It’s fun how he does this, isn’t it?

But there is a massive problem with the support that the government is supply. It is being delivered by way of loans. And there are three problems with loans.

First, they have to be repaid, and that means that the priority of businesses over the next few years will become the repayment of government-backed funding, rather than investment in our future, including making sure business can operate on a sustainable basis. This will suppress the recovery.

Second, because loans are liabilities they are used to calculate whether or not businesses are insolvent. Precisely because so many businesses will make substantial losses during the course of this crisis, which is why they require new funding, many now be insolvent, and these loans only compound these problems. That is not their desired outcome, and it is highly counterintuitive that this is their consequence.

Third, because little active consideration is being given to those receiving these loans many might be going to businesses which need have no place in what is coming to be called the ‘new normal’. They are not part of the sustainable economy we need.

What this means is that the system of providing funding by way of loans is flawed, to the extent that it might actually be harmful to the recovery from the current economic crisis that we face. That makes no sense at all.

For a decade now we’ve been told that the Green New Deal – indeed all pensions saving – must be funded by loans, not equity.

Stump thinking presumably.

18 thoughts on “It’s fun how he does this, isn’t it?”

  1. I am surprised that he didn’t mention that interest payments will reduce the tax take…anything that gets in the way of MOAR TAX must be avoided at all costs

  2. Claims something that disagrees with and disrupts his fakeconomics is counterintuitive. Everything he says lacks intuition and is counter to the real world.

  3. @ ANNRQ
    It is highly counterintuitive that the loans will compound the problem that the businesses are already insolvent
    Yeah, that might be true: because insolvency/solvency is binary and (for a single business) insolvency cannot be compounded.
    OH! That means that the loans *cannot* compound the problem.
    Well, this is Murphy, after all. Anything that he can get wrong …

  4. Dennis, He Who Writes Very Blank Verse

    But there is a massive problem with the support that the government is supply.

    If you didn’t know it was one of Murphy’s you’d swear it was one of Newmania’s.

  5. Dennis, CPA to the Gods

    Second, because loans are liabilities they are used to calculate whether or not businesses are insolvent.

    Only in the case of technical insolvency. The far greater threat to businesses in actual insolvency, which is simply a lack of ready cash to meet current obligations. An increase in liabilities – in and of itself – will have no effect on such a business one way or the other… Operations will continue or cease based on the availability of a certain level of cash, not the level of liabilities on a balance sheet.

    But then, I’m sure Murphy knows that.

  6. In the UK, it is generally HMRC who get you for not paying over PAYE rather than any technical assessment of your balance sheet. Last time I checked, it was HMRC who instigated the vast majority of liquidations not the lenders or trade creditors

  7. See also: “The Tories borrow and spend more than any other party” vs “The Tories are all bastards because they prefer austerity to MMT”

  8. Also, aaa, the Tories are the best bulwark this country has against socialism – H/T Theophrastus.

  9. The Meissen Bison

    The EU is in the process of establishing a fund (yes, another one, hooray) which will take equity positions in companies that are ailing as a result of Covid. There’s a lovely job administering that for somebody. My guess is that it will go to an Italian who will become surprisingly wealthy in quite short order.

    Sadly, due to Brexit, Capt. Potato may not apply -unless he goes full Oirish. Or perhaps Bulgarian, given his difficulties with the continuous present as Dennis notes.

  10. Tim, are you copy-pasting his articles or are you just quickly copying them by hand?

    Because if the former, that dude can barely write English. Its the modern day and he doesn’t seem to be able to use spellcheck.

  11. You don’t understand, Agammamon. Capt Potato’s right. Spellcheck is wrong. He also invented grammar.

  12. As a recipient of a government backed loan, my company isn’t in the business of paying back the loan.
    First repayment is a year away, in the meantime the money is invested in the company and should be able to double stock on hand for sale by the end of the month.
    Now to me that is decent investment.

    Can the business afford repayment of £3,000 over 6 years with no payment due in the first 12 months and at 2.5% interest rate? I’d better hope so.
    Projected profits 12 months out is about £10k a year, paying back several hundred pounds for a loan payment per year to start with won’t be a problem.

    What government is doing is chucking a load of money into the economy that would not otherwise get out there. Some of it will be not repaid, businesses go under despite investment and despite chunk of cash from government.
    Cannot see any cafe’s and restaurants that need people to be in the facility to keep going as businesses. Perhaps as takeaways / dark kitchens maybe.
    The money being chucked at businesses will have a knock on effect, being at least in part circulated through the economy. As wages, as stock purchases, as asset purchase, as payments for debts, as increasing the size and profitability of businesses.
    So overall its a good thing from a business point of view. Just expect businesses to be hit hard to pay taxes to pay for it all over the next couple of decades. And as usual its the customers paying the taxes.

  13. Diogenes,
    HMRC tend to be owed a considerable amount when a company becomes insolvent. Been there done that.
    For other creditors its an additional cost to pay in order to wind up the company – they can wait and let HMRC pay for it. Same result either way but obviously letting HMRC do it is cheaper for all other creditors.

    Doesn’t mean any extra money is provided – the company with little or no money still has little or no money once someone applies to wind it up. Directors can become personally liable in certain limited circumstances – say nicking a load of money from the company or having a large directors loan account that is owed to the company (in which case that is an asset of the company).

  14. Obviously he wouldn’t have noticed that the largest source of funding for business is the furlough scheme, which isn’t a loan. The receipts are even taxable. I bet he’s enjoyed the last bit in private.

  15. I’m wondering if BoJo, Sunak et al are as deluded as Ritchie

    Economics

    The Prime Minister is being lobbied by colleagues to resist the temptation to ramp up taxation to pay off the huge extra spending incurred for coronavirus aid
    “At least one senior colleague of Prime Minister Boris Johnson has cautioned against the perhaps obvious approach to higher government debt, with hundreds of billions of sterling more of deficit expected this year. By increasing taxes — and a wide range of further grabs by the government are reportedly being explored — the much-needed revitalisation of the economy could be strangled in the cradle”

    Delingpole: Enjoy Your Furlough – Your Grandchildren Will Be Paying For It
    The options being discussed, according to the Telegraph, range from tax rises — including an increase in VAT — to a public sector pay freeze.

    What doesn’t appear to be on the table, oddly, is the pointless, environmentally destructive £100 billion-plus HS2 project. Nor has the government made any mention of its biggest white elephant project of all — its mission to make Britain Net-Zero by 2050.

    Treasury analysts are also increasingly worried that instead of having a ‘V-shaped’ recovery — where the economy bounces back quickly — Britain is more likely to have an ‘L-shaped’ one where everything stagnates.

    But it’s hardly surprising that this is a likely proposition when a) Boris is keeping Britain on near-endless lockdown (despite increasing evidence that it will make little difference to Coronavirus’s trajectory) and b) the government is continuing to pretend that it is green business as usual.

    No government which took the impending economic disaster seriously would be wasting scare resources on Net Zero nonsense: artificially driving up the cost of energy by embracing renewables just makes business less competitive and the cost of living more expensive.

    Britain is heading for economic disaster. And what’s most depressing is that this disaster is almost entirely of this allegedly Conservative government’s making”

    Green BoJo: avoid public transport, travel in your car. Parking & congestion charges suspended – No

  16. Selfish, Condescending, Bigot
    – Keir Starmer: “Condolences for all Coronavirus deaths” – what about the other more than CV deaths per day?
    https://www.youtube.com/watch?v=0fvIYaIYnrM

    Shengen suspended unilaterally across EU yet…
    …Brussels tells UK it must honour EU free-movement rules
    https://www.youtube.com/watch?v=UnJRu3HpPqY

    Boris waffles, won’t act
    – Peter Bone MP: Corrupt, totally biased and legally & morally bankrupt Electoral Commission must be abolished
    https://www.youtube.com/watch?v=IQjSUZmrczI

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