A vision for the future.

Whitewavemark2

Thanks I’ll look at that after dog walk (plenty of time - rain😧).

I do understand what you are saying regarding the way governments fund their spending, my problem is that I am stuck in Keynesian mode, so the idea that governments spend without apparent consequences is what I find difficult to understand?

But first I must do some more reading.

But I'm not proposing that the government can 'spend without consequences', nor are any MMT proponents. This is a fiction put about by critics.

The qualifying phrase for government spending is so long as there are available resources to purchase. There is no point in splashing unlimited cash around if there's nothing to purchase. That would be stupidly inflationary, wouldn't it?

I think that the original MMT proposition (based on research, such as the paper I linked to) is getting lost. It is not only that governments with a sovereign currency can create, and control the creation of, their own currency but also that government spending arises from money creation, not from taxation revenue.

The taxation point is key because that is the one that skews voters' judgement on party policies by focussing on their affordability rather than their utility.

Governments don’t “ splash” money around they spend to provide social or economic gain, in both cases the intention is to gain votes to stay in power.

Wether that spending actually results in a gain depends on many other factors.

Rather like some others on here Maisie, I would like to be able to agree with you. You have put a lot of work into understanding the thinking behind this and have been generous when sharing what you have learned.

This "theory" is coming from the extreme left and, as yet, is not acceptable to the general economics community who cross the political spectrum. I cannot see how you think that would help the Labour Party in the next election.

If we think for a moment about who Labour needs to attract in order to win, it is the center voter - who will be wary of extremes - and the previously left-wing voters who will generally be economically and socially authoritarian (liking and relying on rules). I just can't see how an untried view of how we run our economy would help the left convey a vision for the future of Britain that appeals to such voters.

Without power, therefore without being in government, the left can do nothing.

Hopefully there is something in MMT that can add to general economic theory and make it easier to make things better for the majority. However, I can't see how this election, or the Labour Party we have currently, can be seen as the vehicle to put untried theories in front of a nation and ask them to consider voting for a government that would use those theories.

I think you may even have to wait for PR, and a far left group getting possibly a dozen (at best) seats so that this becomes something generally debated.

MaizieD

Whitewavemark2

Thanks I’ll look at that after dog walk (plenty of time - rain😧).

I do understand what you are saying regarding the way governments fund their spending, my problem is that I am stuck in Keynesian mode, so the idea that governments spend without apparent consequences is what I find difficult to understand?

But first I must do some more reading.

But I'm not proposing that the government can 'spend without consequences', nor are any MMT proponents. This is a fiction put about by critics.

The qualifying phrase for government spending is so long as there are available resources to purchase. There is no point in splashing unlimited cash around if there's nothing to purchase. That would be stupidly inflationary, wouldn't it?

I think that the original MMT proposition (based on research, such as the paper I linked to) is getting lost. It is not only that governments with a sovereign currency can create, and control the creation of, their own currency but also that government spending arises from money creation, not from taxation revenue.

The taxation point is key because that is the one that skews voters' judgement on party policies by focussing on their affordability rather than their utility.

Yes sovereign currency and the creation of debt is understood I think. But I would go further.

But I have to read stuff first. So bear with🙂. Getting the housework done then hoping to sit and read.

Thank you for your kind words, DAR, but I am saddened that I have failed completely to get across the basic fact of MMT. That it is not a 'theory'. It is a researched based explanation of how national finances actually 'work', of how the state is the main source of money in the domestic economy and that it needs to put money in before it can tax it back.

Yes, there have been various theories advanced on how this knowledge could be put to use, but that doesn't affect its validity.

As for 'general economic theory', as far as my reading goes I don't think there is one. There are various schools of economic thought and the prevalent one in the UK is the neoliberal, monetarist, free market school which we've been familiar with for the last 40+ years; we can see from its results today that it hasn't been terribly successful... unless you count wealth flowing up to the already wealthy and increasing poverty and inequality as 'success'.. But it's not the only game around.

There is noting new about investing to provide a return wether profit or taxation in the future, the government encourages investment in many ways so that profits can be taxed. But the system is very inefficient there are far too many getting free services they could well afford to pay for.

Taxation is already high and I don’t advocate increasing rates, restricting the free services wealthy get by means testing would mean more resources for low income groups.

DaisyAnneReturns

Rather like some others on here Maisie, I would like to be able to agree with you. You have put a lot of work into understanding the thinking behind this and have been generous when sharing what you have learned.

This "theory" is coming from the extreme left and, as yet, is not acceptable to the general economics community who cross the political spectrum. I cannot see how you think that would help the Labour Party in the next election.

If we think for a moment about who Labour needs to attract in order to win, it is the center voter - who will be wary of extremes - and the previously left-wing voters who will generally be economically and socially authoritarian (liking and relying on rules). I just can't see how an untried view of how we run our economy would help the left convey a vision for the future of Britain that appeals to such voters.

Without power, therefore without being in government, the left can do nothing.

Hopefully there is something in MMT that can add to general economic theory and make it easier to make things better for the majority. However, I can't see how this election, or the Labour Party we have currently, can be seen as the vehicle to put untried theories in front of a nation and ask them to consider voting for a government that would use those theories.

I think you may even have to wait for PR, and a far left group getting possibly a dozen (at best) seats so that this becomes something generally debated.

I’m beginning to plough my way through stuff, and what I do know from what I’ve read so far is that it is definitely not a theory developed by the “extreme” left.

So I think we can put that to bed.

Katie59

There is noting new about investing to provide a return wether profit or taxation in the future, the government encourages investment in many ways so that profits can be taxed. But the system is very inefficient there are far too many getting free services they could well afford to pay for.

Taxation is already high and I don’t advocate increasing rates, restricting the free services wealthy get by means testing would mean more resources for low income groups.

I'm not sure what this has to do with what I've been talking about, which is the fact that most of our public money comes from the state and is 'created' by the Bank of England. That it doesn't have to be 'borrowed' from anyone and that the money available for state spending doesn't depend on taxation.

Of the £2,600 billion national debt just over £800 billion was created by QE since 2009. Currently QE is being reversed (Quantitive Tightening), bonds are being sold at a nominal interest rate of 4.3 % significantly below BoE base rate. The BoE cannot buy unlimited amounts because financial institutions need bonds because they are a very safe investment needed to secure long term commitments like pensions.

It seems to me the government is paying that interest to go some way to maintain the value of long term commitments which QE would not.

Emma Dent Coad standing as independent crowd fund

davidaslindsay.blogspot.com/2023/07/casting-net-wide.html?spref=tw

So I think we can put that to bed. Whitewave

I don't know when people started thinking "This is my opinion. I'm entitled to my opinion. My opinion is MY truth. Therefore, my opinion is therefore THE truth."

I gave you my opinion as seen from my from my perspective. Just because you have a different perspective does not make me wrong or you right, or vice versa.

If one person is standing at the top of a hill and one at the bottom, they will each have a very different perspective as to whether the road is going up or down. Add to that the person who stands halfway. That is a third perspective and an equally valid one.

Stick to your opinion by all means but please do not tell me that your opinion overrides mine.

Grany

Emma Dent Coad standing as independent crowd fund

davidaslindsay.blogspot.com/2023/07/casting-net-wide.html?spref=tw

It’s not too clear is it the Monster Raving Loony party?.

Is this the same David Lindsay?

www.thenorthernecho.co.uk/news/23577422.county-durham-blogger-denies-breaching-restraining-order/

Katie59

Of the £2,600 billion national debt just over £800 billion was created by QE since 2009. Currently QE is being reversed (Quantitive Tightening), bonds are being sold at a nominal interest rate of 4.3 % significantly below BoE base rate. The BoE cannot buy unlimited amounts because financial institutions need bonds because they are a very safe investment needed to secure long term commitments like pensions.

It seems to me the government is paying that interest to go some way to maintain the value of long term commitments which QE would not.

Katie59, government bonds are no more in finite supply than is money. The Treasury just issues them as they see fit. The BoE holdings are not depriving the pension funds of opportunities to buy.

There is no reason at all why the BoE should be restricted as to the quantity it can purchase and no reason at all why they have to be selling them at a loss at this moment in time.

MaizieD

Katie59

Of the £2,600 billion national debt just over £800 billion was created by QE since 2009. Currently QE is being reversed (Quantitive Tightening), bonds are being sold at a nominal interest rate of 4.3 % significantly below BoE base rate. The BoE cannot buy unlimited amounts because financial institutions need bonds because they are a very safe investment needed to secure long term commitments like pensions.

It seems to me the government is paying that interest to go some way to maintain the value of long term commitments which QE would not.

Katie59, government bonds are no more in finite supply than is money. The Treasury just issues them as they see fit. The BoE holdings are not depriving the pension funds of opportunities to buy.

There is no reason at all why the BoE should be restricted as to the quantity it can purchase and no reason at all why they have to be selling them at a loss at this moment in time.

As I have said previously the limit is what international markets and investors see as being prudent otherwise the value of the currency falls. Selling at a loss? Do you mean paying over 4% interest on bonds sold?, at a time when inflation is at least double that, seems a pretty good deal to me.

In 2016 sterling fell over 30% because investors saw it as a stupid decision, it was recovering until Truss crashed it again, now it is better around 20% up from the low. Personally I think Sunak should invest a lot more for growth, particularly technology, probably the obstacle to that is inflation

I was making the point though about those having to go independent, crowd fund.

Seems Starmer doesn’t want decent hardworking for their constituents people in Labour Party?

There is another blogger Council Estate who thinks both Labour and Tory both want same keep austerity it’s a class war.

councilestatemedia.substack.com/p/the-establishment-has-declared-class?utm_source=substack&publication_id=1336368&post_id=135640546&utm_medium=email&utm_content=share&triggerShare=true&isFreemail=true

There is another political crowd fund to do a deep dive on Starmer, who he is what he stands for and his voting record etc seeing as he likely PM next year sometime and has U turned on most of his pledges

www.justgiving.com/crowdfunding/SirKidStarverprofile?fbclid=IwAR2Aj1_atXnhf-npKJ630iHILFF6K7S-ARzqwywxCsP4sDFtn0bnK3knHvE

We don’t need more austerity A Labour Party is meant to stand for the working people.

Labour is conservative vote red or blue same. People are looking for alternatives

DaisyAnneReturns

^So I think we can put that to bed.^ Whitewave

I don't know when people started thinking "This is my opinion. I'm entitled to my opinion. My opinion is MY truth. Therefore, my opinion is therefore THE truth."

I gave you my opinion as seen from my from my perspective. Just because you have a different perspective does not make me wrong or you right, or vice versa.

If one person is standing at the top of a hill and one at the bottom, they will each have a very different perspective as to whether the road is going up or down. Add to that the person who stands halfway. That is a third perspective and an equally valid one.

Stick to your opinion by all means but please do not tell me that your opinion overrides mine.

When I said that MMT theory is not one developed by the extreme left, I think you misunderstood what I meant.

So

Just like classic and Keynesianism economics MMT is not developed by someone from the “extreme left” Like other branches of economics and those that have progressed the founding fathers they are to that extent “neutral”. They are theories of the way the economy works. So classic economics centres on laissez faire and small state economics, Keynesianism was developed between the wars to take account of more state involvement - re the Great Depression etc, and MMT describes the flow of capital/currency - taking issue with the traditional way of looking how the state funds its spending. That is all it does. It is neither left nor right it is to that extent neutral.

It isn’t my opinion🙂.

It just is.

Grany your use of that blog, (I am for reasons I wont go into aware of the case) confirms everything I have thought for a long time.
Daisy's info is not completely up to date (no criticism Daisy ) he was later imprisoned for further charges. He caused great distress.

Katie59

MaizieD

Katie59

Of the £2,600 billion national debt just over £800 billion was created by QE since 2009. Currently QE is being reversed (Quantitive Tightening), bonds are being sold at a nominal interest rate of 4.3 % significantly below BoE base rate. The BoE cannot buy unlimited amounts because financial institutions need bonds because they are a very safe investment needed to secure long term commitments like pensions.

It seems to me the government is paying that interest to go some way to maintain the value of long term commitments which QE would not.

Katie59, government bonds are no more in finite supply than is money. The Treasury just issues them as they see fit. The BoE holdings are not depriving the pension funds of opportunities to buy.

There is no reason at all why the BoE should be restricted as to the quantity it can purchase and no reason at all why they have to be selling them at a loss at this moment in time.

As I have said previously the limit is what international markets and investors see as being prudent otherwise the value of the currency falls. Selling at a loss? Do you mean paying over 4% interest on bonds sold?, at a time when inflation is at least double that, seems a pretty good deal to me.

In 2016 sterling fell over 30% because investors saw it as a stupid decision, it was recovering until Truss crashed it again, now it is better around 20% up from the low. Personally I think Sunak should invest a lot more for growth, particularly technology, probably the obstacle to that is inflation

Hmm,

The Financial Times reports that the BoE is calculating a loss of £150billion on its current holding of the bonds bought in the QE exercises. So far this is an accounting loss only based on the current market value of the bonds, but if the bonds are sold (as the BoE seems determined to do) the loss would become a reality. As there is no reason why the bonds should be sold right now this just looks irresponsible.

Professor Murphy explains:

www.taxresearch.org.uk/Blog/2023/07/28/the-bank-of-england-wants-to-make-a-loss-of-150-billion-so-that-goverments-will-be-forced-to-cut-spending-that-is-the-real-banking-scandal-of-our-time/

The 4% interest rate is completely irrelevant. All bonds are sold at a certain rate of interest which remains fixed over their lifetime. (The only exception being if the interest rate is index linked, which it isn't.) Holders of 4% bonds are paid 4% interest on their holdings whether the rate of inflation is 2% or 10%. That is what makes them a safe investment, the return can be guaranteed for the lifetime of the bond.

Maisie

Interesting article, Murphy is saying that there is a power struggle between the BoE and government, there is only one outcome, the BoE will get overruled. This £150bn potential loss is to the bond holders, that’s the risk you take investing if they keep them until maturity they get face value

Murphy did not say that the BoE was making a loss he said the investors would if they sold now. We have just had a period of high inflation and little growth the value of many things has fallen.

A crude calculation is
UK value £100, growth 1% inflation 10% value £91 at yr end

Bond purchasers at 4% now are probably going to loose in the short term while interest rates are high but are betting on interest rates falling later in the bonds life and I think that is a reasonable strategy. Why would you think that’s irrelevant it's the purchasers judgement

We made a similar decision 2 yrs ago we fixed Electric supply at 18p/Kwh for 3 yrs prices are over double that now the supplier is either loosing money or he hedged the price forwards

Galaxy

Grany your use of that blog, (I am for reasons I wont go into aware of the case) confirms everything I have thought for a long time.
Daisy's info is not completely up to date (no criticism Daisy ) he was later imprisoned for further charges. He caused great distress.

I was not aware of of him or his blog, charges or imprisonment before I posted I shall look carefully at sources next time. The next post about KS I stand by he needs thorough investigation everything about him as he lied to get to be leader and u-turned on most of his pledges.

Katie59

Maisie

Interesting article, Murphy is saying that there is a power struggle between the BoE and government, there is only one outcome, the BoE will get overruled. This £150bn potential loss is to the bond holders, that’s the risk you take investing if they keep them until maturity they get face value

Murphy did not say that the BoE was making a loss he said the investors would if they sold now. We have just had a period of high inflation and little growth the value of many things has fallen.

A crude calculation is
UK value £100, growth 1% inflation 10% value £91 at yr end

Bond purchasers at 4% now are probably going to loose in the short term while interest rates are high but are betting on interest rates falling later in the bonds life and I think that is a reasonable strategy. Why would you think that’s irrelevant it's the purchasers judgement

We made a similar decision 2 yrs ago we fixed Electric supply at 18p/Kwh for 3 yrs prices are over double that now the supplier is either loosing money or he hedged the price forwards

I'm sorry, Katie59 but you appear to be completely misunderstanding the the ownership of the bonds purchased for QE. They were purchased by the BoE from the market (including bonds newly issued by the Treasury for the sole purpose of sale to the BoE) and the 'bondholders' are nominally the BoE, though in fact they are 'managed' by the government in the Asset Management Facility. They have no connection whatsoever with other bondholders. The only 'investor' that will make a loss is the BoE, because they are the body that purchased them,;with entirely newly created money, BTW.

As far as I am aware, the BoE is embarking on selling these bonds at a loss with the approval of the Chancellor. There is ultimately no 'power struggle' because the UK owns the BoE and it works under the ultimate direction of Parliament. It's only real independence is in the setting of interest rates.

Bond purchasers at 4% now are probably going to loose in the short term while interest rates are high but are betting on interest rates falling later in the bonds life and I think that is a reasonable strategy. Why would you think that’s irrelevant it's the purchasers judgement

I think it's irrelevant because that is always the judgement that an investor has to make and the only thing it has to do with the BoE sale of the QE bonds is whether or not the 4% bonds will attract purchasers. Which I think they will because they are being sold for far less than they cost and canny investors know that inflation will fall within the lifetime of the bonds, and, that if their market value increases they could sell their holding at a profit.

I understand that the bank can sell the bonds accumulated under QE at a discount and they will receive interest attatched to individual issues. Currently the discount is estimated at £150bn, while those bonds have been held interest amounting to similar amount has been saved, time will tell wether there is a net loss

Question
Why sell bonds that are costing nothing, and at the same time sell bonds costing 4%+?.

Katie59

I understand that the bank can sell the bonds accumulated under QE at a discount and they will receive interest attatched to individual issues. Currently the discount is estimated at £150bn, while those bonds have been held interest amounting to similar amount has been saved, time will tell wether there is a net loss

Question
Why sell bonds that are costing nothing, and at the same time sell bonds costing 4%+?.

The bonds are being sold at the market valuation, which is, at the moment, less than was paid for them.

Interesting question
Question

Why sell bonds that are costing nothing, and at the same time sell bonds costing 4%+?.

Why sell bonds that are costing nothing?

Well, they're costing nothing in real terms because the interest paid on them is just numbers swapping between the Treasury (a UK govt. department) and the Asset Management Facility, also part of the UK Treasury. And the Treasury and the BoE, respectively, created the bonds in the first place and the money with which to purchase them!

So that's a very good question To which no-one seems to know the answer...

and at the same time sell bonds costing 4%

They didn't 'cost 4%'. ' The 4% is the annual interest paid on them by the Treasury, they are called '4% gilts'.
Though to tell the truth, I'm not altogether sure where you have got this 4% figure from. Can you clarify?