What a shower - they are not fit to govern the country

We were the healthy well educated population 50 yrs ago, we must have been because we now live into our 80s and beyond, we were able to afford the mortgage and rent. What went wrong ?, so much more has been provided but housing is unaffordable and we have food banks.

Services have been privatized for short term gain because we don’t have the cash to invest up front.

I agree 100% with DAVIDHS to use any form of creative accounting to get out the current situation would be folly. When I bought my first house in 1968 you could only borrow 3 times the salary of the main bread winner. We did not have credit cards and lived within our means. House prices went up slowly until around 1970. We were less well off and accepted that we paid tax at a fair rate, the highest rate of tax was over 90% on the highest incomes. Anyway the only way for the government to pay off the Covid-19 cost is through taxation over as long as it takes. To pretend otherwise is kidding us. Severe austerity hurts those less well off too much, we've seen that with the way the NHS and Social care have been short changed.

You can only build up debt for so long before it becomes beyond control. This is true for indiviuals, households, companies and even governments.

Services have been privatised and regulatory conditions removed because Conservative governments are largely financed by business and, as the saying goes, "he who pays the piper calls the tune".

To some extent, Labour also shifted its position (1) in order to get the mainstream media onside and prevent it from characterising the Labour Party as a bunch of communist infiltrators (2) in order to remedy the dilapidation of our schools, hospitals and other public assets, it decided to enter into PFI contracts and other privatisation vehicles - a way of avoiding short term spending but with horrendous long term financial consequences.

We now see that the argument "we don't have the cash to invest up front"was a spurious one. The massive debt run up by the NHS because of the introduction of a system of marketisation, competition and privatisation has, at a stroke, been written off by this government - and billions have been made available in respect of all manner of business and social concerns. Had our country's NHS, care system, justice system, education system, transport system, etc, etc, been in a properly maintained state before this virus struck, it could be argued that would be in a far better position to tackle it than we appear to be at present.

As for the implication that those who work in education, social services, health and social care, environmental protection, etc, etc, are somehow peripheral to a thriving economy, I would dispute that. If we have an ill-educated, unhealthy workforce and poor infrastructure, such as efficient and reasonably priced public transport, that will affect motivation, efficiency and overall productivity.

I find it interesting that nurses, carers,librarians, environmental protection officers, child care officers, probation officers, etc, etc - because they are paid by the state/taxpayer - are seen as an unfortunate drain on the economy. Meanwhile, the many people doing non-essential (but often highly paid) jobs, such as image consultants, PR consultants, personal trainers, event planners, lobbyists, marketing and advertising executives, marketing psychologists, etc, etc, etc, are seen as acceptable just because they can command high salaries, and even though their absence would not be greatly missed.

Yes, it's all very well to go on about debt, but who is the money 'borrowed' from and who is it to be paid back to?

When I asked this question the other day someone responded that our 'debt' was bonds sold to raise money. That may have been true in the past; it also might have been true that we had to 'borrow' from bodies outside the UK (such as the US load for WW2) but a) bond sales don't provide nearly enough money and b) the need to borrow from a 3rd party was only there when our currency was backed by gold and there was, indeed, only a finite amount of it.

But we're not on the gold standard any more. It was abandoned in 1971 Nothing except 'confidence' backs our money.

I'd be interested to know what our blokes think the 'economy' is, after comments about the service side being non-productive.

I find it interesting that nurses, carers,librarians, environmental protection officers, child care officers, probation officers, etc, etc - because they are paid by the state/taxpayer - are seen as an unfortunate drain on the economy.

I agree with you, Eloethan. That's why I've asked David & Cindersdad what they think the 'economy' is.

“If we have an ill-educated, unhealthy workforce and poor infrastructure, such as efficient and reasonably priced public transport, that will affect motivation, efficiency and overall productivity.“

I’m not suggesting that we should not be well educated or healthy, it’s the way that we have not benefited from the cost. The education system in particular, where it does not prepare children for work, the brightest half go to university, then 40% plus do not go into graduate employment. Only a small proportion go into productive industries, enterprises that make money and contribute taxation income to the economy.

Over 5 decades the economy has gone downhill, investors confidence has resulted in the value of Sterling halve, which should help exporters thrive, because most of industry is foreign owned we benefit less.

But what actually is the 'economy', in your view, David? How would you explain it to someone.

We have benefited from the cost. We have thriving IT and bio research industries. We also make money from financial services. Many, if not most, of the people working in those industries are graduates. One doesn't actually have to produce a physical widget in a sweaty workshop to create wealth. Education alone, especially English as a foreign language, is worth billions to the economy as an export commodity.

Not only that but public service workers buy stuff, which creates jobs for the people making the stuff. They also pay taxes. It's almost impossible in the UK not to pay tax of some sort.

NoCindersdad a government issuing its own sovereign currency, as the UK is, is not the same as a household or individual.

Where do you think the government borrowed the money from? Who is owed anything?

I see the Treasury is contemplating a public sector pay freeze!

Well the admiration for our essential workers didn’t last long did it.

I can't get an answer to that question from just about anybody, growstuff!

Who are we supposedly borrowing the money from?

Someone did suggest that we got it from bonds and gilts. But when you consider my statistics about population and wages over the past 60 years I don't somehow think that bonds and gilts are the answer to the huge expansion in money supply...

Any enterprise that produces a taxable income funds the economy. We are never going to get out of the downward trend until we value enterprise more, UK PLC has got to be much more efficient.

Taxation does not fund spending, David. That is the absolute truth. The nation doesn't 'earn' its money through taxation. It's not a household and it's not a business. It works by completely different rules. For a start, the government is a money issuer.

You still haven't said how the money supply has manged to increase hugely over 60 years, or explained what an 'economy' actually is. Can you do that?

Really, I think it is very sad that people are now going to be frightened by being told that the country will be massively in debt after this present crisis and that they are somehow going to have to pay for it. It's much less frightening if you know how the nation's money really 'works'.

Growstuff, if the way the economy has been run in the last 50 yrs is so good, why have we lost so much value compared with our competitors.

Where do we borrow money from, some from overseas governments and investors who see sterling as safer than their own currency, mostly from U.K. based pension funds and life insurance companies where a devaluing currency is not critical because proceeds are paid in sterling and are safe investment.

The money supply has increased over 60 yrs there was a peak in 2009\10 it leveled off then increased recently as a. Recital sweetener. It reflects the fact that everybody is borrowing more than in the past, if we ignore the past 2 months it has broadly followed inflation

The Bank of England website says:

"Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans.

Therefore, if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account".

(My understanding is that when a bank loans money, that money is then entered as a "credit" rather than a debit, presumably because it represents money that, until the full debt and interest has been repaid is, in theory, money belonging to the bank which, again in theory, can be recouped if capital and interest instalments are not paid. The problems in 2008 arose because banks "created" money through issuing loans to people who could not service those loans. But it was not the banks who paid the price for the ensuing financial meltdown - the government bailed them out and the general public ultimately carried the can.)

"Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up three percent. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. This is called electronic central bank money, or reserves."

"Can banks create as much money as they like?

"No, they can’t.

"Regulation limits how much money banks can create. For example, they have to hold a certain amount of financial resources, called capital, in case people default on their loans. These limits have become stricter since the financial crisis.

"Banks also risk going bust if they lend out money left, right and centre. For instance, people borrowing money will probably spend it. If they make payments to people who have accounts at other banks, their bank will need to transfer the money to that other bank by sending it some of its electronic central bank money. So if one bank lends out too much money, at some point it will not have enough electronic money in its account with us to pay the other banks."

However, the Positive Money website quotes this:

"From a Bank of England handbook for central bankers:

“If there is a shortage of liquidity [i.e. reserves], then the central bank will (almost) always supply the need…As regards a shortage of commercial bank reserves held at the central bank, the risk is that a shortage would mean payments could not be cleared at the end of the day.” [Our addition in square brackets] (Gray, S., Handbook No. 27 – Liquidity Forecasting. Bank of England Centre for Central Banking Studies. 2008)."

This seems to be borne out by what happened in 2008.

I sometimes think our financial system is quite surreal.

BBC News reports that Britain currently has a deficit of £48.7 billion but, due to the current crisis, this is likely to increase to somewhere in the region of £260 billion. Most commentators recognise that this is an incredibly huge amount of money which, it is said, will take years to pay off.

Jeff Bezos, the founder of Amazon, is reported to have a net worth of $113 billion dollars, Bill Gates $98 billion, Warren Buffet £67.5 billion. So these three individuals alone have wealth in excess of the whole amount owed by a country with a population of 68 million people. What a crazy system.

If Jeff Bezos just paid tax it would solve the worlds economic problems in one foul [fowl?] swoop. Does he pay tax anywhere?

I see that the advise to care homes from the government that covid patients can safely be cared for at the care home and that it is not necessary for the patient to test negative before returning to the care home from hospital admission
was published on 2nd April.

It could not possibly have been done so with scientific advise.

My goodness Johnson’s government has a lot to answer for.

Most commentators recognise that this is an incredibly huge amount of money which, it is said, will take years to pay off.

But we don't have to 'pay it off' if it hasn't been borrowed from anyone.

We've already established, thanks to Eloethan that banks can 'create' money. Private banks are regulated so that they don't create too much money, but there is no check on the amount of money our central (national) bank can create (not borrow, create). The Bank of England is the source of government money and holds the government's accounts. The government can instruct it to pay out whatever amount the government cares to name and, because the BoE is, in effect, the source of the nation's money the government owes it nothing. It cannot owe money to itself...

I'm not suggesting that our national finances should be based solely on 'created' money; there needs to be a mix. What I am trying to say is that the government can spend as much as it likes without the threat of a massive 'debt' hanging over its head.

This being so, the 'public' should be aware of the fact and not tolerate being conned into accepting tax rises and the cutting of public services because 'the country can't afford it'. The country most certainly can.

What is more, government spending is a very important driver of 'the economy'.

(P.S. I found out recently that Japan has been running a deficit of 250% of GDP for about 20 years. Does Japan look like a country that is struggling?)

Some figures sent by a colleague in the Civil Service:

If you look at the population levels of the 3 countries mentioned, the U.K. has the highest at around 70 million, compared to 66 million in France and 49 million in Spain.
Then look at the size of the area these people are living in : The UK 250,000 km2, France 650,000 km2, Spain 506,000 km2.
The U.K. has a population density of 280 people per km2
France has a population density of 102 people per km2
Spain has a population density of 97 people per km2
That means the U.K., despite having nearly 3 times (275%) the population density of France and (289%) that of Spain, has death figures which are only 8% more than France and 7.5% more than Spain.

This morning I read that it will take the NHS 'months' to get back to whatever normal is. Surely that is expected as this situation has now gone on for months, but last week newspapers were trumpeting 'years to catch up'.
I am utterly sick of people pecking heads, publishing inflammatory headlines plucked from nowhere, and spouting their far better ideas - but unheard of until now, and with the incredibly powerful tool of hindsight.

Rosina it's hardly hindsight. We could see this coming along weeks if not months in advance. Italian doctors, the WHO were calling out loud and clear for government action. What did we get? Wash hands and sing. We should have done so much better, and we are not out of the woods yet.

Thank you for posting that Eloethan. The Bank of England has some quite useful information about how the financial system works at a macro-economic level. Andy Haldane (and some others) have also done podcasts.

I don't think it's all hindsight, Rosina. I think that the public was pretty savvy about what needed to be done and were acting on it well before Johnson was forced to nominally (because I don't think he has, really) abandon his 'herd immunity plan and go into half hearted lockdown. People were cancelling events, cancelling meetings and cutting down on travel well before lockdown. Anything Johnsonhas done has been reactive, not proactive. He was more or less pressured into lockdown, He's been pressured into doing something about care homes, testing, PPE and now, into nominally 'easing' lock down to get people back to work.

The 'far better ideas' were there right from the start. Particularly the 'test, testing, testing'...