£18bn cuts to public services

thank you Volver for the meaning of the word gilts.
I do like the thought of gilded though.

GrannyGravy13

According to the news, the back benchers and apparently Penny Mourdant are calling for a rise in benefits.

I do not think all is well and cosy in the Conservative ranks, Ms.Truss would never have been my choice.

I wonder if she will get the sack? Not sure what post she holds.

Very articulate woman though. Good speech about the Queen and I liked her when declaring Charles King.

prentice yes that’s right golden because they were the safest to invest in. The U.K. government along with USA, Japan etc were seen as the safest investments. Guaranteed to get your money back plus interest.

And you are guaranteed to get your money back because a country with a sovereign currency (ie uses and issues its own currency) can never go bankrupt. It will always be able to pay.

What is at issue at the moment is, I think, more whether our currency can be trusted to hold its value against other currencies rather than fear of repudiation of the 'debt'.

I always understood them to be called 'gilts' because the bond certificates were originally gold edged, but perhaps it's just an urban myth

Whitewavemark2

GrannyGravy13

According to the news, the back benchers and apparently Penny Mourdant are calling for a rise in benefits.

I do not think all is well and cosy in the Conservative ranks, Ms.Truss would never have been my choice.

I wonder if she will get the sack? Not sure what post she holds.

Very articulate woman though. Good speech about the Queen and I liked her when declaring Charles King.

She has in the past voted against benefit increases all the same.

I think the sudden conversion is more with an eye to another leadership bid.

But God forbid that we have to suffer yet another unmandated tory leader as PM.

“And you are guaranteed to get your money back because a country with a sovereign currency (ie uses and issues its own currency) can never go bankrupt. It will always be able to pay. “

That’s not true there are plenty of currencies that have gone bankrupt Sri Lanka had to be bailed out this year, in recent past Argentina, Zimbabwe, others too.

MaizieD

Whitewavemark2

GrannyGravy13

According to the news, the back benchers and apparently Penny Mourdant are calling for a rise in benefits.

I do not think all is well and cosy in the Conservative ranks, Ms.Truss would never have been my choice.

I wonder if she will get the sack? Not sure what post she holds.

Very articulate woman though. Good speech about the Queen and I liked her when declaring Charles King.

She has in the past voted against benefit increases all the same.

I think the sudden conversion is more with an eye to another leadership bid.

But God forbid that we have to suffer yet another unmandated tory leader as PM.

Oh god!

Gilts - you may be right maizie.

When I was at school - 100 years ago we looked at banking, the role of the Bank of England, the stock Exchange, and markets etc.

So it is from that memory.

Katie59

“And you are guaranteed to get your money back because a country with a sovereign currency (ie uses and issues its own currency) can never go bankrupt. It will always be able to pay. “

That’s not true there are plenty of currencies that have gone bankrupt Sri Lanka had to be bailed out this year, in recent past Argentina, Zimbabwe, others too.

Well, funnily enough, KAtie59 I happened upon an article about Sri Lanka just last night.

It wasn't currency issuing that did for Sri Lanka, it was a massive amount of foreign debt incurred by following IMF guidance on growing the economy

MMT economist Fadhel Kaboub talks about Sri Lanka in some of his presentations and that he’s been studying the country for years.

Fadhel is an Associate Professor of Economics at Denison University and President of the Global Institute for Sustainable Prosperity. He brings deeper knowledge of the Sri Lankan economy and the policy decisions that have paved the way for their current predicament.

It takes the form of a dialogue. 'Sharma' is the person who claims that it is MMT that ruined Sri Lanka. This is part of the refutation

KELTON: Sharma argues that it was the “printing of money” that caused inflation to hit record highs. He cites the rate of growth of the Sri Lankan money supply and concludes that inflation hit record highs because the central bank expanded the money supply by 42 per cent from December 2019 to August 2021. Why isn’t this a critique of MMT, and how do you think about the current inflationary pressures?

KABOUB: Sharma is wrong on two fronts here. First, he is assuming that the central bank actually controls the money supply, when in fact the money supply is an endogenous variable determined by the private sector (consumers, business, and banks). The central bank simply accommodates the needs of the market in order to keep short-term interest rates at a stable target, otherwise it will cause all kinds of instability across financial markets. Second, Sharma is assuming that inflation is caused by an increase in the money supply, when in reality, Sri Lanka’s inflation, like many developing countries, imports its inflation via food and energy imports. The higher the pressure on the external balance, the weaker the exchange rate, the higher the inflation pressure from imported goods. Sri Lanka struggled with these pressures for a decade, and managed to muddle through by accumulating more external debt, which quickly became unbearable after the pandemic (loss of tourism, remittances, FDI, and export revenues) and the massive increase in global food and energy prices after the Russian invasion of Ukraine.

The solutions to Sri Lanka’s inflation problems are not in the hands of its central bank. Raising interest rates in Sri Lanka will not end the war in Ukraine, or end the pandemic-induced global supply chain disruptions. The most effective anti-inflation tools fall under fiscal policy. It is the parliament, and the various ministries and commissions that can design strategic investments to boost productive capacity, and have the legal authority to update and enforce antitrust laws. In fact, raising interest rates can often fuel inflation (and inequality) because it is the equivalent of an income subsidy to bond holders, and a tax on actual investors who might be discouraged from increasing productive capacity

KELTON: Sharma appears to know that he has offered a faulty representation of MMT. He anticipates some of the counterpoints that I suspect you and I would both raise. He writes, “proponents of MMT will likely say that this was not real MMT, or that Sri Lanka is not a sovereign country as long as it has any foreign debt.” You have been studying Sri Lanka for a few years now. What, if anything, have policymakers done that suggest that they have been running any kind of “MMT experiment” over the last two years?

KABOUB: Well, this is where Sharma nails it! As I explained above, Sri Lanka’s economic policies don’t even come close to anything informed by MMT insights. Sri Lanka’s government ignored its structural weaknesses, didn’t invest in food/energy and strategic domestic productive capacity, didn’t tax/regulate abusive market power, has a corrupt political system dominated by a single family, and when it was backed into a corner after the pandemic, it doubled down on bad economic decision by claiming that agricultural fertilizers are unhealthy (when they really didn’t have the foreign exchange reserves to pay for the imports), so they destroyed agricultural output, especially rice, in the middle of global food crisis. If the Sri Lankan government was serious about investing in healthy food or a healthy economy, it would have put forward an actual food sovereignty strategy centred on native seeds, it would have discouraged intensive monoculture farming, it would have invested in regenerative farming to undo decades of damage to the soil, and it would have supported farmers to increase yields with well-defined medium and long term strategies. Clearly, this “organic farming” experiment was sloppy at best, but it should not overshadow the fact that the roots of the agricultural vulnerability have been decades in the making.

There is more

gimms.org.uk/2022/05/15/reblog-no-mmt-didnt-wreck-sri-lanka/

It's the same old story in all the countries you cite. Hyperinflation is blamed on increasing the money supply, when in fact it is caused by factors similar to those cited by Fadhel Kaboub.

The only similarity I can see between the UK and Sri Lanka is that of the BoE acting as though raising interest rates will control imported inflation (and I have queried that action on more than one occasion on here).

I did say in my post that there needs to be trust in the currency holding its value.

All currencies, regardless of who issues them, are a matter of 'trust'. As you would have discovered if you'd ever bothered to read the article about 'money' in the BoE Quarterly Bulletin that I have frequently linked to.

Money is a social institution that provides a solution to the problem of a lack of trust.(5) It is useful in exchange because it is a special kind of IOU: in particular, money in the modern economy is an IOU that everyone in the economy trusts. Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.

www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/quarterly-bulletin-2014-q1.pdf

There, I bet that's ?sent everyone to sleep

What a total mess.

Am not sure about the last part of your comment, as I understood them to be called gilts, the meaning of which was perhaps the word golden?

The paper they were issued on used to be gilt-edged, no longer the case, unfortunately.

I don't think anybody's told me yet why we pay taxes...?

The description of how government spending is down to investment in gilts or whatever is understood...

But why do we pay taxes....?

This is what I think...we pay taxes to partially offset the money raised by government to run the country on. So although our taxes don't pay directly for particular services, they do pay indirectly because we partially fund the government's debt out of them. So we are entitled to believe that paying more taxes would improve services, because the government would have more money to fulfil its debt obligations.

No...? If not, why do we pay taxes?

“Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.”

I’m not sure where that assertion came from because in many cases they don’t trust the local currency, if you travel overseas as a tourist many services are priced in US $, hotels, activities even meals in many restaurants.

Mismanagement of the national finances, corruption, in some cases both, causes currency collapse, the mini budget was seen as gross mismanagement, thankfully the policy has reversed and the currency has recovered.

In Sri Lanka’s case they had no money to pay for imported food and oil so the economy stopped and people starved.

If we accept that spending precedes taxation, we pay tax to repay SOME of the debt.

In recent years the UK has always failed by a big margin to do that so the currency has slowly declined in value.

If we accept that spending precedes taxation, we pay tax to repay SOME of the debt.
Like a never-ending mortgage?

volver

I don't think anybody's told me yet why we pay taxes...?

The description of how government spending is down to investment in gilts or whatever is understood...

But why do we pay taxes....?

This is what I think...we pay taxes to partially offset the money raised by government to run the country on. So although our taxes don't pay directly for particular services, they do pay indirectly because we partially fund the government's debt out of them. So we are entitled to believe that paying more taxes would improve services, because the government would have more money to fulfil its debt obligations.

No...? If not, why do we pay taxes?

Six reasons we pay tax:

1) To ratify the value of the currency: this means that by demanding payment of tax in the
currency it has to be used for transactions in the UK;
2) To reclaim the money the government has spent into the economy in fulfilment of its
democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation - people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.

“Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.”
I’m not sure where that assertion came from

FFS, Katie59. It came from the Bank of England article I'm trying to get you to read.

You really think that they'd allow something to go into their official bulletin that wasn't actually true.

Thanks growstuff. I'm not sure I understand all that but I'm going to think about it!

12 years ago, my daughter with a severe disability was a child. The services started being cut then
we told you
we told you all the services were being cut
we told you education and health to our children were being cut
we told you eventually it would affect you
you told us not to be so silly
we were absolutely right weren't we?
unbelievable

MaizieD

^“Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.”^
I’m not sure where that assertion came from

FFS, Katie59. It came from the Bank of England article I'm trying to get you to read.

You really think that they'd allow something to go into their official bulletin that wasn't actually true.

Overseas investors did not trust that the VALUE of sterling was going to hold.

Despite the BoE statement overseas traders don’t agree because most commodities are priced in US$ and the sterling price fluctuates according to exchange rate.

growstuff

volver

I don't think anybody's told me yet why we pay taxes...?

The description of how government spending is down to investment in gilts or whatever is understood...

But why do we pay taxes....?

This is what I think...we pay taxes to partially offset the money raised by government to run the country on. So although our taxes don't pay directly for particular services, they do pay indirectly because we partially fund the government's debt out of them. So we are entitled to believe that paying more taxes would improve services, because the government would have more money to fulfil its debt obligations.

No...? If not, why do we pay taxes?

Six reasons we pay tax:

1) To ratify the value of the currency: this means that by demanding payment of tax in the
currency it has to be used for transactions in the UK;
2) To reclaim the money the government has spent into the economy in fulfilment of its
democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation - people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.

Thanks, growstuff.

I was getting round to it, planned in my head, but life gets in the way sometimes.

I think that there's a preamble to that in that it has to be understood that it is the state that issues our currency, either directly via the Bank of England, or indirectly through the commercial banks (and it is the BoE which supports what they issue through the use of reserve accounts).

The logic is that we can only pay our taxes with money that the state has issued. So we can't pay if the state hasn't issued the money we pay them with.
One important way in which the state puts money into the domestic economy is by its own spending. It has to spend before it can get anything back.

Cutting state spending reduces the money in the economy, meaning there is less there to be 'taxed back'. It also means that it results in loss of jobs, loss of business for all manner of private enterprise because the state isn't purchasing from them and the people with less money aren't purchasing from them either. That's why it makes no sense to believe that taxation funds spending; if the state doesn't spend, it can't tax.

Of course, we have the state welfare to fall back on if we become unemployed or unable to work, or retire. It's funded by the state and is one way of putting money into the domestic economy, though not as much money as if the state had invested in health, education, infrastructure etc. That it kept at least some money circulating in the economy was one of the benefits of state welfare.

Depending on private enterprise to 'create wealth' is illogical because any borrowing they incur to create or grow their enterprises is mostly state issued money via the commercial banks. And they depend on enough money circulating in the economy for people to be able to purchase their goods and services.

Thank you too MaizieD. Now I remember why I'm an economics illiterate. ?

Overseas investors did not trust that the VALUE of sterling was going to hold.

You know, I do believe that I said that in the post you are questioning!

Note that it was the lack of trust that caused the rapid fall of sterling. And how did the BoE restore 'trust' and stabilise the pound By issuing £billions to reassure investors.

“Depending on private enterprise to 'create wealth' is illogical because any borrowing they incur to create or grow their enterprises is mostly state issued money via the commercial banks. And they depend on enough money circulating in the economy for people to be able to purchase their goods and services.”

Given that commercial borrowing is “new” money which is regulated by BoE interest rate is it “issued” as such

grannyrebel7

Do you ever think we're living in a parallel universe? This government just goes from bad to worse. Three weeks in and they've done a Boris style U-turn already! Granted it's the right thing to do, but it doesn't look good for Truss and her merry band. Keep making mistakes Liz! That's fine by me

It's unreal isn't it?

I am getting to the point where I think it is deliberate now to stir up civil unrest, I cannot see any other reason why this is happening, but then again why would they want that? I have actually been thinking that all these fit young male "asylum seekers" - not half starved women and children who have walked across Europe, may be mercenaries to pile in when civil unrest happens, as I doubt our army boys will want to turn on their own? Bit 'conspiracy theorist' I know but it all just seems so ODD, the pandemic, vaccines, Truss and Kwarteng doing quite bizarre things?? I am so confused about it all ....