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Brexit: give me a positive effect... XV

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PsB said:
What: macroeconomics, foreign exchange, how to price a currency without "markets", pegs or other props.
Whom: central banks, ministries, and of course the media.
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It's been a hard sell. They're still wedded to incoherent nonsense that was pumped out as standard for a long time. The kind of drivel sold to me as an undergraduate.

I'm sorry you think currency value comes from 'market pegs', it must be horrible having no idea whatsoever.
 
Le Baron said:
Don't be afraid. It was just in their ordinary 2019 manifesto that was plastered all over the gutter press in pejorative terms. How could you have missed it?
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Your appearance on this thread has rendered it interesting. It's a shame that you couldn't resist the temptation.

Le Baron said:
This is a puzzling conclusion to draw after I've spent dozens of pages outlining how there is no borrowing going on (UK gov doesn't borrow the currency it issues every day). It's really important for you to see that when levels of spending are consistent with the income/saving requirements of you, me and Jack the window cleaner, taxation - where and when necessary - is not felt as a burden. The idea of tax/spend as popularly conceived, i.e: government grasping away money from some limited circulation, is equal to one of Aesop's fables, except those fables are useful and probably a better representation of reality.

The 'free market' is not something divorced from government action in a normal monetary economy. So this dichotomy of 'state or market' is illusionary friction. For 'the market' to be even kicked into action you need government to levy a tax, for people in the private sector to need to get the currency to pay it, thereby mobilising them (this is 'mobilising resources) to create goods/services; a good deal of which is brought into the public sphere. This is how a government in such an economy enables the provisioning of a society.
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This strikes me as somewhat singular, though I am a mere tradesman, not an economist.

Without going back through your dozens of pages, if there is no government borrowing, explain to me, briefly if you will, and in layman's terms, what the government does to make up the budget deficit, the shortfall between tax and expenditure? In my limited understanding of things, it issues debt in the form of government bonds, which are 'bought' by pension funds etc, and against which interest is charged back to the government, with volumes in turn currently being bought from those original investors by the BoE using money which it 'creates' in its QE programmes, and upon which a lower rate of interest is charged. I sort of get that that 'creation' of money by the BoE constitutes, in a roundabout way, the issuance of currency by the government, but the QE programmes don't account for all of government bonds.

The annual budget deficit last year was circa £300bn, around 27% of expenditure, against which £22bn of interest was payable. This represents something that even the (not that gutterish) BBC refers to as 'government borrowing'. Accrued government debt, the net public sector deficit, stands at something in excess of £2 trillion, close to 100% of GDP.

I'm interested too in your second analysis, in which you seem to state that the market economy is stimulated by the payment of tax. This seems counterintuitive - I would have thought that the economy was stimulated by the desire to create profit and make money, and that the state represents the element of that profit that is taken as tax, which is then used to provision (elements of) society. It is the desire/need to create profit that 'mobilises resources', not tax. Indeed I would have thought that excessive state intervention could serve to demobilised resources, for example by making it easier for people not to be productive than to be productive.

This is all very interesting, but also something of a bunny hole. My original question related to your interpretation of a 'good' Brexit. I didn't read the right bits of gutter press to have seen the pejorative Corbyn manifesto, but you did mention excessive fiscal rectitude, so you presumably advocate high levels of public spending?
 
Le Baron said:
Ireland isn't funded by pension funds, Ireland's issue funds its pension funds (like all EU countries fund all EU pension funds, the money runs the other way). The rest coming from private personal debt. The Greeks were not especially profligate, they had a clash between running their economy in a way that it required and being led astray by notions of being supplied with Euros (plus the large influx of foreign money coming from Russian private venture capital). In any case as I stated they were running spending at a far lower rate than any of the four horsemen at the top of the EU tree. This is not speculation it is in the EU's own reports.


I'm not 'incorrect'. Ireland has simply become a corporate tax haven. And its bailout from 2008 was the same as all the other bailouts, plus fiscal austerity. There was no special 'Irish magic'. It is now subject to the same fiscal austerity (or currently the illusion favoured by temporary relaxation of the rules) as any EU member save for the tax haven behaviour which is tolerated.


The policies I speak about are not compatible with more centralised EU control. You're not reading what I wrote. It's not mere greed and corruption; don't mistake this for a simple case of 'corrupt markets' behaviour, this is a structural problem way in excess of that.
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Eh I didn't say that Ireland is funded by pension funds. I did mention pension funds but that was in the context of all the heavy borrowing from German banks/wealth funds which would definitely include pensions. This was all piled in to over priced property and loaned to many punters who could not pay it back. Others have covered what I believe to be true also in relation to how the Greeks got into trouble. The rest of your post sorry don't understand your views. It might be because I am not an economist or work in the trading industry etc

Le Baron said:
Ireland is more allied to the Anglo world than other Eurozone members. While the Irish government was suppressing domestic demand through austerity from 2009 on, its major trading partners (such as, Britain, the US and China) were maintaining expansionary fiscal positions, which allowed Ireland to resume growth. It also has many people who moved to other EU countries (it has more foreign corporate influx, due to its tax regime, than FOM people) and so records distorted unemployment figures.


Growth recorded in Ireland has been an illusion (always measured by dubious juggling between GDP/GNP) and is foreign capital imports to the corporations who favour the tax breaks.

There's a lot to say about Ireland and its EU status, but my fingers are tired and people seem to be more content with falling back on orthodox drivel to justify personal political desires. So it's not worth it.
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The UK went through austerity from circa start of 2008 for the same reasons as most others including the now correctly spelt PIIGS. Not sure how that allowed Ireland to resume growth.

The second underlined point?? Ireland has had a huge influx of migrants into Ireland since the start of the euro. It fueled a lot of our growth and the population expanded to nearly 5m now.

Yes we have some migration to the US, Australia and traditionally to the UK and no doubt some of this still goes on. But not how you are presenting it. We had large scale unemployment after the crash but recovered and grew to afaik 2m jobs for the first time sometime prior to covid. So sorry I just understand again the concepts you are presenting.

Ditto the highlighted part. Not sure where you get your info from and what your exposure is to Ireland it is different to mine. No doubt GDP is skewed by reporting of profits by multinationals but we certainly have had high growth rates and increased prosperity over the last 30 years. It is very clear to see if you go back and look at our employment levels and all other economic indicators.

But like others I am struggling with your concepts. When asked to give an example of a country or region where this utopia you paint is happening or at least is on that track you decline to name any.
 
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eternumviti said:
OK, not advocating.

You see the necessity of cultural ties, whilst I understand the necessity as being more for fiscal and transfer, and thus political, union.

As an aside, one of the characteristics of the EU project that I find most distasteful is its quiet annexation of the disparate European cultures.
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There is no "annexation of cultures". That's only happening in your head. Pre covid I had the good fortune to visit Germany, France italy and Ireland. Annexation of cultures? All the same? No. No more than Grimsby is being annexed by London and they are all tur ning into cockney geezers, apples and pears, strike a light, pearly king-alike Laaaandaners.
 
tonerei said:
Eh I didn't say that Ireland is funded by pension funds. I did mention pension funds but that was in the context of all the heavy borrowing from German banks/wealth funds which would definitely include pensions. This was all piled in to over priced property and loaned to many punters who could not pay it back. Others have covered what I believe to be true also in relation to how the Greeks got into trouble. The rest of your post sorry don't understand your views. It might be because I am not an economist or work in the trading industry etc



The UK went through austerity from circa start of 2008 for the same reasons as most others including the now correctly spelt PIIGS. Not sure how that allowed Ireland to resume growth.
The second underlined point?? Ireland has had a huge influx of migrants into Ireland since the start of the euro. It fueled a lot of our growth and the population expanded to nearly 5m now.
Yes we have some migration to the US, Australia and traditionally to the UK and no doubt some of this still goes on. But not how you are presenting it. We had large scale unemployment after the crash but recovered and grew to afaik 2m jobs for the first time sometime prior to covid. So sorry I just understand again the concepts you are presenting.

Ditto the highlighted part. Not sure where you get your info from and what your exposure is to Ireland it is different to mine. No doubt GDP is skewed by reporting of profits by multinationals but we certainly have had high growth rates and increased prosperity over the last 30 years. It is very clear to see if you go back and look at our employment levels and all other economic indicators.

But like other I am struggling with your concepts. When asked to give an example of a country or region where this utopia you paint is happening or at least is on that track you decline to name any.
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I think economics works if a large enough percentage of the population believes in whatever the fashion is.
 
eternumviti said:
My neck of the woods has certainly been annexed by geezers, and their tattoo'd and duck-lipped molls. Its spreading north, be warned.
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I'm not convinced that they could *find* Grimsby. Even if they did they'd probably be hanged, like the poor unfortunate monkey in hartlepool that nobody could understand "so it has to be a Frenchman" .
 
As regards my comment about cultural annexation, I think it's very real, the EU is an instinctive homogeniser. Homogenisation is what it does. However, I also think PsB, you and the others are right - the more the EU tries to homogenise, the more the individual national entities fight back. The EU has, with this as with so many things, overplayed its hand.
 
eternumviti said:
As regards my comment about cultural annexation, I think it's very real, the EU is an instinctive homogeniser. Homogenisation is what it does. However, I also think PsB, you and the others are right - the more the EU tries to homogenise, the more the individual national entities fight back. The EU has, with this as with so many things, overplayed its hand.
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It's not an EU thing, it's a cultural identity thing. We can all remember how TV was going to kill regional accents. It didn't, did it? That's why accents shift from one side of London to the other, either side of Leeds, and dramatically between Barnsley and Sheffield. Mind you, that's Deedars fo' thi.
 
eternumviti said:
Without going back through your dozens of pages, if there is no government borrowing, explain to me, briefly if you will, and in layman's terms, what the government does to make up the budget deficit, the shortfall between tax and expenditure? In my limited understanding of things, it issues debt in the form of government bonds, which are 'bought' by pension funds etc, and against which interest is charged back to the government, with volumes in turn currently being bought from those original investors by the BoE using money which it 'creates' in its QE programmes, and upon which a lower rate of interest is charged. I sort of get that that 'creation' of money by the BoE constitutes, in a roundabout way, the issuance of currency by the government, but the QE programmes don't account for all of government bonds.
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The short answer is: no. But I'll do a longer one. Let's start backwards. QE is the government 'buying up' bonds, so the very reverse of bond sales. (Edit - important addition: to create money to buy bonds then say the government sells bonds to borrow money clearly does not make sense). Bond sales are used as a monetary policy tool as a reserve drain, to remove excess reserves so they don't need to pay interest on the reserves (and so that it meets the overnight bank interest rate). So yes bonds are sold, but not for 'borrowing'. It will make the post overlong if I go through the main three reasons why they are issued, so I'll find where I've said it elsewhere and put a link. What I will say is that they end up being a mere asset swap since the money people use to buy these gilts comes from money loaned from the bank in the first pace.
Back to QE though, the purchase of bonds by the BoE ends up as the swelling of banks reserves. Since monetarist economists actually think banks lend out reserves; that they need them to make loans. Be assured that banks do not like being forced to hold excess reserves, they prefer interest-bearing bonds. But that's what QE is: reserve increases.

But the question was: "what does the government do to make up the budget deficit". The first question is 'what is the deficit?' It's a problem question, not because it can't be answered, but because the answer often leads people astray. A deficit is a government spending more than it taxes. That doesn't mean they failed to get enough tax, therefore they had to somehow to fill a hole. It means they spent more than they destroyed with tax. Only that. Knowing they issue the money they use, this a logical conclusion. To assume they borrow is illogical, since if you had sole power of currency issue, would you borrow that currency? If so, why and from whom?
eternumviti said:
The annual budget deficit last year was circa £300bn, around 27% of expenditure, against which £22bn of interest was payable. This represents something that even the (not that gutterish) BBC refers to as 'government borrowing'. Accrued government debt, the net public sector deficit, stands at something in excess of £2 trillion, close to 100% of GDP.
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Deficit spending is not 'debt'. Debt (bonds) is something government issues by choice. Again they don't borrow for deficit expansion, so there can't possibly be an actual debt. And since the so-called debt is in the money of account anyway the interest payments on it can always be serviced. Always. The usual example is Japan, whose level has been enormous for decades. They never default, because they won't. Compare also pre-Euro Italy whose 'debt' was 20 times higher than Louisiana, but Louisiana 'defaulted'. How? Because it is in a currency union with imposed rules, it can't issue currency or service debt.
eternumviti said:
I'm interested too in your second analysis, in which you seem to state that the market economy is stimulated by the payment of tax. This seems counterintuitive - I would have thought that the economy was stimulated by the desire to create profit and make money, and that the state represents the element of that profit that is taken as tax, which is then used to provision (elements of) society. It is the desire/need to create profit that 'mobilises resources', not tax. Indeed I would have thought that excessive state intervention could serve to demobilised resources, for example by making it easier for people not to be productive than to be productive.
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It certainly is counter-intuitive, because the common intuition (which is actually not intuition but the spread of erroneous theory) is wrong. There is an initial question to consider: why does the the private sector use/accept the government's currency? Because they need it to pay the tax. The idea that the money government issues somehow already exists first in the economy and then the government has to get it back in order to spend it, doesn't even make sense. Here is the very basic order of events:

Government sets legal tax liabilities in the money of account (this initially drives currency acceptance) >
People now owe a tax and are effectively unemployed until they enter into productive labour (in any sense) so they can get the currency to pay the tax (this is resource mobilisation) >
Spending into the economy (this includes money issued as normal loans) >
Productive activity creates goods/services. There is a profit motive to make the effort worthwhile, though a good deal of the production ends up as social product >
The tax is paid. This destroys a portion of spent money.

That is a skeleton outline.
None of that is 'state intervention' as popularly conceived by the right-wing. Their preferred governments in our lifetimes are the ones who have employed use of an unemployment buffer stock as inflation control. And so seem to prefer to have people idle (after creating national unemployment by default).
eternumviti said:
This is all very interesting, but also something of a bunny hole. My original question related to your interpretation of a 'good' Brexit. I didn't read the right bits of gutter press to have seen the pejorative Corbyn manifesto, but you did mention excessive fiscal rectitude, so you presumably advocate high levels of public spending?
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Not 'high levels', but levels that reflect the private domestic sector's desire for income/saving. Obviously things like surpluses, austerity don't achieve that. Can't possibly achieve it.
 
eternumviti said:
As regards my comment about cultural annexation, I think it's very real, the EU is an instinctive homogeniser. Homogenisation is what it does. However, I also think PsB, you and the others are right - the more the EU tries to homogenise, the more the individual national entities fight back. The EU has, with this as with so many things, overplayed its hand.
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I'm sure that as you run a business from Europe you are better placed but that is not how I see it. I've been a regular visitor to France for over 40 years and every local speciality is celebrated, similarly I've found the same in Italy and Spain. I've also found the locals very welcoming and keen to share this enthusiasm, local festivals in Europe are always more fun than the "hot dogs and burgers" on offer here. But, hey, we only like homogeneity if it's crap,
 
There is no greater cultural homogeniser than the Anglosphere. Until we joined the EU, the British media acted as though we were an overseas protectorate of the US. The special relationship this, the special relationship that. British food used to be utter crap til EU citizens came over and scraped standards off the bottom.
 
tonerei said:
Eh I didn't say that Ireland is funded by pension funds. I did mention pension funds but that was in the context of all the heavy borrowing from German banks/wealth funds which would definitely include pensions. This was all piled in to over priced property and loaned to many punters who could not pay it back. Others have covered what I believe to be true also in relation to how the Greeks got into trouble. The rest of your post sorry don't understand your views. It might be because I am not an economist or work in the trading industry etc.
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This is the description of the confused monetary operations at work in the Euro system (and monetarism in general). It's not that I disagree certain things happened, but that the view pumped-out that somehow the governments must live at the behest of 'market funds' is fiction.
tonerei said:
The UK went through austerity from circa start of 2008 for the same reasons as most others including the now correctly spelt PIIGS. Not sure how that allowed Ireland to resume growth.
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Clearly because the UK is a currency issuer which could bail itself out to whatever level it decided without applying to the ECB. Same for the U.S. Both of these grew faster than the Eurozone. China was barely touched by the events of 2008. All of them are the largest trade partners with Ireland and the first two put massive fiscal stimulus packages in place. What has brought Ireland up is not EU monetarism, but post crash deficit stimulus packages, just like the nations such as Portugal.

tonerei said:
The second underlined point?? Ireland has had a huge influx of migrants into Ireland since the start of the euro. It fueled a lot of our growth and the population expanded to nearly 5m now.
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I cut some out but just to visually shorten the post. I will address the points.
No one has asked it and it can't be given because no 'utopia' has been described. I am describing monetary/fiscal operations as they occur at the institutional level and how they are either totally misunderstood (usually by politicians) and/or skewed by ideologues for political reasons and due to a dominant economic ideology since the late 1970s.
Ireland is functionally a tax haven for corporations. It's clear that in 2015 and before when things weren't so rosy that this sole policy is responsible for the increase in companies arriving in Ireland to pay only nominal levels of corporation tax. It also follows the Dutch model of being mercantilist and using that to offset the problem of EU limits of fiscal deficits.
 
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