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.

9 thoughts on “Oaf”

  1. The debt held overseas receives the usual spudular analysis: sharp as a butter-knife.

    Around £400bn of the national debt is owned by foreign gov’ts. That’s cool: they want to fund us. They do that because they want to hold our currency.

    Why?

    That’s because that helps them trade with the UK.

    If they want to buy goods and services from the UK they don’t need to have a stash of sterling. They can simply buy GBP spot or forward as the need arises. Also, if they spend the GBP they are no longer holding GBP, are they?

    Would we want to force them to take their money back in that case?

    And if foreign holders of sterling lose confidence, they will dispose of their (now junk) holdings and the GBP exchange rate will collapse.

  2. Bloke in North Dorset

    Minor quibble, TMB,

    If they [foreign governments] want to buy goods and services from the UK they don’t need to have a stash of sterling.

    Governments don’t buy good and services from us, people and companies do.

  3. Just so, BiND. I was going along with Murphy’s reasoning to that extent which I grant you is more than foolhardy.

  4. @BiND

    Not quite right either – rather, foreign governments and companies and people all buy from us. The respective ratios depending on the nature of the trade we do and the makeup of their economy. But for example defence and transport exports as well as a sizeable chunk of consulting contracts are often made with foreign governments or state-sector organisations directly.

    Your main point stands though, “trade with Mongolia” is not the same thing as “trade with the Mongolian government”.

  5. Surveys have shown the title of this piece is the most frequently uttered “Last Words” of pilots.
    No one knows why.

    On topic: if he’s such an expert, why is he scrabbling for a living alone in an Ely semi?
    Surely someone of such brilly-aunts would be praised and acclaimed in the Labour Party?

  6. Bloke in North Dorset

    MBE,

    Ha, good point. I thought about minor purchases but took them as de minimis, completely forgetting about defence. Rather sad that for someone who spent 18 years in the army.

  7. @BiND

    I did wonder, and must admit I was teasing you a little with the “consulting” thing 😉 Though I suspect most of your work would have been with private sector telcos or consortia thereof, perhaps some was with government agencies? There are still a few countries out there where the whole mobile network is a state-owned monopoly.

    One thing that amuses me is how there are a lot of governments out there that like “state-planning” approaches to e.g. laying out prestigious, utopian new towns or cities, yet are willing to privatise and outsource the work in order to get international expertise in. Knew a chap in south-east England who had made big coin from successfully bidding for contracts to do the blue-sky design work for new Saudi Arabian mass transit systems, for example. I think in the UK there’s a tendency for the equivalent kind of work to go to the big multinational consultancies, but presumably they subcontract out a lot of the fine detail.

  8. As an addendum, the Reichstag Dome being designed by a British architect, and built by Austrians (Waagner-Biro), has an irony so rich I can’t help wondering if it was deliberate. I hope (and this is not implausible in Berlin) there were at least a good number of Russian construction labourers on the job, even if they didn’t manage to fit in an ex-Soviet subcontractor.

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