Around £800bn of the national debt is owned by the UK government. It's bought its own debt back using quantitative easing (QE). So this debt is not now owed to anyone. After all, you can't owe yourself money. So why are we obsessing about this? For no good reason, I'd suggest.
— Richard Murphy (@RichardJMurphy) November 23, 2020
We don’t want to pay off the £800 billion right now. But we might well want to in the future.
The £800 billion is £800 billion in new money that has been created. So, with all that new money sloshing around the economy we might get inflation. Don;t worry too much about whether we actually need full employment for this to happen as Smurph insists or whether we can have inflation and unemployment – stagflation, as we historically have had.
Just run with the idea that lots of new money might lead to inflation. As it might.
So, we’ve two solutions here.
One is the Murphy/MMT one. We’ve got inflation, we increase taxes, feed the money back into the Bank of England and cancel it.
There’s the standard QE explanation of what we do. We sell the bonds back into the market and raise interest rates which curbs inflation. The money we’ve received for the bonds is fed back into the Bank of England and cancelled. Cool. But, note, we’ve now got £800 billion of gilts not owned by government but owned by all of us out here. And we’d likely like to have our money back, or at least the interest payments. So, taxes must rise to pay us all.
So, MMT or QE, doesn’t matter. If inflation turns up – I’d say it will but that isn’t crucial to this point – then taxes must rise and the debt paid off in order to destroy the money.
We get to the same place either way.
So, why would we like to pay off the £800 billion? To kill inflation if it arrives.
There now, that wasn’t difficult, was it? Well, assuming your name isn’t Richard Murphy it wasn’t difficult.