Did we expect him to get macroeconomics right?

In that case, first note that the ‘Treasury view’ that the primary object of government is to balance the books does still, very clearly, persist.

Nope. That’s not even what the Treasury View is. Rather, that any borrowing to spend by government has a 100% crowding out effect. Sure, the Treasury View is incorrect but it’s still not what Snippa claims it is. It’s saying that there’s no point to deficit spending, not that balance is inherently desirable.

So, we are back to the mantra that the job is the government is to keep the bond markets happy.

Well, if you want to borrow from said bond markets it seems like a fairly sensible idea.

Second, we now have quantitative easing. £635 billion government bonds are now owned by the government. They will never be reissued to the market, as the Bank of England has now tacitly admitted. This is then new money, created without the involvement of the markets. We now know we can do that.

Third, we know inflation does not occur as a result if we are not at full employment. We currently have 10 million unemployed people.

Ah, no. Depends what you mean by “full employment” really. One useful definition being the rate at which inflation doesn’t start to rise. Nairu that is. Which is a bit circular but that’s the meaning we should have here. And what Nairu is depends upon the structure of the labour market being considered. Back in the 1980s it might have been 5 or 7%. More recently it has been perhaps 3 or 2%. What it will be in the future depends on what the labour market structure is going to be. See the work of Richard Layard on this.

And when we do get to Nairu then those QE bonds are going to be reissued to the market, aren’t they?

Fifth, we know as a result that the power of bond traders is broken, whether that be on rates, or deficits, or any other issue: since we now know that we are not in any way dependent upon them because if at any point they get uppity the government can simply begin another quantitative easing programme, the chance of a sovereign debt crisis is zero. And that is most especially true when every government is in the same situation.

The definition of uppity being used here is “No, I’d rather not buy that, thank you”.

Sixth, we know there is a massive demand for sovereign debt – including that of the UK. That is despite exceptionally low interest rates. There is not the slightest sign that there is any change in this situation, but if stock markets fell (as is likely) that demand would only increase.

Not really, no. Look up a bit. You’ll see that the Bank of England owns £635 billion of that government debt. You know, debt that the market doesn’t want and won’t take at current prices? If this were not so then why has the BoE bought it?

And sixth, explain that the government is not constrained by a lack of money, because it can make all that is required and that none of inflation, a sovereign debt crisis or a crash will happen.

Would you prefer our green and pleasant land to become Venezuela or Zimbabwe, Comrade?

But balanced budgets, tax increases and cuts are the surest way to economic and social disaster that can be imagined, and would repeat the 1930s all over again.

And that’s where Spud really falls over. For in the UK – the US experience was different – the 1930s were rather good in macroeconomic terms. Spending was cut, taxes rose, the deficit turned into a surplus. At the same time the country came off the gold standard, the exchange rate dropped 25%. The depression, such as it was in the UK, was over in 18 months or so.

Expansionary austerity works, d’ye see? It is possible to have an overall expansionary policy stance even while having a contractionary fiscal one – it’s just necessary to have monetary policy being very expansionary so as to produce that overall balance.

Those who don’t know their history can’t repeat it, can they?

12 thoughts on “Did we expect him to get macroeconomics right?”

  1. Quote:And when we do get to Nairu then those QE bonds are going to be reissued to the market, aren’t they?

    Question: would that be the best or first response, or might raising interest rates, or cutting government spending be equally effective, while at the same time, allowing interest payments on QE to reduce the national debt, using it to cancel QE.

    I’m not suggesting that, just probing for understanding.

  2. Unwinding QE would be the most useful. It’s more precise, for a start – you can do it in bits. It’s also true that the inflation will be, at least in part, because there’s too much money around. Selling those QE bonds into the market is, by definition, abstracting money from the economy. Finally, it also raises interest rates, the doing of it.

  3. Not this old crap again!

    Sixth, we know there is a massive demand for sovereign debt – including that of the UK

    Does that include Argentina?

  4. As usual, most people disagree with the Mastermind of Ely on this issue

    Fifth, we know as a result that the power of bond traders is broken, whether that be on rates, or deficits, or any other issue: since we now know that we are not in any way dependent upon them because if at any point they get uppity the government can simply begin another quantitative easing programme

    He obviously doesn’t keep up with the facts. from a fund manager: “Last week a strange thing happened: Fed funds futures – the market’s best guess of where US interests will be in the future – implied negative rates were coming. The market priced in negative rates in Apr 2021. It doesn’t mean they will go negative, but the market can exert serious gravitational pull on Federal Reserve policy. Often, the tail wags the dog, and the market forces the Fed to catch up”

  5. But balanced budgets, tax increases and cuts are the surest way to economic and social disaster that can be imagined,

    Do my eyes deceive me, or is Snippa saying tax increases are a bad thing? An actual economic and social disaster? That’s some of the most advanced stump thinking I’ve seen for a while.

  6. But lots of countries have balanced budgets.

    Norway is making money hand over fist.

    They don’t seem to be economic wastelands.

  7. Ritchie doesn’t read news it seems

    Sixth, we know there is a massive demand for sovereign debt

    Demand so massive that last Govt ‘sovereign debt’ sale had few buyers resulting in BoE ‘buying’ the ‘sovereign debt’

    UK Economy Falls At Fastest Rate Since 2008 Crash, Massive Tax Rises Loom
    “A confidential Treasury Department document that was seen by the British newspaper The Telegraph labelled “Official – market sensitive”, claimed that the under the “base case scenario” the government is now expecting a £337 billion budget deficit this year, up from the £55 billion that was projected in the March budget.

    Under the worst-case scenario, the government projects that the deficit could rise to as high as £516 billion with a five year budget hit of £1.19 trillion.

    The document advised Chancellor of the Exchequer, Rishi Sunak, to cut public spending and increase taxes, to raise £25 billion and £30 billion per year in order to “stabilise debts” — a move that would go against the 2019 Conservative Party general election manifesto, which promised to not raise taxes”

    Always Tax Rises, never meaningfully reduce spending – eg stop foreign aid. Sunak’s “cuts” – if ever happen – will be increases below RPI

  8. Delingpole: British People ‘Completely Manipulated’ Says Businessman Behind Lockdown Legal Challenge
    “Since launching his Crowdjustice campaign last month, Dolan claims to have received hate mail, including death threats, from people apparently so terrified of Chinese coronavirus that they want the lockdown to continue indefinitely”

    The full interview with Dolan – who also talks about how he made his £140 million fortune, his racing driving career, his prediction that the EU is close to collapse, life in Monaco, and the likely economic winners and losers of this crisis – can be heard here
    http://delingpoleworld.com/this-weeks-delingpod/ – on youtube too

    Details of Simon Dolan’s Court Action against the government’s oppressive and possibly unlawful policies
    For those who are interested, here are some details of the planned court case against the government’s shutdown of the country, launched by the businessman Simon Dolan, and of how you may support it if you wish to do so.
    .
    https://www.crowdjustice.com/case/lockdownlegalchallenge/

    Anyone else donated?

  9. Would you prefer our green and pleasant land to become Venezuela or Zimbabwe, Comrade?

    Aren’t you being a tad optimistic there? We don’t have the advantages of those countries; with the triumph of the anti-fracking shower we don’t have access to oil, and we eat all the food we can produce (and more).

  10. Pcar–I put into the legal fund. Might be able to spare more if it isn’t rising fast enough in a week.

    A successful case will enable all “fixed penalty notices” to be rendered ultra vires. As well as kick Bottler Johnson in the teeth.

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