculating on sterling. That is “great demand” for gilts.

  4. I am trying to understand how these statements by Snippa are compatible:

    since QE’s debt carries no interest cost there is precisely no cost at all to buying these contracts

    and

    Second, this comment ignores the fact that there is enormous demand for government debt from two sources. One is the growing number of relatively (and I stress, relatively) wealthy retirees needing a secure home for their money. The other is big business that is sitting on massive cash piles because it has no idea what to do with all the profit its monopoly based activities now generate for it, and so they lend it to governments as the only secure place to deposit mountains of cash. These people (real and legal) are not doing the government a favour: by providing them with a secure home for their money the government is doing them the favour by removing the risk they face by being so cash rich.

    So these people who might already be carrying shares in the companies that hold this PPI stuff and earning 5-6% will be compensated by Government bonds yielding 0%. Since this obviously makes no sense whatsoever, I must be missing something. Any clues?

    the idea that we are beholden to the bond market ‘confidence fairy’ (as Paul Krugman so aptly named it) is just nonsense. The fact is that if bond markets are truculent the government (any government) can just work around them.

    This is bizarre even by his standards. Is there a psychotic break coming along?

  5. @john77. That’s a tad unfair. Gilts are rated as being free of default risk and therefore certain in cash flows, even if the Uk credit rating is on a downwards trajectory due to fiscal incontinence. This is not so much by direct arm twisting as you imply but an indirect result of the rules of the game set by the state.

    Either way companies don’t hold cash piles in gilts directly as that isn’t smart. Cash is cash so therefore held in short term funds which lend very short term and hold some longer term investments. There was a chap at the Fed, now at Cresit Suisse I think , who mapped all this out and showed shadow banking from corporate cash was a really big component of overall lending. Can’t recall the name of the guy. Will try to find out.

  6. @ Andrew again
    PPF levies vary according to the “riskiness” of the assets in which the Pension Fund is invested so not investing in gilts carries a penalty. Insurance Companies have to provide returns to the PRA based on the assumption that the yield premium over gilts is entirely for risk whereas a significant part is a liquidity (or, pendantically, illiquidity) premium. Some future liabilities have to be matched with index-linked gilts, which is why they yield a negative real return because regulatory-based demand for index-linked dominate supply.

  7. “The Guardian really does need to improve its economic literacy”

    Translation – The Guardian has stopped asking me for my opinion.

  8. @john77 agree but again the demand for gilts isn’t *direct* pressure i.e. You must hold gilts, but indirect pressure due to capital charges. You only get the illiquidity premium up front in Matching Adjustment portfolios. Otherwise you earn it over time like credit.

    Get us. Wandering off topic…. We agree in the net effect of gilt demand being enhanced due to regulation.

    Can’t see the nuance making it to the main protagonist though.

  9. @ Andrew again

    ‘Risk free’ treatment of govies is deliberate distortion of allegedly market consistent solvency rules for insurance companies.

    I suppose any other treatment would have meant all the banana republics in the EU would have gone bust.

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