Once the necessary support measures to start the economy going again, when that happens, are also added in I think it’s quite possible to imagine this estimate at least doubling.
It took more than a decade for UK notional national debt (without QE being taken into account) to increase by £1 trillion after 2008. It will take much less time to repeat that on this occasion. However, after QE (which cancels the debt that deficits notionally create because the government buys its own debt back when it does QE, and it cannot owe itself money) the increase in real debt may be quite modest in my prediction. QE funding, or variations on it, will run almost in parallel with the deficit in my expectation, as it did for much of the period from 2009 to 2014. As a result the supposed ‘cost’ to taxpayers will be minimal.
We need to get our heads around all this, and soon.
OK, let’s run this as Ritchie says. We don;t actually do QE as such – the ability to reverse it by selling the BoE held bonds back into the market being the important differentiator here – and instead we do the straight monetisation of fiscal policy that is MMT.
We pump another £1 trillion of base money into the system.
A good guess as to current base money is the £80 billion we started with before QE plus QE. So, call it £500 billion among friends. We now add a trillion. That’s a pretty big jump in the money supply.
OK, during depressed times that might not cause inflation. I think there’s a good chance it will but leave that aside. Accept the claim that it won’t.
Hmm. But when we’ve recovered? We’ve now got three times the base money supply? We’re going to have to cancel some of that money, aren’t we?
MMT says tax it back to cancel it. OK. So, we raise taxation in order to prevent the inflation. And so people are paying more tax – how is this not a cost to taxpayers?
Which is one of the things I keep trying to point out about MMT. If it works then it doesn’t make any difference. We print to spend instead of borrowing – cool. But once we’re back to the usual relationship between base and wide money therefore inflation we have to raise taxes. And what’s the difference between paying higher taxes to kill inflation and higher taxes to pay back borrowings?