Richard Murphy says:
January 31 2021 at 9:58 am
But that does not explain how there is a bigger market than there are gilts available
Where do the rest come from?
The concern is that the banks have perhaps £200 billion in gilts but use them to support perhaps £400 billion in repo. So, there’s more repo than there are gilts!
Don’t worry if this is actually true or not, or whether the numbers are right. Just think for a moment about this.
The country’s leading – nay, one of the world’s! – Modern Monetary Theory theorist is finding it difficult to grasp the idea of the velocity of money. That the same piece of money might be in use several times. Even, simultaneously.
And yet this is the most basic point about money, isn’t it? MV=PQ after all, and the M there is that base or narrow money supply. He also tells us, all too often, that banks just create money by making a loan. So, there’s a multiple, again, to narrow money which then makes up wide money.
But when it comes to repo all of this is ignored. There must actually be the bonds for all – the idea that chains occur, that the same debt might be in multiple uses just doesn’t cross the mind.
It’s like the same person being a professor at three different institutions. Just cannot happen, eh?