He’s still wrong on repo, isn’t he?

Second, and coming to more important issues, the bond market creates the most secure form of saving available to anyone. The UK government simply cannot default on its debt if it is in sterling because it can always, and without exception, instruct the Bank of England to make payment of that debt for it and it always will. As such bonds are the place for savers in the last resort. And long term savers have traditionally wanted that; gilts used to be fundamental to pension funds for this reason, for example, although less so now because the rates are so low (see below).

People did used to invest in gilts for their pensions. Then they got fucked over by government through inflation. So they pretty much stopped. So Gordy Brown forced the pensions funds to do so again.

Perhaps not wholly accurate in every detail but my sketch there covers the basics.

There is this fun though:

Third, the existence of this secure asset provides an essential alternative for the safe deposit of funds for those for whom government guarantees on cash deposits do not work. That is, companies and those with more than £85,000 to deposit. Government bonds are then the backbone of the so-called repo market, which is at present fundamental to the smooth operation of the City of London. I happen to think that important still: when banks are not reliable (and they are not), and funds deposited with them are at risk (and they are) then the government needs to create an alternative form of currency for the safe deposit of funds.

Repo isn’t companies with surplus cash buying gilts. Which is what he implies it is.

The repo market is an important source of funds for large financial institutions in the non-depository banking sector, which has grown to rival the traditional depository banking sector in size. Large institutional investors such as money market mutual funds lend money to financial institutions such as investment banks, either in exchange for (or secured by) collateral, such as Treasury bonds and mortgage-backed securities held by the borrower financial institutions. An estimated $1 trillion per day in collateral value is transacted in the U.S. repo markets

So, you know, not really.

I stress the last point noted above. Bonds do not fund government spending. That spending can happen whenever the UK government wishes by it simply instructing the Bank of England to make a payment. It is purely convention, as previously noted, that the resulting overdraft at the Bank of England is then cleared by a form of debt issue.

Nope. The first is called “monetisation of fiscal policy” and the second ain’t.

The claim by Sir Robert that the cost of borrowing must be minimised for taxpayers is profoundly wrong. Government money is not taxpayers’ money.

So we can have all the outsourcing we want because those profits made by the companies don;t impact upon anything at all then, not even the taxpayers?

You know, joined up stuff that Snippa never does quite manage. And of course tax subsidies to savings don;t make any difference either.

This falsehood is that the government is beholden to maximise return to taxpayers. This is simply a deeply corrupt form of the false thinking

Therefore government should just piss it away?

19 thoughts on “He’s still wrong on repo, isn’t he?”

  1. A little OT, but Adrian Chiles wrote a piece about Croatian words for genitals.

    On fanny, or Snippa:

    My mum said to me that when she was a little girl in the 1940s in Zagreb, she called it her šljiva, which means “plum”. Hmm, more confusion if you ask me. Now they have a better word in Croatian. It is related to the boys’ pimpek: “pipica” (pronounced pip-i-tsa). Trust me, it’s an enchanting, affectionate diminutive.

  2. Indeed he did. And I wrote one commenting on how Chiles has really just done a rewrite of the original (2016) Guardian piece that we got the word Snippa from ourselves….

  3. ‘the bond market creates the most secure form of saving available to anyone’

    Duh. Hard assets are more secure.

    ‘The UK government simply cannot default on its debt’

    Perfidious Albion.

  4. The UK government simply cannot default on its debt

    It’s actually better than that. Your modest thousand pound deposit will be repaid with wheel-barrows of currency, with each individual note worth a trillion pounds. So you’re actually making an unimaginably huge profit.

  5. ‘The UK government simply cannot default on its debt’

    And yet the US government undertook what Europe knew as “the American default” under FDR. Perhaps The Spud would like to explain why it bothered.

  6. Talking of such things, the Boche is said to have rebelled under the terrible conditions of Versailles, the Dawes Plan, the Young Plan. Etc. Basically, about 10-15 years after 1918.

    Our 1939-45 hock to the Septics – our supposed allies, rather than a superimposing Great Power – was finally paid awf in about 2002.

    Lessons learned, doubtless.

  7. Greece has defaulted on its debts half a dozen times since indepence. And didn’t Iceland lock the door to creditors as well, sending several UK councils’ finances plummeting.

  8. Captain Potato knows best. And he doesn’t let facts nor history get in the way. After all, the measurement can only be made when he opens the box

  9. The UK government simply cannot default on its debt if it is in sterling because it can always, and without exception, instruct the Bank of England to make payment of that debt for it and it always will.

    Do you want inflation to destroy the value of your currency? Because this is how you get ants your currency destroyed.

    FFS, its not like there aren’t dozens of examples – some going on *right now* about how excessive money creation destroys the value of the money.

    Or is he going to come back with the old ‘we can tax it to keep inflation under control?’

    Wonderful, you pay out the bond and then you tax everyone back the amount you paid out. Sound fucking investment that was. Would have been better off keeping the money in a tin in the cupboard for all the good that did.

  10. Bloke in Costa Rica

    Murphy talking finance is like a cocker spaniel trying to explain topology: the intellectual gifts on display are wholly inadequate to the task. The question is not whether Spud should go fuck himself—no serious argument to the contrary exists—but rather how long and with what degree of vigour the fucking should take.

  11. Bloke in North Dorset

    OT But something often discussed:

    Current electricity generation:

    Solar – 0%
    Wind – 4% (When I drove back from Truro yesterday not a single turbine was spinning)

    So much for providing 50% of the supply.

    Gas 60%
    Nuclear 15%
    Renewables (whatever that means*) 11%
    Coal – 8%
    Biomass – 5%

    https://gridwatch.co.uk/

    * Not wind, biomass, hydro, solar, pumped hydro which are usually thought of as renewables.

  12. Bloke in North Dorset

    Ooops, too quick on the draw and should have looked at the key.

    Renewables This is the percent of the energy produced from renewable (wind + solar + hydroelectric + biomass)

    So I’ve double counted.

  13. I have see numerous versions this sort of thing around the webage and it defeats me entirely . National debt began as means of funding wars and the first bonds issued were all bought by UK companies( individual probably )
    The government could not have printed money to pay for these wars without immediately undermining the currency.
    To me I cannot see that it ever gets any more complicated than that and I apply the same simple view the suggestion made by Brexit boosters that there is such a thing as “net debt “ ie debt net of that we owe the B of E as QE
    Writing off that debt would just be printing money , no fiscal rule would have any meaning and the value of UK would account of the complete lack of any fiscal constraint
    These suggestion by Nationalists and Lefties are just a means of encouraging more borrowing either to cover their complicity in Brexit ec0onomic pain or to pay their client Union members more.

    My only worry wiuth this is that it seems so simple I wonder if I must have missed something given the endless discussion of this supposed free money

  14. @BiND
    I’m pretty sure the main part* of that ‘renewables’ figure will be Drax. Because clear felling Canadian forests, chipping the wood and transporting it halfway round the world for burning is somehow deemed ‘sustainable’.

    And we must never let the greenwashers forget that electricity provides only a small fraction of total energy consumption.

    * there’ll be some rubbish incinerators and methane digesters in there, but they’re just a rounding error

  15. Chris,

    BiND is right. That Biomass is included (like wind etc) in “Renewables”. Ie, 5% of the 11% is mostly Drax… Wind is 4%, hydro 2%. Pumped hydro is rightly excluded (as it’s just a form of “battery” rather than a source itself).

    Ie, Renewables on that chart is not part of the 100%. It’s a separate additional “aren’t we all sad woke twats” tab.

  16. “My only worry wiuth this is that it seems so simple I wonder if I must have missed something given the endless discussion of this supposed free money”

    You didn’t…

    If you could have brought yourself to have simply said “lefties”, and tried to save yourself from your ongoing BDS, you’d have been even more accurate..;)

  17. Bloke in North Dorset

    Chris,

    I’m pretty sure the main part* of that ‘renewables’ figure will be Drax. Because clear felling Canadian forests, chipping the wood and transporting it halfway round the world for burning is somehow deemed ‘sustainable’.

    And we must never let the greenwashers forget that electricity provides only a small fraction of total energy consumption.

    Its not just Canadian forests, but that is something I’ve never understood and presume its allowed to help green PR,

    IIRC electricity is 16% of our total energy requirements.

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