PQE: how to cut the UK’s debt by two-thirds!

Could People’s Quantitative Easing cut government debt by two thirds?

Let us be clear here, the term “People’s Quantitative Easing” has not been fully defined yet. It is a policy still to be determined by the Labour party and its leader, Jeremy Corbyn. But, as defined by Richard Murphy, its usefulness would come in mainly in times of an economic crisis.

So, everybody who has looked in detail at the proposals seems to be in agreement that it would be a good idea at times of high unemployment, in a depression, when there are plenty of resources lying idle in the economy. This is certainly true for “Overt Monetary Financing”, a general term used to describe spending money into the economy through the central bank. Which is colloquially known as “printing money”.

Everybody also is in agreement that the QE undertaken by the Bank of England in the years after 2009 was not a “People’s QE”, but mainly benefited the rich and the banks.  To what extent it benefited the banks especially is unclear, and the Financial Times has called for an audit by the National Audit Office to determine who actually gained from the unprecedented expenditure by the Central Bank, pumping £375bn (about 20% of GDP) into just one asset market mainly controlled by the commercial banks!

That means that PQE (and not more QE) should be the tool of choice in the next downturn. The disagreement would be about how much should PQE there should be, whether other overt financing tools (helicopter money) are possibly more effective and what the role of the central bank should be, which is deemed to have an “independent mandate” to look after inflation.

Now, that is a shame, because PQE, or “overt monetary financing,”  could be equally used to finance every government expenditure, ever. No more borrowing, just PQE!

This is not some loony left-wing idea, but comes from one of the most prominent influential economists of the second half of last century, an avid defender of free market principles and an economic guru to both Ronald Reagan and Margaret Thatcher. Milton Friedman!

In 1948, just after the Second World War, Friedman wrote the following:

Under the proposal, government expenditures would be financed entirely by either tax revenues or the creation of money, that is, the issue of non-interest-bearing securities. Government would not issue interest-bearing securities to the public; the Federal Reserve System would not operate in the open market. This restriction of the sources of government funds seems reasonable for peacetime.

The chief valid ground for paying interest to the public on government debt is to offset the inflationary pressure of abnormally high government expenditures when, for one reason or another, it is not feasible or desirable to levy sufficient taxes to do so. This was the justification for wartime issuance of interest-bearing securities, though, perversely, the rate of interest on these securities was pegged at a low level. It seems inapplicable in peacetime, especially if, as suggested, the volume of government expenditures on goods and services is kept relatively stable. Another reason sometimes given for issuing interest-bearing securities is that in a period of unemployment it is less deflationary to issue securities than to levy taxes. This is true. But it is still less deflationary to issue money

How could the UK have looked after 1951 if it had just issued money by the Central Bank? What if Milton Friedman’s recommendations had been taken and implemented?

Looking back and doing a “what if” analysis is always a bit tricky, but here it should be fairly easy.

If the government borrows, it takes money out of circulation from the real economy. The money available by the private sector to invest and consume must fall. Now if the government does not borrow the money from the private sector, would the private sector spend it? Unlikely, the private sector would keep it in the banking system, and save it there. Again, it is not available for investment in the real economy.

So whether the government spends money by borrowing it first from the private sector, or it just issues (“prints”) money, the same real investment and consumption activities by the government (and the private sector) will happen. That will be the ones the government chooses to undertake. That would have been, in the UK after the war: money to build up the NHS, build the motorways, invest in social housing, and set up a welfare state. More recently free nursery places and tax credits were additional innovations. All Labour policies, we might add.

The amount of inflation is exactly the same as if the government borrowed the money, as the same amount of money is chasing goods and services, whether it was borrowed or just spent into the economy. The main determining factor for inflation is private credit growth rate, which will in times of a boom, exceed increased government spending growth significantly. The rate of growth of private sector credit will determine the amount of money in an economy much more than government spending, and therefore will be the determining factor in asset and consumer price inflation.

That is worth saying again:

No increase in inflation arises if the same amount of increased money is in the real economy. It does not matter if the increase comes from government borrowing or just government spending by the Central Bank. Inflation (in both assets and consumer prices) is mainly determined by private sector money growth.

What about the interest on the government bonds?

Clearly, if the government just issues money rather than borrows it, it saves any interest payments. These interest payments will go to the lenders of the money to the government, the people who had enough money to lend it to the government in the first place. These people are, in the main, just the very rich, who are net lenders to the government. The top 10% of the population, in terms of wealth or income.

Now, the very wealthy which lent their money to the government are, as a group, very likely to lend the interest they receive onto the government again. They did not need the money in the first place, remember, so it is unlike that they need the interest. So it is them who would have lost out on the interest paid to the government had the UK decided not to borrow in 1950.

So, let us just add up the interest which the very wealth would have lost out on. Luckily, the Office of Budget responsibility has detailed the interest the government has paid since 1951. In 1951 it came to £0.5bn for that year. Now, in 2015, it is about 100 times bigger, at almost £50bn.

In total, if you add all the numbers up, for all the years, the UK has paid out the staggering amount of £940bn in interest  to the very rich of its population in the last 65 years. Not because it needed to, but because it chose to.

If it had not done that, we would have government debt in the UK which was £940bn smaller. Not almost £1,500bn, but more like £560bn.

If the UK had followed Milton Friedman’s adviceand though its Central Bank had just spend the money instead borrowed it, the UK debt would have been a bit about one third of the size it is now.

But as it is, almost a trillion pounds has been spent on interest since 1951. Interest accounts for two thirds of the UK debt!

So, same growth, same inflation, same goods and services in the economy. The UK economy would be very similar, if no borrowing had taken place since 1951. If you looked out of the window today, Britain would look perhaps exactly the same, as roughly the same investment decisions would have been made, by the state and the private sector.

The wealthy would still be wealthy, there would be no perceivable difference. But still, the UK would be a more equitable society. The wealthy would have £940 billion less, and the UK debt (which has to be serviced by all of us) would be £940 billion less.

The government debt to GDP ratio would now be something like 30% rather than 80%. The “government debt” would, of course, not be real debt, but just a summary of all the government spending ever. The annual government spending in excess of taxation (the “deficit”) could be half of what it is now, if we did not need to pay interest. All without austerity.

Now, clearly, that just describes the dynamics of the situation over a 65 year period, had we started in 1951 and followed Milton Friedman’s advice.

To get to a situation in the future, where the UK, perhaps in 30 years time, does not have any debt any more, it would have to be slowly replaced by government spending, instead of borrowing.

So how would the government know how much it should spend into the economy? Well, as now, the government will have to decide which roles in the economy it will want to take responsibility for. That would differ, clearly, depending on a Conservative or Labour government. Then it would have to fund these activities.

To pay for these activities would still come mainly from taxation, as now. Perhaps 2%-4% of GDP should be paid for by additional government spending into the economy. More in the beginning to repay outstanding debt and pay interest; less, as government borrowing falls. More in times of recession, less in times of a boom.

However, it should be made clear, that taxation is mainly there to (a) avoid inflation, and (b) redistribute money from the wealthy and fortunate to the less wealthy and less fortunate, according to the mandate received at the last election.

More crucially, unemployment has to be avoided. Should there be unemployment in the economy, the government’s role should be to make work more attractive. It could, for example, reduce the tax on work (National Insurance, income tax) and increase the tax on assets. And become an employer of last resort, should employment fall.

Inflation on goods  and services, but also on assets (housing) would need to be assessed and watched. There should probably be an independent economic commission. It would have a dual mandate, as the Federal Reserve in the US, to ensure unemployment and inflation is low. It would produce a range of recommendations to ensure that these parameters stay on a pre-determined path. That could be 3% unemployment,  3% consumer price inflation, and 3% asset inflation, for example.

Government spending, taxes and interest rates should be the three tools which the government should use, as recommended by the independent economic commission,  to ensure that the inflation targets are met in the long term.

I think it is time we follow Milton Friedman’s advice, with the government just spending money into the economy.

Then, over time, we would try to cut the government debt to one third, focus on unemployment, introduce a more egalitarian society, control asset and consumer price inflation.

And use PQE to finance every bit of government spending!

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28 thoughts on “PQE: how to cut the UK’s debt by two-thirds!

  1. People’s Quantitative Easing

    An Example of Communal Currency – the facts about the Guernsey Market House

    Based on a book by J Theodore Harris, 1911. I have quoted extensively from the book, to give a flavour of the times.

    From the preface:

    Those who during the past thirty of forty years have frequented working men’s clubs or other centres of discussion in which, here and there, an Owenite survivor or a Chartist veteran was to be found, will often have heard of the Guernsey Market House. Here, it would be explained, was a building provided by the Guernsey community for its own uses, without borrowing, without any toll of interest, and indeed, without cost. To many a humble disputant the Guernsey Market House seemed, in some mysterious way, to have been exempt from that servitude to previously accumulated capital in which the whole creation groaneth and travaileth. By the simple expedient of paying for the work in Government notes – issued to the purveyors of material, the master-workmen and the operatives, accepted as currency throughout the island, and eventually redeemed out of the annual market revenues – all tribute to the capitalist was avoided. In face of this successful experiment, the fact that we, in England, continued to raise loans and subject ourselves to “drag at each remove a lengthening chain” of interest on public debt, often seemed so perplexingly foolish as to be inexplicable, except as the outcome of some deep-laid plot of the “money power”.

    Sidney Webb, 2010

    Some years after the end of the Napoleonic Wars, the island of Guernsey was struggling to recover from the isolation and lack of trade, with high unemployment and poor public infrastructure such as roads, markets and harbours. It was reliant for its currency on English pounds, and with little for the English to buy, the island stagnated in poverty. Nor could the local government borrow more from the mainland banks, as it was already struggling to pay the interest on previous loans from its meagre public revenue.

    The local parliament ‘Estates’ or States, led by the Bailiff Daniel de L’Isle Brock came up with the ingenious scheme to print their own notes: Guernsey Pounds. A committee was formed to decide how the notes were to be spent, and make sure for their proper redemption and destruction in due time. The first major project was to build a covered market, and surrounding shops for the butchers. First, the land was purchased from the Meat Market Company for £5000 in 1817. After several failed attempts, and rival plans, eventually in 1820, a further £5,500 was issued by the Estates to commission the construction of the Market House.

    Once the market had been built, “The 36 shops, built for the butchers, would produce at £5 sterling per annum…” which together with income from other taxes would repay the issue of the Guernsey notes over a ten year period. Thereafter, “the States would be in possession of an income of £150 per annum” after maintenance costs.

    Further issues were authorized by the Committee, which apart from further purchases of property of use to the community, exchanged with the population the States notes for pounds sterling, which were used to repay the national debt to England, thus saving the annual interest. It seems there was no resistance to accepting the States notes, which could be exchanged freely for goods and services on the island.

    In 1826, a further issue was authorized for the purpose of Elizabeth College and Parochial Schools, whereby the issue of notes was close to £20,000. Every time new notes were issued, plans were agreed as to how the notes would be withdrawn and destroyed. Indeed, the committee referred to earlier, were “commanded to make a report to the States at least once each year certifying the liquidation and destruction of the said anticipations and of the said Notes.”

    For example, plans for the improvements in Rue de la Fontaine, a street adjoining the Markets, being adopted on 15th November, 1827, an issue of £1 notes up to £11,000 was authorized to be cancelled by the proceeds of rents.

    Between 1820, and 1837, over £80,000 worth of notes were issued, and in 1837 there was still in circulation £55,000 worth of notes.

    Frequent reference is made in local newspaper reports of the time, to the saving of interest, and to the fact that improvements in the island could not have been carried out but for this system. Roads were widened, harbours built, and sea defences improved. In one debate in the Estates, Mr H O Carre said:

    “The States, by having Notes to the amount of £55,000 in circulation, effected a saving of £1,600 per annum. Here, then was a revenue of £1,600 raised without causing a farthing’s expense to any individual of the public generally, for not one could urge that he suffered a farthing’s loss by it. It was therefore the interest of every one to support, not the credit, but the interest of the States. Those who wished to traffic on the public property were in fact laying a tax on that public, for they were diminishing, by so much as they forced States Notes out of circulation, the public revenue, for if the States, in consequence of a diminished revenue by the effect of Bank paper, have to make loans, those loans must in the end be repaid by the public – which would be a taxing of the public for the benefit of private individuals.”

    The neighbouring island of Jersey, perhaps still under the influence of the Banks, cast suspicion on the “supposed evils arising in Guernsey”, but the Gazette of 22nd July 1826 declared “these Notes have neither directly nor indirectly burdened commerce in any way, nor contributed to the rise in exchange that is experienced” referring perhaps to the fear of inflation. The Gazette went on “the generality of the inhabitants have confidence in the States Notes (it being always understood that the issue of Notes shall be kept within just limits) because they know that the whole property of the island forms the guarantee for their payment.” External exchange seems to have flourished side by side with the internal currency. There was recognition also, that a failure to redeem the Notes issued by their due dates, or use the income for that purpose on other expenditure, would render the original issue of Notes as permanent debt.

    In 1827, the Guernsey Banking Company was founded (the Old Bank), with one of the Committee members appointed as a Vice President. Rumblings were heard at this time, that the States were exceeding their authority, and not referring their planned expenditure to the Privy Council in London. Daniel de L’Isle was forced to write a defence of their policy.

    After describing the many benefits of the expenditure of States Notes for public infrastructure, he added:

    “The advantage resulting from all these improvements has not been confined to their utility, or to the increased activity given to industry, and the circulation of money by the public expenditure: they have excited in all classes a similar spirit of improvement, which displays itself in the embellishment of the premise already built upon, and above all in the number of handsome dwellings since erected. In the Town parish alone 401 houses have been built since the year 1819 at an expense of £207,000.” Thus showing the knock on effect, often referred to as a ‘multiplier’ of putting new money into circulation.

    Furthermore:

    “In the Markets and Fountain St, the States have undertaken works essentially necessary. The cost might be supposed to exceed the means of the States, if credit did not in the first instance furnish the chief expense without the charge of interest, and if the works themselves did not provide for the extinction of the engagements incurred. The views of the States are to render these public improvements a source of further revenue, which shall again afford the means of further and greater improvements.”

    His defence was favourably received by the States at their meeting in December 1829, and the Gazette commended the Bailiff to all Guernseymen: “As a wise administrator he has known how to contrive the means of effecting this great good without imposing the least tax or inconveniencing his fellow citizens.”

    The rumblings, however, would not go away, and a second bank, the Commercial Bank was established in 1830, which continued to challenge the right of the States to issue their own notes. Harris writes: “So long as the Banks had a right to issue notes they appear to have had it in their power to put pressure on the States. For they could thus put into circulation a currency beyond that required for the internal needs of the Island.” The seeds of inflation perhaps?

    In September 1836, de L’Isle summoned the States to a meeting with the intention to obtain an injunction against the issue of notes by the Banks:

    “If there is one incontestable principle it is that all matters relating to the current coin of any country have their source in the supreme prerogative, and that no one has the right to arrogate to himself the power of circulating a private coinage on which he imprints for his own profit an arbitrary value. If this is true for metal coins still more so is it for paper money which in itself has no value whatever.”
    He warned of the dangers of putting faith in private issues of money:

    “The wealth of the present stockholders of our banks is well known, their names suffice to inspire the greatest confidence; but apart from extraordinary events, the ordinary casualties of life may bring about in a short time the change of all the names, and there may remain in their place only men of straw.”

    He accepts the role of banks as keepers of accounts in the commercial dealings of the islanders, but warns of the inevitable consequences of allowing them to usurp the role of the States in issuing the notes:

    “Let the bank reply to the questions already put; let it say what inducement it can offer the public to drive out of circulation the States Notes, the profit on which benefits all, especially the productive classes, and substitute for it Bank notes, the profit on which benefits only individuals of the unproductive classes? Now is the time to ask the proprietors themselves and ascertain whether in starting a bank they ever had the intention of letting it work to the detriment of their country? The public Treasury is the heart of the State – did they ever wish, do they today wish to strike it with a dagger? I know that we live in a financial age, that it is reproached with indifference to every generous sentiment, and that the love of money and the lust for gain absorb all other passions….It should recognize that, as regards the circulation of paper-money, the States have, for a long time and for the common good, been in possession of the ground which it seems to wish to invade, which however, it cannot occupy with injustice.”

    Although the Bailiff seemed to have carried the debate in the States, in March 1837, it was reported by the Committee that an agreement had been struck with the two banks. They, in return for the withdrawal of £15,000 of the States notes, and an undertaking not to have at any one time more than £40,000 in circulation, would make an annual payment to the States of £10,000 of their own notes.

    It is not clear from the correspondence why Daniel de L’Isle Brock accepted this new arrangement, but it is clear from later notes that he was aware of the consequences: “The founding of the commercial banks causes an annual loss of £450.”

    By 1906, the £40,000 States notes (or to be more accurate £41,318) were still in circulation at nil interest. Meanwhile the States debts had built up to £159,250 on which it was paying annual interest of £5,213.

    Plus ca change?

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  2. “Then, over time, we would try to cut the government debt to one third, focus on unemployment, introduce a more egalitarian society, control asset and consumer price inflation.

    And use PQE to finance every bit of government spending!”

    Ah the magic money tree at work. I think you’ve taken Richard Murphy at his word that printing money or overt monetary financing would not cause inflation. And that you can keep increasing the amount of money in circulation, to buy all those lovely assets (rather than with debt) and have no adverse effects.

    Unfortunately we know historically that increasing the money supply in this way does cause inflation. You are talking about in increase in the base money supply of 1trn….when M0 is currently only 72bn.

    So printing all this money is the exact opposite of controlling price inflation. Milton Friedman alludes to this – he is saying that printing money is inflationary.

    You also say 1trn has been “spent” on interest since 1951. What do you think pensioners were investing in? That money is not destroyed – it is spent by those investors back into the economy. You claim suggests that you are of the opinion that if it is not spend by government, is doesn’t count.

    In all, your piece gives me the distinct impression that you simply don’t know what you are talking about when it comes to economics and finance. You just read what Murphy has written and take it at face value. Which with his general lack of understanding, make it up as you go along attitude and egomania is a very silly thing to be doing.

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    • Tyler,

      M0 is the cash in circulation, and that might be £72bn. Cash is about 2% of the money supply.

      What has that got to do with the total money in circulation, which is roughly what is lend out by all the banks, that amounts to about £3 trillion? More if we add in all the derivatives.

      Maybe you have not read what I have said MILTON FRIEDMAN RECOMMENDED THAT GOVERNMENTS SPEND MONEY INTO THE ECONOMY, rather than borrow! Was he of the opinion that that would lead to hyper-inflation? Or to inflation, where does he say that?

      Maybe you can engage in the argument, and show me at which stage of the cycle we are talking about here, inflation would have been different since 1951, if we had done what Friedman said.

      This has nothing to do with Richard Murphy. He suggested something quite separate, when PQE should be used.

      Clearly, if pensioners think they should get money for their investments, they can take it to the bank, and get the interest which is on offer there. They can invest it in shares. They can buy buy-to-let property, whatever. Why should the government pay interest on the money which the pensioners might want to lend to the government? The government pays a state pension to pensioners already.

      The government does not need the pensioners’ money.

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      • Oh dear.

        M0 is not only the cash in circulation. It is also the operational deposits with the Bank of England. For the BoE to print money for the government to spend, as you are suggesting, that would feed directly into M0.

        That M0 would then flow out into the economy when spent by the government, be re-hypothecated through the banking system up to M3/M4. The current ratio is around 30 – so you are looking for a 30trn increase in M3/M4.

        Derivatives don’t add anything to the money supply. The clue is in the name. Derivatives.

        Milton Friedman was writing in 1948. Notice anything funny about that date? Oh yes, the US dollar was still on the gold standard through Bretton woods in those days. Only after the Nixon shock in 1971 did the USD finally become a true fiat currency. Not only that, in those days US federal spending and taxation was very low in comparison to today, and people were worried about the outright deflation and depression of the 1930’s.

        Even then, notice what he says:

        “Another reason sometimes given for issuing interest-bearing securities is that in a period of unemployment it is less deflationary to issue securities than to levy taxes. This is true. But it is still less deflationary to issue money”

        He is saying issuing money (in those days backed by gold held by the FED) is inflationary. Today, that money is a fiat currency and the effect is magnified.

        Going back to 1951 and trying to predict what would have happened if Friedman’s advice had been followed is a straw man argument. It is simply impossible to predict exactly what would have happened – especially, as I say, money in those days was on the gold standard and currencies were pegged through Bretton woods. Today, currencies are mostly free floating and fiat.

        I’ll come back to this point, but first let me ask you this:

        Firstly, you say the government doesn’t need pensioners money (through the government selling bonds). By extension the government shouldn’t need taxation either? You claim that the government can simply print money and spend it, with no ill effects, so why is either debt issuance or taxation necessary?

        Secondly, has overt monetary financing or printing money ever been tried? If so, when? Has it ever been successful?

        Fortunately it is pretty easy to answer the second part of the question – so we can have a guess what would happen to a country that tries it in today’s age – but i’ll leave you to have a crack at it first.

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      • The link between M) and M3/M4 is completely arbitrary. It does not follow, if M0 high > M3/4 high. Not at all.

        Now, in 1948 inflation was an issue, not just deflation. It had been an issue during the war, and was held in check by price controls. So Friedman would have known that.

        Now, please let me know how the money supply expanded in the US after the war, and what happened to the backing of the currency from gold prior to 1971? It would have extended quite significantly, without an increase in gold backing. That is why the US came off the gold standard.

        I said taxation will still be the main source of revenue for government spending, and taxes can also control inflation.

        Has overt money financing been tried. Yes, there is a very lenghty contribution by Andrew Purves just above your letter, which talks about nothing else, other than where it was successfully tried. Guernsey. Before the bankers put a top to it, as I understand it. Because they wanted to earn interest, not because of inflation.

        Another successful issue was the Greenback issued in the American Civil War. It obviously was subject to depreciation, due to inflation (war = inflation) but given the circumstances, a very valid way of state-financing.

        I said that issuing money should be done within strict limits (do you read the stuff I write?) and only about 2-4% of GDP should be financed like that. With a commission to to ensure employment high and inflation low.

        So to say it has not been tried, is complete nonsense, it has been tried even when the gold-standard operated, and it was successful.

        Why do other countries not do it? Because they are all subject to influence by the big banking lobby! See Guernsey, nothing has changed.

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      • @ eurogate101

        Link between M0 and M3 is not arbitrary. It depends on interest rates, regulation and capital adequacy requirements of banks as well as market factors. But as a rule of thumb x30 is a good enough factor to use between M0 and M3 these days.

        Late 46 to mid 48 there was a inflation in the US, caused mostly by the post war rebuild boom, but after that it was low and stable till – guess when – the US started to come off the gold standard.

        Likewise US M0/M1 (they have slightly different definitions in US and UK). It barely moved until, guess what, 1971. M3 in the US really started to increase post the move to the USD being a fiat currency. This shouldn’t be a surprise. Under the Bretton woods agreement/gold standard the base money supply was essentially fixed – only variable through the FED selling or buying gold reserves.

        You misunderstand what actually happened with the Guernsey pound – and by the look of it don’t have a clue about it’s history either. Until 1834 the French livre was the legal tender, and was still in common use till 1870. The Guernsey pound you talk about was set up as a parallel currency. The continued printing of which led the value of them to collapse and the state forced banks to repurchase them to drive their value up again. This didn’t work, and along with the collapse in the value of the French Franc Guernsey made the British pound legal in 1873. The other currencies continued to be used in parallel, with the GGBP at a fixed exchange rate, but the GBP became the dominant currency.

        So no, OMF and printing money didn’t work in Guernsey.

        Either way, if an example from 200 years ago of a tiny economy is the best you can come up with then there really is little hope for you and OMF. As you also say, the civil war greenback experienced serious devaluation and inflation, so not the best example of a success story is it?

        “I said that issuing money should be done within strict limits (do you read the stuff I write?)”

        Yes. You say that 2/3 of the UK’s debt could have been paid off using that. Strict limits indeed.

        “and only about 2-4% of GDP should be financed like that.”

        Seems like you are backtracking heavily now. If there are no negative consequences, why only 2-4% of GDP? Or do you admit that printing money can actually be heavily inflationary whilst devaluing the currency?

        “I said taxation will still be the main source of revenue for government spending, and taxes can also control inflation.”

        Again, if there is no downside, why do we need taxation? Or what happens if the government cannot remove enough money from the economy through taxation to control inflation? After all taxes cannot be more than 100%.

        “So to say it has not been tried, is complete nonsense, it has been tried”

        Yes, yes it has.

        https://en.wikipedia.org/wiki/Hyperinflation#Hyperinflationary_episodes

        All have slightly different circumstances, but the only common factor with all is that the government started printing money.

        “Why do other countries not do it? Because they are all subject to influence by the big banking lobby!”

        Really? Conspiracy theory is the best you can do? Apart from the fact that in the examples above the government, not the “banking lobby” had control of the printing presses. We also have two current real world examples.

        Venezuala has been busy printing money over the last few years to prop up it’s ailing socialist petro economy. With predictable results. in 2002 the VEZ traded at parity to the USD. Today, the official exchange rate is 6.3, but that is meaningless. The black market price for USDs is about 1:600 VEZ. Inflation is around 800% but no-one really knows. And guess what – money supply has increased five-fold since 2012.

        Argentina isn’t in as bad a situation, but the ARS has gone from 4 to the USD in 2010 to (officially) 9.4 now, but unofficially the rate is 16. Inflation is officially 15% – bad enough – but the government is manipulating those figures. A better estimate from various economists is around 28%. And yet again, it’s because they are printing money to pay the bills, dramatically increasing the money supply.

        There is a simple reason printing money or OMF is seen by most as a bad idea. It has never worked. Ever. Politicians lose control, confidence is lost in the economy, currency and inflation rates and catastrophe ensues.

        Ultimately, it is the reminder that there is simply no such thing as a free lunch. You can’t get something for nothing – and printing money is essentially arguing the opposite.

        Might I suggest that before your next hyperbolic post you study some economics and do some real research.

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      • For this German asset tax you have to google Lastenausgleichsgesetz, which is the German name. An “Equalisation of Burden Tax”.

        Tyler

        Not much available about that in English:.

        Here a google translation from wikipedia:

        “This redistribution was carried out by the fact that those to whom considerable wealth had remained (in particular concerned the real estate), a load-balancing tax paid. The amount of that levy was calculated by the amount of assets as at June 21, 1948th The tax was set at 50% of the calculated asset and was in up to 120 quarterly installments, ie spread over 30 years, will be paid into the compensation fund. For this purpose, a property tax, a mortgage income tax and credit income tax were introduced, which were to be paid to the tax authorities. By distributing the burden on many years was only 1.67% per year, so that they could be made from the income value of the assets concerned, without having to attack the assets substance. That was the person concerned as a result of the constant inflation in 1948 to 1978, gradually lighter. From the 1980s, increasingly flowed by general tax revenue into the fund.”

        Its aim was of course to share the cost of the war between the Germans who still had wealth (property, factories), and the ones who had lost everything, mainly by fleeing from the East to Germany just before the end of the war.

        Most importantly, it allowed Germany to have a tax base from which to pay for government expenditure straight away, and was absolutely crucial for the success of the Wirtschaftswunder.

        Then, as far as Argentina is concerned. To stop the inflation would be possible by increasing the interest rate even further, to 30%, or 35%. Until it leads to a smaller rise in the money supply.

        This is, as you say, damaging to the economy (as it was in the UK when that happened in 1979 onwards,) But at the same time VAT rates were increased and income tax lowered. Unemployment completely went out of control, and probaby quadrupled under Thatcher.

        Now, clearly, monetary policy will need to be adjusted with fiscal policy to achieve that ultimate aim to reduce inflation WHILST NOT DAMAGING GROWTH or increasing unemployment , if indeed that is what the Argentinian government wants.

        The comparison with the UK is valid, because the problem is inflation, it does not matter how we got there, how can we get rid of it.

        Like

      • @ eurogate101

        The Lastenausgleichsgesetz was effectively a capital gains tax.

        “Then, as far as Argentina is concerned. To stop the inflation would be possible by increasing the interest rate even further, to 30%, or 35%. Until it leads to a smaller rise in the money supply.”

        Except interest rates have less effect of inflation or the money supply when the government is printing money. Money supply and interest rates become decoupled.

        “The comparison with the UK is valid, because the problem is inflation, it does not matter how we got there, how can we get rid of it.”

        When the inflation is caused by a dramatic increase in the money supply, the only real way of solving the problem is reducing the money supply. Normally and historically by replacing the devalued currency with a new one. So if printing money is the problem, and reducing the money supply is the solution, why would we ever do it in the first place?

        You still haven’t answered why the socialist bastions of Venezuala and Argentina are suffering so badly after printing money? If, as you say, printing money can solve all our ills – why has it been a disaster there – especially when they have control economies.

        Like

    • “Link between M0 and M3 is not arbitrary. It depends on interest rates, regulation and capital adequacy requirements of banks as well as market factors. But as a rule of thumb x30 is a good enough factor to use between M0 and M3 these days.”

      Over time, M0 as a proportion of the money supply has clearly decreased, as we use less cash now then ever. So no correlation between M0 and wider definitions of the money supply.

      “Likewise US M0/M1 (they have slightly different definitions in US and UK). It barely moved until, guess what, 1971.”

      This is complete nonsense. M1 in the Us form 59 to 71 grew 4% a year, after 71 to 84 at 7% a year.

      “So no, OMF and printing money didn’t work in Guernsey.”

      Guernsey issued money and did not have inflation. It says so in the article above by Andrew Purves.. The banks bought the government out, offering them a sum of money, if the Guernsey government stopped issuing notes. Why would the banks have offered to do that?

      “Either way, if an example from 200 years ago of a tiny economy is the best you can come up with then there really is little hope for you and OMF. As you also say, the civil war greenback experienced serious devaluation and inflation, so not the best example of a success story is it?”

      Success for what, the Greenback issuers won the American Civil War. That was the political objective, the “cost” as far as money was concerned, that the money issued lost some of its value over time through inflation. If they had not issued it, perhaps they would have lost the war?

      The point is that governments obviously have other objectives than keeping the value of the currency high, like winning a civil war, in this example.

      “Yes. You say that 2/3 of the UK’s debt could have been paid off using that. Strict limits indeed.”

      No, I do not say that, I say over time since 1951, the UK debt would not have risen to its full value, as 2/3 is only made up of interest.

      “Seems like you are backtracking heavily now. If there are no negative consequences, why only 2-4% of GDP? Or do you admit that printing money can actually be heavily inflationary whilst devaluing the currency?”

      Backtracking? Nonsense, I have always said that there should be strict limits to government financing. That is the same for increasing debt, or issuing money.

      “Again, if there is no downside, why do we need taxation? Or what happens if the government cannot remove enough money from the economy through taxation to control inflation? After all taxes cannot be more than 100%.”

      Taxes are there to control inflation. Taxes cannot be more than 100% of what? 100% of wealth and 100% of income. You are right,

      However, there is no suggestion that they should be much different from what we have now.In fact, if you read my example, they would have beenthe same since 1951. Still, we would only have 1/3 of government debt in the UK. And not more inflation than we had.

      “Apart from the fact that in the examples above the government, not the “banking lobby” had control of the printing presses.”

      Banks make loans, increase the money supply, and are therefore in charge of the “printing press”. That is poorly understood by the public, and by government, which is being told fairy-tales about how issuing money would lead to Venezuela and Argentina.

      “Argentina isn’t in as bad a situation, but the ARS has gone from 4 to the USD in 2010 to (officially) 9.4 now, but unofficially the rate is 16. Inflation is officially 15% – bad enough – but the government is manipulating those figures. A better estimate from various economists is around 28%. And yet again, it’s because they are printing money to pay the bills, dramatically increasing the money supply.”

      DRAMATICALLY increasing its money supply. I suppose that is then not the 2-4% a year of GDP by which I would increase the money supply, according to what I have written above. And they do not have an economic council, whose job it is to keep inflation at a pre-determined level, I suppose, another thing which I propose. So what I propose is much different from Argentina!

      “There is a simple reason printing money or OMF is seen by most as a bad idea. It has never worked. Ever. Politicians lose control, confidence is lost in the economy, currency and inflation rates and catastrophe ensues.”

      As we said before, Greenback were not continually issued, and banks “bought out” the currency issuing power of the Guernsey government.

      Also, tally sticks are not issued any more either, but would still be viable to pay for government expenditure.

      Now, there are reasons for this, there is a financial lobby (that is not a conspiracy theory, just go to Brussels and Washington) who are interested in keeping the status quo. They like interest payments, as it makes them richer. So hence fairy tales about countries where overt monetary financing has been done to excess. While completely ignoring that, for example, at times it has been done in Japan, and stopped again. While it happened in Japan, there was no Hyperinflation. Where is the hyper-inflation in Japan now that it has stopped.

      So Overt Monetary Financing, always within limits, is a good idea.

      Like

      • I’m really getting the feeling that you have never studied economics.

        “Over time, M0 as a proportion of the money supply has clearly decreased, as we use less cash now then ever. So no correlation between M0 and wider definitions of the money supply.”

        You’ve entirely missed the point. M0 as a proportion has decreased. Which means each injection of M0 has a much greater effect on M3. And yet here you are saying we should massively increase M0.

        “This is complete nonsense. M1 in the Us form 59 to 71 grew 4% a year, after 71 to 84 at 7% a year.”

        Yes – till 71 it roughly grew with GDP (which is what you expect) then afterwards, with the fiat currency, it grew a lot faster.

        As for Guernsey, check your history. GGBP was not the only legal tender, and suffered massive devaluation as people realised very quickly the government could simply print more. This is essentially why it had to eventually be pegged then was fairly quickly removed from circulation.

        The civil war greenback also managed to devalue by about 150% in under 3 years.

        “YouTaxes are there to control inflation. Taxes cannot be more than 100% of what? 100% of wealth and 100% of income.”

        Ah, so state confiscation of assets now as well! How very socialist of you.

        “However, there is no suggestion that they should be much different from what we have now.In fact, if you read my example, they would have beenthe same since 1951. Still, we would only have 1/3 of government debt in the UK. And not more inflation than we had.”

        I read your example. It’s childish claptrap. Pure and utter nonsense. It basically amounts to saying that we could have printed loads of money, spent it and paid no interest. With no evidence other than assertion – especially for the inflation bit.

        “DRAMATICALLY increasing its money supply.”

        Lets take 3% of GDP as the amount you would print every year, just for arguments sake. I’ll use rough numbers but the idea will be the same.

        Nominal UK GDP = 2trn
        So OMF = increase in M0 = 60bn

        UK M0 = 72bn

        So you are planning to increase UK M0 by 83% per year.

        Argentina have increase their equivalent by 300% over 5 years.

        So you are actually proposing a larger increase than Argentina.

        “And they do not have an economic council, whose job it is to keep inflation at a pre-determined level, I suppose, another thing which I propose”

        Well, they have a central bank, finance ministry and all the other government trappings we have here in the UK. So how would you control inflation? What mechanisms? Or would you simply do an Argentina and lie about it.

        “So hence fairy tales about countries where overt monetary financing has been done to excess.”

        Every one of those hyperinflations in the link I provided were not fairy tales. They happened because of money printing, and all lead to economic ruin.

        “They like interest payments, as it makes them richer.”

        People normally want a return if they take the risk of investing in something. Frankly, the amazing thing is that people are willing to invest for such LOW returns as government bonds offer.

        “While it happened in Japan, there was no Hyperinflation. Where is the hyper-inflation in Japan now that it has stopped.”

        Erm, OMF didn’t happen in Japan. They just did normal QE – in large amounts (though backed by huge FX reserves). Which is one reason why rates have been so low for so long.

        “So Overt Monetary Financing, always within limits, is a good idea.”

        Because I say it is. Assertion and nothing more. Two weak examples from 150+ years ago and it’s a good idea. No counter for the real world examples we currently have.

        If it is such a good idea, why is it not working in Venezuala and Argentina.

        You basically have no coherent answer – because the reality is that you simply can’t print as much money as you want, spend it, and there be no negative consequences. You can’t get your head around the fact that printing bits of paper doesn’t make us richer, and increasing the supply of something reduces it’s value.

        Back to school for you son.

        Like

      • Tyler,

        1 ) There is no correlation from M0 to the wider money supply, let alone any causal relationship. Where do you get these ideas from? Some kind of cranky monetarist text-book form the 1980s, maybe???

        2) “Ah, so state confiscation of assets now as well! How very socialist of you.”

        Here is a question for you: which country “confiscated” 50% of private assets, and what happened after it decided to do so to the economy?

        3) Japan’s helicopter money – started it – stopped it, no hyperinflation!

        http://articles.latimes.com/1998/nov/09/news/mn-40974

        4) UK spending 3% of of GDP into the Economy, say £60bn a year.

        The government spends about £760bn a year. £60 of this would now not through increased gov. debt, but just through spending, Tell me how this places an additional demand on real resources in the UK econmy, compared to borrowing £60bn? None, surely. No issue with inflation!!!

        5) If Argentian has high inflation, why do they not tax more? What is the government spending in Argentina, and how much is financed (as a %age of GDP) from government spending?

        Just please do not give me any more ear-ache with your M0 obsession. UK M0 increased 5-fold ore more with QE, and we do not have any inflation. There is a danger of DEFLATION!!!

        Like

      • @ Eurogate101

        1. M0 and M3 are linked through the capital and reserve requirements. Do some statistical analysis and you will find M0 and M3 are highly correlated.

        2. Not sure – though I’m sure you will enlighten me. My guess though is that a confiscation of 50% of private assets (not a 50% tax, which is different) led to economic trouble.

        3. Well done. You’ve picked an idea that never happened. That idea never went through parliament.

        4. Oh god you really have no clue do you. 60bn of printed money adds 60bn to M0. Near doubling it in a year. That in itself has been proved time and time again to increase inflation in a highly correlated fashion. Like Argentina. Like Venezuala.

        “Tell me how this places an additional demand on real resources in the UK econmy, compared to borrowing £60bn?”

        And you manage to contradict yourself again. If you are saying that this extra money spent by government can be used to purchase assets, that itself will create demand. Which increases inflation. Economics 101. The fact that you don’t understand this suggests that you have had zero economics training.

        5. “If Argentian has high inflation, why do they not tax more?”

        They tried, and found that there is only so much tax you can actually extract. Which is where MMTers immediately fall down – using tax to control inflation is inelastic.

        “What is the government spending in Argentina, and how much is financed (as a %age of GDP) from government spending?”

        This question is so poorly written that I’m not sure what it actually means. Use your words.

        Argentina are effectively funding about 2.5% of GDP through OMF though. Which is proving enough to crater their economy.

        “Just please do not give me any more ear-ache with your M0 obsession. UK M0 increased 5-fold ore more with QE, and we do not have any inflation. There is a danger of DEFLATION!!!”

        I’m sure you are well onto your economics PhD by now. But yet again you just prove you don’t understand either M0 or QE.

        M0 pre QE = 53.6bn
        M0 today = 73.1bn

        QE = 375bn

        M0 has increased roughly at the same rates as inflation adjusted GDP. Which is what you would expect. QE does not affect M0 in any way.

        Do I have to explain basic financial maths to you, let alone arithmetic?

        I ask again. If OMF/printing money is so effective, why is not working in Venezuala or Argentina?

        Indeed, why has it never worked?

        I don’t think you understand the simple concept of a fiat currency even. Creating more of it DOES NOT make you richer. Indeed, it often makes you poorer.

        Like

      • 1) this correlation M0 with M3 bit, so there is no textbook where I can read up on this, you are making this up?

        2) You said previously this: “M0 is not only the cash in circulation. It is also the operational deposits with the Bank of England.” when I said M0 is cash. So let us go with your definition.

        So that is cash + banks deposits of commercial banks with the Bank of England .

        That was about £70bn (cash) and about £330bn (deposits at BofE), that is about 5 times more than pre 2008 then there was only cash.

        So massive increase in M0 since 2008, result 0 inflation now!

        3) Here is a question for you: which country “confiscated” 50% of private assets, and what happened after it decided to do so to the economy?

        It was of course a tax, to be paid over a 30 year time frame, at 1.67% per year. still no clue?

        4) “Argentina finances 2.5% of its expenditure through money printing. ”

        Where is the source for that? It must be lot more than that. Surely.

        They are also talking about the monetary base, which is of course completely irrelevant. But you probably agree with that nonsense.

        http://panampost.com/belen-marty/2015/07/17/argentina-prints-to-pay-the-bills-inflates-money-supply-to-new-record/

        Here is the Argintinian M3

        http://www.tradingeconomics.com/argentina/money-supply-m3

        Now clearly M3 cannot increase by about 30% i a year unless their is a corresponding increase in bank balance sheetst the bank. So that is the real culprit.

        5) Taxes in Argentina: the SouthAmerican elite does not like taxing the remainder of the elite. That is worse than in the rest of the world. Although nowhere pay the rich and wealthy enough tax.

        That is of course a political choice. Throw a few tax-invaders into jail and the rest would soon pay up.

        When other countries can tax 50% of the wealth of their population, why can’t Argentina?

        Like

      • @ Eurograte101

        1. Any book that explains MV = PQ should give you the basics about money supply and inflation. Or the ECB which did a handy paper on such.

        http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp867.pdf

        Likewise any book which discusses the money multiplier effect should give you a basic view of the correlation between M0 and M3 or equivalents.

        https://en.wikipedia.org/wiki/Money_multiplier

        2. No. Sorry but you are simply wrong here. QE actually acts as a liability on the BoE balance sheet – the bonds purchased are the asset. So there is no increase in M0 from QE, when can be seen by M0 currently being 73bn – as measured by the BoE themselves.

        3. Still not sure what you are getting at here.

        4. Argentina are financing their 2.5% budget deficit through OMF/money printing. Of course the increase in the monetary base is not irrelevant – as the increase in inflation and devaluation of the ARS is showing. As for the increase in broad money supply – see 1. above and look and the money multiplier effect.

        Doesn’t change the fact that Argentina and Venezuala are both printing money and the usual result is occurring – high inflation, currency devaluation and economic hardship. Which rather suggests that printing money is a bad idea.

        5. Tax is indeed a political choice, but however hard you try you can’t increase tax yields past a certain point.

        Taxing 50% of income is one thing, taxing 50% of wealth is something else entirely.

        Like

      • Tyler,

        1) so M) does not cause M3 increase

        2) QE is a liability in the BoE balance sheet, but it is a liablity by the BoE to the commercial banks.

        The commercial banks in the UK still have £315bn of that £375bn as assets in their balance sheets. So that money is really out the in the economy.

        That is the same as if the banks had £315bn of cash lying around. That extra money is therefore part of M0.

        3) SO in case you have been wondering which country taxed 50% of assets over a 30 year time frame. It was of course Germany after the war. They introduced it in 1948.

        What it did to their economy you can see here.

        The economy grew in 30 years by a factor of 15.

        4) Inflation in Argentina is about as high as it was in the UK in the 1970s. The UK did not print any money.

        We know that the budget deficit is 2.5%, but we do not know how much Argentina’s annual government expenditure is financed by money printing. I suggest it is a whole lot more than the 2.5%. Nobody tells us, there are no statistics.

        Also, High interest rates, much higher than inflation, would soon put a stop to Argentina’s high inflation. so it can be controlled, if they wanted to.

        So taxes and high interest rates would quickly bring the inflation in Argentina under control, they have a presidential election later this month. Maybe the next president will do exactly that. That is how high inflation in the UK was brought under control. Taxes and high interest rates – it will always work.

        The fact that Argentian does not do that has nothing to do with the fact that they also spend money into the economy.

        Like

      • @ Eurogate101

        1. No, the whole point of re-hypothecation (the money multiplier) is that M0 does increase M3, the relationship being governed by capital and reserve requirements of banks.

        2. No. I think you don’t understand accounting. Or QE. As I say, M0 as reported by the BoE is 73bn, and QE did not affect it.

        “QE is a liability in the BoE balance sheet, but it is a liablity by the BoE to the commercial banks.”

        You can’t have the liability without the asset. At the BoE cash is the liability, bonds the asset. So no increase in M0.

        “The commercial banks in the UK still have £315bn of that £375bn as assets in their balance sheets. So that money is really out the in the economy.
        That is the same as if the banks had £315bn of cash lying around. That extra money is therefore part of M0.”

        The commercial banks don’t get 375bn richer. They do an asset swap where they get cash from selling bonds. Government bonds are considered risk free – for the bank it’s a cash equivalent. They could lend those bonds out and get cash in return.

        QE works by reducing the yields of government bonds, not by handing cash out to banks for nothing.

        3. You mean the Wirtschaftwunder? Where the Germans *cut* taxes dramatically and enacted currency reform to stop the inflation caused by (guess what) printing the Reichsmark?

        That all said, I’m pretty sure there was no asset tax – so please give me a link to where you read this.

        4. Comparing the UK in the 70s to Argentina is a straw man. You can have high inflation without printing money, but that is not what I am arguing. I am saying that printing money always leads to high inflation. So far in human history, that has been the case.

        We don’t know the exact amount Argentina are printing to fund spending, but we know there is a 2.5% budget deficit and we know they aren’t raising much money from the debt markets. So essentially most of that 2.5% deficit is funded by printing.

        Argentina’s leading interest rate is currently 22.75%. High enough for you?

        The problem with printing money is that high rates and increasing taxation (apart from slowing economic growth down, making economic problems even worse) often fail to control bouts of inflation caused by money printing – as faith in the government’s ability to control the money supply and maintain value in the currency is lost.

        I’m actually getting a bit bored of discussing this with you. You clearly don’t have any experience or background in finance or economics. Nor can you actually manage to stay on topic long enough to argue a point – you just answer questions with questions. When exposed you do a Murphy and resort to rhetoric.

        It’s really very hard to take you seriously. Much like Richard Murphy himself. I’m sure you are very idealistic but pretending there are conspiracy theories and that plans like printing money will definitely work the next time – in the face of all the evidence – is not the way to be taken seriously.

        Like

      • For this German asset tax you have to google Lastenausgleichsgesetz, which is the German name. An “Equalisation of Burden Tax”.

        Tyler

        Not much available about that in English:.

        Here a google translation from wikipedia:

        “This redistribution was carried out by the fact that those to whom considerable wealth had remained (in particular concerned the real estate), a load-balancing tax paid. The amount of that levy was calculated by the amount of assets as at June 21, 1948th The tax was set at 50% of the calculated asset and was in up to 120 quarterly installments, ie spread over 30 years, will be paid into the compensation fund. For this purpose, a property tax, a mortgage income tax and credit income tax were introduced, which were to be paid to the tax authorities. By distributing the burden on many years was only 1.67% per year, so that they could be made from the income value of the assets concerned, without having to attack the assets substance. That was the person concerned as a result of the constant inflation in 1948 to 1978, gradually lighter. From the 1980s, increasingly flowed by general tax revenue into the fund.”

        Its aim was of course to share the cost of the war between the Germans who still had wealth (property, factories), and the ones who had lost everything, mainly by fleeing from the East to Germany just before the end of the war.

        Most importantly, it allowed Germany to have a tax base from which to pay for government expenditure straight away, and was absolutely crucial for the success of the Wirtschaftswunder.

        Then, as far as Argentina is concerned. To stop the inflation would be possible by increasing the interest rate even further, to 30%, or 35%. Until it leads to a smaller rise in the money supply.

        This is, as you say, damaging to the economy (as it was in the UK when that happened in 1979 onwards,) But at the same time VAT rates were increased and income tax lowered. Unemployment completely went out of control, and probaby quadrupled under Thatcher.

        Now, clearly, monetary policy will need to be adjusted with fiscal policy to achieve that ultimate aim to reduce inflation WHILST NOT DAMAGING GROWTH or increasing unemployment , if indeed that is what the Argentinian government wants.

        The comparison with the UK is valid, because the problem is inflation, it does not matter how we got there, how can we get rid of it.

        Like

      • The Lastenausgleich was not a capital gains tax. which would only become payable when a capital gain is realised. It was a straight wealth tax, whetehr the asset was sold or not, each year 1.67% of the value of the asset had to be paid in tax.

        And, as I said Argentina suffers high inflation because its interest rate is too low and it does not tax enough.

        And Venezuela is the same, they do not collect taxes. If they did, they would not have the problem.

        This is the problem with the whole of the South American continent generally. the rich do not tax themselves enough, and rather resort to money printing. They are societies traditionally run for the benefit of the wealthy elite.

        Venezuela is now different, of course, and hoped it could finance its economy through a high oil price. Which has now slumped. What goes on there is difficult to assess. But again, interest rates too low, and taxes too low, if that is sorted, they would be more successful.

        Like

      • @ eurogate101

        It was effectively a tax on capital gains and income. Indeed, for the capital gains side it could actually be pre-paid. It was not a wealth tax in the common sense. Pretty immaterial though, given we are talking about money printing.

        Argentina interest rates are 22.75%. Their budget deficit is proportionally quite small – suggesting that tax revenues are not woefully inadequate. Indeed, they represented about 40% of GDP in 2013.

        The worst of the inflation and currency devaluation started in 2014. When do you think they started monetizing debt?

        That would be 2013.

        Again, printing money has never worked without serious economic damage to the country that has tried it. It’s well known why. So why do you insist it is a good idea?

        Like

      • Ah yes, using Zoe Williams of the Guardian as a reference. You know that she doesn’t have a clue about economics right?

        “Overt monetary financing is a good idea, in limited amounts.”

        No, it isn’t. Every time is has been tried it’s been a disaster. Limited amounts never happens the government of the day can never maintain control over it. You do remember what Einstein said about trying the same thing and expecting different results?

        “There is nothing to lose, it will not increase inflation if real assets are bought with it.”

        There is plenty to lose, and buying real assets with it is the first step to spiralling inflation. It’s the very definition – more fiat currency chasing the same amount of assets.

        Like

  3. Surely many of the people lending to the government are foreign? As Britain needs to import food to feed itself there must always be a ready market for people to want Sterling.
    Is not paying interest a way of ensuring this? If you did not pay interest would Sterling be so easily tradeable? And if it wasn’t tradeable, as I see it Britain starves. Or maybe there are ways of making Sterling desireable without paying interest?
    The US is a big enough place with a relatively small population to be able to lift the drawbridge and survive. The UK is a very small place with a relatively large population so different parameters apply, I’d suggest.

    Like

  4. FX markets should be pretty efficient, so that there is no need to issue debt to another country, if we have a balanced current account.

    So as long as we sell in the UK as much abroad, as we consume, there should not be a need to have foreign currency loans. Exports pay for imports, simplified.

    Like

  5. Agreed but Britain’s not exporting much at the moment is it?
    And in any case since Britain cannot feed itself it is always going to be running to stay still. And has the UK current account ever been in balance (because I don’t think it has)?

    Like

  6. “So I would suggest that while PQE in limited quantities is a great idea going the whole hog is likely to be step too far – at least for the moment…”

    I would agree, unless you can deal with both the current account deficit, as well as the debt which is held overseas (about 25% of total debt of £1.6 trilion), best to it in small amounts. Otherwise speculators could really try to undermine this.

    Like

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