Since the early 1980s, our economic debate has been dominated by the idea that the government must “fully fund” its spending through taxes or borrowing. This is the logic enforced by the Treasury and is embedded in the logic of Bank of England independence, the existence of the Treasury’s so-called Debt Management Office and the work of the Office for Budget Responsibility, whose models assume that government spending must always be matched by a process of “finding the money” elsewhere.
But, as I have already said, this premise is wrong. The UK government creates the money it spends. Parliament authorises that spending. The Bank of England ensures that payments clear. This is not theory; it is operational fact. We do not need to “find the money elsewhere” to pay for the government this country needs; we literally spend it into existence and never have to find it.
In the standard textbooks this is under “monetisation of fiscal policy”. Usually as an example of what not to do given the incentives of politics.
There’s really nothing very new about MMT, d’ye see?
He’s now the Chancellor of the Exchequer in his own mind of course:
As the House will be aware, it has been normal practice for governments in this country to run what are called fiscal deficits since the time that our supposed national debt was first created, with the Bank of England, in 1694. In other words, in most years since then, the government has created and spent more money into the economy each year than has been claimed back by way of taxation.
There has been good reason for this.
First, the economy has very often required the fiscal stimulus that this action creates. Growth has been the result, and few would deny the merits of that.
We have always kicked the can down the road and will continue to do so even if hyperinflation and societal collapse follows. The likes of the ECHR and Drag Queen Story time are departments and initiatives ‘few would deny the merits of’
Second, a growing country – both in numbers in the population and in size of the economy – has required that there be more money available to facilitate trade, and it has been the duty of successive governments to meet that demand. Without running deficits, that additional money could not have come into existence. The so-called national debt has actually been our money supply for centuries, even though we have seemingly forgotten that essential fact.
‘We have always been at war with Eastasia”
Third, inflation has required it. We know that low rates of inflation are good for the economy and can be tolerated, but they also require more money to be in existence. Again, deficits provide that essential new money.
Low inflation is caused by excessive money supply. Take that conventional economics.
And lastly, those with wealth have demanded that such deficits be run.
There is a straightforward reason for this. The wealthy, above all else, wish to maintain their position and status in society, which their financial well-being supports. As such, what they demand of the financial system is a place where they can deposit their funds knowing that, in times of crisis, they will always be repaid. There is only one institution in any country that can have this status, which is described as being the borrower of last resort, and that is the government.
I’d need to look at the Reichstag debates translated into English from the early 1930s and end of the 1920s but barring the fact the target is the wealthy rather than the Jews and the prose is rather more plodding this sounds not unlike a speech from a certain Austrian of that era.
For those in doubt, what this means is that if the City of London wishes in the future to challenge the operations of this government by forcing up interest rates in ways that we consider unacceptable, we will reserve the right to deny them the bond issues that they crave, and which are essential to their methods of operation, whether they work in pension funds, life insurance companies, banks, or hedge funds. The simple fact is that withholding such issues will reduce the available supply of gilts and, as those who understand the operation of the bond markets will know, if bonds are in short supply, their price rises and the effective interest rate payable on them falls inversely as a result.
I think I have 18 funds in my ISA portfolio with one provider. Leaving aside that’s idiotic – any prizes for guessing which is the worst performer over the last 5 years? Additionally you’d probably leave every private sector pension scheme insolvent but of course detail has never been your strong point…
I cant really be bothered to go through much more. He’s like some aging rocker dusting off thirty year old numbers. Even the Quantum posts had more substance. Quite sad really when you think this is his life. Two children to keep with dwindling resources. Hoping for some act of divine intervention.
This is too much nonsense to wade through but does anybody know what happens if they “deny them the bond issues that they crave?”. For one thing the issue will be that they don’t crave them. Apart from printing money or defaulting what other options are there?
Well the Bank of England is already having to buy some of the bond issues to avoid having them not be fully subscribed.
Which seems to me to be in self-licking ice cream cone territory, but I guess it’s possibly to stay in the air for a while if you’re a government and you just keep running.
“Well the Bank of England is already having to buy some of the bond issues to avoid having them not be fully subscribed.”
Is it? Have we already got QE5 running and nobody mentioned it?
‘as those who understand the operation of the bond markets will know, if bonds are in short supply, their price rises and the effective interest rate payable on them falls inversely as a result.’
If bond prices rise, the interest rate paid by the issuer (UK Gov) doesn’t change because the interest rate is set at issue until maturity. The only rate which would change would be that on any new bonds the government would issue. Which he wants the government not to do.
So the new Chancellor is not really somebody ‘who understands the operation of the bond markets’ so much is he ?
The UK government creates the money it spends. Parliament authorises that spending. The Bank of England ensures that payments clear. This is not theory; it is operational fact. We do not need to “find the money elsewhere” to pay for the government this country needs; we literally spend it into existence and never have to find it.
This is excellent news. The government can abolish all taxes. Just think of all the money it won’t have to create to fund the defunct HMRC
You think too small. Parliament’s budget – well, they don’t actually need a budget anymore – can be £4quadrillion pounds (!). Rolls Royce’s all around! Not the cars, the SMRs!
Starmer can end the Ukraine War! He can fly to Moscow and ask Putin what he wants/needs to give up Ukraine, and UK will pay for it all. Name being engraved on Nobel Prize as we speak.
Yes, I think the next step will be adopting the leaf as a substitute for the pound note.
“The current going rate has something like three deciduous forests buying one ship’s peanut.”
If previous government “investment” had worked, we’d be sat on a massive booming economy rather than being at the stage of defaulting on our debts.
So, eliminate all taxes & have the gov’t send everyone a few million quid. We have truly reached Utopia. Why did no one think of this before?
German Weimar Republic did. It was great! People had so much money, they needed wheel barrows to carry it around!
I understand Zimbabwe did something similar.
I’ll support this policy as long as get mine first and can convert it to USD before everyone else gets theirs.
Somewhere a long while ago I read a scifi book which came up with the following:
Private enterprise increases wealth. Without a change in available money that would cause deflation. So the role of government was to print and waste just enough money to neutralise that deflation and hold prices steady. They were doing it through govt funding blue sky science projects – which unfortunately kept paying back in unexpected ways.
What paradise!
Another utopia; the author believed that a government could be limited to just enough waste to avoid deflation.
Now that I think of it, there were a couple of Heinlein novels like that. The Door into Summer for example. Building cars, then crushing them to keep things running.
I think that’s one I remember. The hero had a job designing robots that would break with just the right impact from a kick, to ensure sufficient were destroyed to keep enough replacements being made to keep the economy going.
Well, that is because someone with a Science degree observed that printing money did not increase the amount of real resources in the country. She also observed that institutionalising inflation discouraged productive investment and made everyone on average poorer as old investments wore out and were not replaced.
“Since the early 1980s, our economic debate has been dominated by the idea that the government must “fully fund” its spending through taxes or borrowing.”
This was true much earlier than that. Kings used to borrow money to pay for mercenaries, who were much better than levied troops, but also much more insistent about being paid on time.
If you don’t fully fund things, people pretty quickly find out and don’t lend you money. They also tend to get rid of your currency, since those are past IOUs you’ve issued. If you’re not good for some loans, why would you be good for any of them?
Confiscating/nationalizing stuff has bad consequences and only works in the short term.