Angela Rayner dancing whilst on holiday in Ibiza

MaizieD

In reality, the current 'debt' comprises the Quantitative Easing money which was created by the Bank of England under the instructions of the government in 2008 (the Global financial Crisis), 2016 (to prop up the pound after the Brexit vote) and in 2020 to fund Covid. That amounts to about a third of the so called 'national debt' and we are in the absurd position of paying interest on the money the BoE created; we're paying interest on our own money, so to speak!

I read - somewhere - that the interest is ultimately paid back to the government. Is that true?

I've read so many articles, etc, that I cannot remember where I saw this.

I read - somewhere - that the interest is ultimately paid back to the government. Is that true?

One day I will properly get my head round QE but the way I understand it works is this

The government wants to make large amounts of new money available. It does it by ordering the Bank of England to buy government bonds with money that the BoE creates specifically for this purpose.

As, theoretically, government issues bonds in order to make more money available to it the BoE's QE bond purchases make the purchase money available to the government.

The government pays interest on all the bonds it sells. So, it pays theoretical interest on the bonds which it has instructed the BoE to buy on its behalf (bearing in mind that all government payments are made from its 'accounts' with the BoE.)

As the government is the theoretical holder of the bonds purchased for QE it has to pay the interest due on the bonds to itself as it not only the original bond seller but also the bond holder.

For accounting purposes both the purchase of the bonds and the receipt and payment of interest on them have to be recorded in the government accounts... As far as I can see the interest receipts and payments must cancel each other out. The initial bond purchase is counted as government spending and becomes part of the deficit...

It's all a bit confusing!

Incidentally, the 2008 QE was partly to put money into commercial bank reserves so as to stop them going bankrupt.
But because the reserve accounts are counted as deposit accounts held by the BoE they have interest paid on them. The money created to 'save' them during the global financial crisis is now making them a nice completely unearned profit from the interest paid on them... Many other countries' central banks only pay interest on a small percentage of commercial bank reserves. Why we pay on the whole lot is a mystery.

And the CB reserves are so enormous because of the government guarantee that up to £85.000 of yours and my bank deposits will be protected should there be a run on the bank.

It's all so complex it's no wonder that people's eyes glaze over when anyone tries to talk abut it...

P.S none of this 'money' actually physically exists. It's all just numbers created by key strokes on computers...

MaizieD

^I read - somewhere - that the interest is ultimately paid back to the government. Is that true?^

One day I will properly get my head round QE but the way I understand it works is this

The government wants to make large amounts of new money available. It does it by ordering the Bank of England to buy government bonds with money that the BoE creates specifically for this purpose.

As, theoretically, government issues bonds in order to make more money available to it the BoE's QE bond purchases make the purchase money available to the government.

The government pays interest on all the bonds it sells. So, it pays theoretical interest on the bonds which it has instructed the BoE to buy on its behalf (bearing in mind that all government payments are made from its 'accounts' with the BoE.)

As the government is the theoretical holder of the bonds purchased for QE it has to pay the interest due on the bonds to itself as it not only the original bond seller but also the bond holder.

For accounting purposes both the purchase of the bonds and the receipt and payment of interest on them have to be recorded in the government accounts... As far as I can see the interest receipts and payments must cancel each other out. The initial bond purchase is counted as government spending and becomes part of the deficit...

It's all a bit confusing!

Incidentally, the 2008 QE was partly to put money into commercial bank reserves so as to stop them going bankrupt.
But because the reserve accounts are counted as deposit accounts held by the BoE they have interest paid on them. The money created to 'save' them during the global financial crisis is now making them a nice completely unearned profit from the interest paid on them... Many other countries' central banks only pay interest on a small percentage of commercial bank reserves. Why we pay on the whole lot is a mystery.

And the CB reserves are so enormous because of the government guarantee that up to £85.000 of yours and my bank deposits will be protected should there be a run on the bank.

It's all so complex it's no wonder that people's eyes glaze over when anyone tries to talk abut it...

P.S none of this 'money' actually physically exists. It's all just numbers created by key strokes on computers...

MaizieD

One day I will properly get my head round QE...

- let me know when you do, I'm finding it all so complex .

P.S none of this 'money' actually physically exists. It's all just numbers created by key strokes on computers...

A reality complicated by the fact that people have coins and notes in their pockets which, I assume, in the distant, or maybe not so distant, future, will cease to exist. Then our debit and credit cards will be mini ledgers - or something?

It's all so complex it's no wonder that people's eyes glaze over when anyone tries to talk abut it...

But it's fascinating! And, all the time, in my head, I'm aware of what Henry Ford said. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Which makes me more determined to "understand".

"LONDON, April 4 (Reuters) - Britain's next government will have to tread carefully to avoid jeopardising the country's already diminished credit rating with the public finances under heavy strain, a senior analyst with S&P Global Ratings said.
Maxim Rybnikov, S&P's primary sovereign analyst for the United Kingdom, said whoever wins the election expected later this year will have to balance growing demands for more spending on services such as healthcare with the need to fix the public finances."

The UK's credit rating was affecting following the Brexit vote and a further reduction was threatened with the Truss budget. This is why I struggle to understand this idea that we can just "make more money available" without it affecting our economy and level of inflation. We cannot isolate ourselves from how global markets view the decisions made by our government.

foxie48 the saving of £1.4 billion is peanuts in the wider scheme.

ronib

foxie48 the saving of £1.4 billion is peanuts in the wider scheme.

I have no answer to this comment as tbh I don't know how it relates to my last post.

foxie48 now that does surprise me. Your last sentence refers. How do you think global markets might react to a government apparently choosing to treat its pensioners with what may be seen as cruelty? Let us not forget that we are the is it 6th wealthiest economy?

foxie48

This is why I struggle to understand this idea that we can just "make more money available" without it affecting our economy and level of inflation.

"A government that has its own central bank and currency, which currency is internationally acceptable, need neither tax nor borrow before spending because its entire government expenditure can be funded by new money creation by its central bank acting on its behalf, with the government then being indebted to its central bank for the sum expended.
A government that borrows in this way from its own central bank need never repay the debt it owes to its central bank because that debt represents the money supply of the jurisdiction for which it is responsible and that money supply must, therefore, be maintained if the level of economic activity in that jurisdiction is to be sustained.
The primary role of taxation in the funding cycle of such a government is to control the inflation that might be caused by the excessive creation of new money by that government when fulfilling its expenditure plans." (The Tax Research Group)

"We cannot isolate ourselves from how global markets view the decisions made by our government."
Ronib Nowhere have I suggested that the removal of WFP would affect our standing in the global markets, I have used the Brexit vote and Truss budget as examples.

Maizie and Dickens if it is possible to do this then why isn't it done by every country? ie Need to pay our pensioners a bit more, just make some more money. Need to improve our infrastructure, just make some more money. etc etc. I do understand that we used quantitative easing to get us through the crash, Brexit referendum, covid etc but the BoE started to reverse it in 2022 by selling bonds in a bid to reduce inflation. It was always meant to be a temporary measure. I really don't pretend to understand this but at Xmas I have two relatives who will be able to explain it all to me, OH's nephew was in the team that helped develop QE and he said they literally had no idea if it would work. Scary times!

foxie48 this is a bit daft - the sixth wealthiest economy is allowing pensioners to die from malnutrition and freeze to death. Not a good look.

Maizie and Dickens if it is possible to do this then why isn't it done by every country?

... hazard a guess foxie48...

Although, it has to be said, that there are other countries that actually do invest more in their people, economically. And still manage to merge this with, and sustain, free-market Capitalism.

Thanks, Dickens😀

I was reading the blog by heterodox economist, Clint Ballinger earlier today and somewhere he says that money 'printing' usually follows hyperinflation rather than causes it, but I'll be blowed if I can find the particular blog post again.🙁
However, there's lots of interesting stuff on his blog site

economicsfromthetopdown.com/

With regard to credit ratings, I understand these are prepared for the benefit of potential foreign investors.

major factors that influence the credit rating are:

The entity's payment history, including any missed payments or past defaults
The amount it currently owes and the types of debt it has
Current cash flows and income
The overall market or economic outlook
Any unique issues that might prevent timely repayment of debts

www.investopedia.com/terms/c/creditrating.asp

We still have a credit rating within the A range. That indicates low risk. I wouldn't worry too much about its nominal derating.

Looking at the factors Investopedia lists the first and the last don't apply to the UK. The other three could be debatable.

We certainly adversely affected our markets with Brexit erecting trade barriers between the UK and its largest, nearest market, but not disastrously so.

Most of our 'debt' (government bonds & savings vehicles) is with domestic institutions and individuals. Foreign holders are in a minority.

Cash flows and income? Well, that's interesting because it entirely ignores the fact that we are able to create our own currency ans assumes that we are dependent on tax revenue and 'borrowings'. I'm not sure how the rating agencies viewed the injection of some £900billion of 'created' money into the economy since 2008. It certainly doesn't seem to have adversely affected our credit rating.

With regard to global markets, I suppose it must be a question of how far in their grip we are. Another of my heterodox economists, Ann Pettifor, is very concerned about them and believes that all governments have almost lost control of them. Which is bad because these markets are mostly speculative. Commodity prices are subject to manipulation and speculation, while the financial markets seem to be the Wild West 😱

This is Pettifor's take on it, she calls it The System:

The system, the global economic order - designed by economists and central bankers and endorsed by elected politicians - licenses and empowers the owners of capital to drive their capital at whim across borders and to use that capital for rent-seeking and speculation. They may do so without regard to the consequences for a nation’s exchange rate, its public finances or its essential commodity markets.

By these means the owners of much of the world’s wealth – the 1% - exercise immense power over the world’s people and the ecosystem. And they do so within a financial system that is as secretive, closed and ‘encased’2 from the public as the Kremlin.

The ‘walls’ of the system are by very design insulated from oversight by regulatory democracy. Its construction was planned, and is periodically modified, with the specific purpose of preventing governments from intervening to manage and moderate markets in money, commodities and services.

The whole of this blog is an interesting read. She proposes that by allowing deregulation of financial markets our neoliberal, market based western economies have created a supranational 'system' which we should be trying to control rather than pander to.

annpettifor.substack.com/p/why-are-western-governments-impotent

I'm not altogether sure how beneficial the 'finance industry' is to our domestic economy and I can't help feeling that some well targeted state investment, financed by our ability to create our own money is needed to mitigate the effects of profit taking by private investors. Not entirely crowding out private investment, just creating a balance.

Although, it has to be said, that there are other countries that actually do invest more in their people, economically. And still manage to merge this with, and sustain, free-market Capitalism.

Basically a 'mixed economy'. Which we had until Thatcher and her heirs got going...

After all, we produce absolutely nothing so are dependent on the private sector to supply our state owned sector with goods and services. And consumer spending by state employees sustains private enterprises.

ronib

foxie48 now that does surprise me. Your last sentence refers. How do you think global markets might react to a government apparently choosing to treat its pensioners with what may be seen as cruelty? Let us not forget that we are the is it 6th wealthiest economy?

The global markets will be totally indifferent to this. They don't have 'feelings', or morals...

MaizieD

^Although, it has to be said, that there are other countries that actually do invest more in their people, economically. And still manage to merge this with, and sustain, free-market Capitalism.^

Basically a 'mixed economy'. Which we had until Thatcher and her heirs got going...

After all, we produce absolutely nothing so are dependent on the private sector to supply our state owned sector with goods and services. And consumer spending by state employees sustains private enterprises.

MaizieD a quick Google shows that the U.K. is eight in the global manufacturing league

Which makes your statement we produce absolutely nothing
incorrect.

What exactly is all this stuff doing on a post about Angela Rayner though? Informative as it is ….

GrannyGravy13

MaizieD

Although, it has to be said, that there are other countries that actually do invest more in their people, economically. And still manage to merge this with, and sustain, free-market Capitalism.

Basically a 'mixed economy'. Which we had until Thatcher and her heirs got going...

After all, we produce absolutely nothing so are dependent on the private sector to supply our state owned sector with goods and services. And consumer spending by state employees sustains private enterprises.

MaizieD a quick Google shows that the U.K. is eight in the global manufacturing league

Which makes your statement we produce absolutely nothing
incorrect.

You have misunderstood me, GG13. The state produces nothing. It is dependent on the private sector to supply it.

Threads wander, ronib.

Glad you find it interesting...

Any idea what our Angela did today?

Dickens

^Maizie and Dickens if it is possible to do this then why isn't it done by every country?^

... hazard a guess foxie48...

Although, it has to be said, that there are other countries that actually do invest more in their people, economically. And still manage to merge this with, and sustain, free-market Capitalism.

Nah, I got my "A" level in economics in 1966, so I am way behind the times and tbh have forgotten most of it. As Maizie is quoting from an "heterodox" economist, I think I can assume his theories are unorthodox, doesn't mean he's not correct though just means most of us won't have come across them. I definitely support the idea of investing more in people but I still want to see increased support for those who are most disadvantaged rather than universal benefits like WFP, which was meant to be a temporary benefit, going to people like me and the rest of the pensioners in my family and tbh most of my friends and neighbours.

GrannyGravy13, where did you find UK placed 8th in manufacturing.? All the articles I found placed us about 12th like this one.
drivesncontrols.com/uk-drops-from-8th-to-12th-in-global-manufacturing-league/
As an aside, DGS as part of Geography homework had to plot where 10 things in his home were manufactured. Only one from UK, but then three of the items were tech. so obviously far east!

foxie48

Dickens

Maizie and Dickens if it is possible to do this then why isn't it done by every country?

... hazard a guess foxie48...

Although, it has to be said, that there are other countries that actually do invest more in their people, economically. And still manage to merge this with, and sustain, free-market Capitalism.

Nah, I got my "A" level in economics in 1966, so I am way behind the times and tbh have forgotten most of it. As Maizie is quoting from an "heterodox" economist, I think I can assume his theories are unorthodox, doesn't mean he's not correct though just means most of us won't have come across them. I definitely support the idea of investing more in people but I still want to see increased support for those who are most disadvantaged rather than universal benefits like WFP, which was meant to be a temporary benefit, going to people like me and the rest of the pensioners in my family and tbh most of my friends and neighbours.

If you got your 'A' level economics in 1966 then it was probably based on Keynes! Who said that governments should spend their way out of a recession and aim for full employment. His well known saying is 'whatever we can do we can afford'. It was his economic understandings which drove the creation of the NHS and privatisation post WW2

Today's 'heterodox' economists are in many ways his'heirs'😁

Keynes was displaced by economic theory based on the writings of Hayek, who, as a 'refugee' from the Soviet Union abhorred state control of anything and believed in 'free markets'. His theories were developed by Milton Friedman and were adopted by Reagan and Thatcher. They form the basis of the economic system we have today. And are the antithesis of Keynes...

I absolutely agree that we should be doing more for the disadvantaged. A punitive benefits system does nothing to get people back into meaningful work. But I very much fear we have a punitive chancellor...

MaizieD

GrannyGravy13

MaizieD

Although, it has to be said, that there are other countries that actually do invest more in their people, economically. And still manage to merge this with, and sustain, free-market Capitalism.

Basically a 'mixed economy'. Which we had until Thatcher and her heirs got going...

After all, we produce absolutely nothing so are dependent on the private sector to supply our state owned sector with goods and services. And consumer spending by state employees sustains private enterprises.

MaizieD a quick Google shows that the U.K. is eight in the global manufacturing league

Which makes your statement we produce absolutely nothing
incorrect.

You have misunderstood me, GG13. The state produces nothing. It is dependent on the private sector to supply it.

OK 👍

Nandalot

*GrannyGravy13*, where did you find UK placed 8th in manufacturing.? All the articles I found placed us about 12th like this one.
drivesncontrols.com/uk-drops-from-8th-to-12th-in-global-manufacturing-league/
As an aside, DGS as part of Geography homework had to plot where 10 things in his home were manufactured. Only one from UK, but then three of the items were tech. so obviously far east!

I just asked Google, there are plenty of articles and all placed U.K. 8th.

MaizieD I think RR has boxed herself in and is trying to get out. When I look at the scaremongering going on in the media tbh I'm not surprised. We needed a change of government but I wish the LP had had the confidence to be more open about their plans, I think they would still have been elected with a sizeable majority. TBH I also wish they'd take a bit from Harris and Walz and spread less doom and a bit more positivity. However, despite the fact that DWP is already struggling to process claims for PC (no surprise there!), if this leads to more people getting the benefits they need and should be claiming, than that's a win.