UK government borrowing costs are rising fast, and the official explanation does not make sense. Britain is paying far more to borrow than France or Italy, despite having its own currency, a central bank, and no meaningful risk of default.
So what is really going on?
10 year gilts, 4.75% apparently. Core inflation 3.3%. Eurozone 10 year bonds, 3.47%, eurozone core inflation 2.2%. We’ve a real interest rate of 1.45%, they of 1.27%.
Guess what Spud doesn’t explain?
Quite.
“no meaningful risk of default.”
Come on, even the US defaulted under FDR.
“Le défaut américain”
no meaningful risk of default
And no plan to reduce the deficit, borrowing or improve productivity
You can see where the market is coming from
Presumably the market thinks there is a real risk of default, but since they’re just the people with their own skin in the game they certainly won’t have looked at it as carefully as a fat twat from Ely.
The market doesn’t believe the UK government will default – it simply believes that higher inflation will erode the real value of the investment. So they demand a higher yield to cover that risk.
I would actually like to see the UK default just to see his reaction – although given his lack of acquaintance with reality it would probably barely register!!
Isn’t this where the MMT Master says you tax down the excess money you printed?
You print excess money for some purpose. You prevent inflation by taxing it down tomorrow. But tomorrow never comes.
I think it was Theo who had the genius Meme regarding the desire of the Hard Left to spend your money on their pet boondoogles not theirs!!
In defense of Murphy (a rare statement) – he does advocate a base rate of 100% for what he deems ‘excessive’ consumption so in that sense the tax element is there – he is just not the one paying it!!
TBH V_P, that’s not just the hard left, it just about sums up all the politicians I have listened to since Maggie and Lawson were in office.
And whenever they talk about ‘cuts’ or ‘savings’ in one area (HS2 for instance), they never talk about paying down the debt or lowering the burden on those of us who actually contribute to the system, just where they can spunk the money ‘saved’ in some other area.
I know very well someone who gets paid a lot of money to work out how government bodies can cut costs and, according to him, he and his team succeed in cutting budgets by tens of millions every year. I assume they’re not the only team which does this. And they’ve been doing it for donkey’s years.
But somehow taxes do not go down.
Because he manages to cut Last Year’s Faff, and forgets to mention that a week later the budget gets (emergency) expanded for This Year’s Faff…
I’ve done Fin/IT work in municipal finance departments and related municipal services.
You only get to cut the extraneous dead/”unpopular”( = causes actual work) bits.
As you do and enter the numbers you can actually *hear* some brains going: “Wait.. if that budget *was* there, that means my Pet Project now…”
That the whole point of the excercise is to bring the total number down doesn’t even register with them..
The only way to get any actual overall cuts done is getting rid of a number of the Career Chairwarmers, and *that* , as you can imagine, doesn’t go down well…
Suggested it once, got found “unsuited for the Project” within two days and “let go”…
Your mate *knows* and earns a thickly laid sammich off it.. By keeping the circle going…
It gets better. The senior pubsec people my mate works with butter him up – including by way of giving his team work – in the realistic hope that they can then be recruited for the team.
The thing is you not only have to tax, you then have to cancel that money. Take money out of the economy. You can’t just raise taxes then spend it on your pet project. You can’t even raise taxes and cut debt (if you still have some) because then the money re-enters the economy. You have to tax people and effectively burn it.
Excellent point. Another MMT fault.
I know that the people who print up new money and those who would tax it back are different groups. Printers are liked. Taxers are hated. Taxers are not going to take hate for printers actions.
And your third thing, taxers are not going to burn the money they bring in. Rewind slightly, are you going to take hate for taxing it back if you are only going to burn it anyway? How do you know which tax receipt to burn?
So my impossible because it’s two separate groups becomes more impossible because it’s three groups, assuming burners are another.
I guess more impossible isn’t possible. Impossible is impossible.
If you need help with that last item, ask the K foundation for tips.
The increase in inflation is, in itself, a partial default since the money repaid is worth less than the money borrowed (to a greater degree than expected when the loan was made)..
This relates to a question I want to put to the Spud, him claiming to be a double-entry economist : if someone keeps £3000 in cash under their mattress or keeps it interest free in their bank account for a year then they lose £100 of purchasing power over that year. So who gains that £100. Accounts must balance after all.
Milton claims inflation is a tax for practical purposes. I think he’s right and government gains that £100. Alas asking that question from a pretend R Jeremy email got deleted.
Putting money into Gilts is effectively going long on where the UK Government is taking the country and currency. This is hedged by that 4.75%. Many, such as me don’t feel that hedge to be sufficient. As such I choose to effectively short the UK and mainly invest in dollar based assets.